China Vc Market Update (090416)

China VC Market Update

iD TechVentures (iDT) April 16, 2009

Table of Content • Top 10 VC, 2008 (by ChinaVentures) • Growth Enterprise Market (GEM) • Macro Economy in China • RMB Investment & Local Stock Market • China VC 10 Years

1

Top 10 VC, 2008 (by ChinaVentures) VC Organization

Score of Exit Case

Score of Exit Value

Score of Weighted ROI

Score of Weighted IRR

Score of Deal Flow Capability

Score of Portfolio Mgmt

Score of Team Stability

Total Score

Ranking in 2007

1

Shenzhen VC

10

4

10

6

9

5

8

7.05

5

2

SAIF

4

10

6

4

10

6

9

5.66

1

3

Legend Capital

6

8

4

2

10

8

10

5.46

2

4

Fortune VC

2

10

8

2

9

7

8

5.36

50

5

iD TechVentures Inc.

4

4

4

6

5

6

10

5.30

20

6

Oriental Fortune

2

2

10

8

4

3

4

5.25

-

7

China Science & Merchants

2

2

10

8

3

3

4

5.15

-

8

Orchid Asia

6

10

4

2

8

8

8

5.07

23

9

IDGVC

2

2

8

2

10

3

9

4.99

3

10

Cowin

6

4

4

8

4

3

4

4.45

-

Ranking

Full report in Chinese: http://events.chinaventure.com.cn/sh2009/cvawards/list_2.html

Top 50 VC, 2008 (by ChinaVentures) Rank 2008

VC

Rank 2007

Rank 2008

VC

Rank 2007

1

Shenzhen VC

5

11

Intel Capital

9

2

SAIF

1

12

Sequoia

4

3

Legend Capital

2

13

SIG Asia

6

4

Fortune VC

50

14

Sino Wisdom

-

5

iD TechVentures

20

15

AsiaVest

27

6

Oriental Fortune Capital

-

16

JAFCO Asia

18

7

China Science & Merchants Investment

-

17

Green Pine Capital

30

8

Orchid Asia

23

18

Morningside

29

9

IDG VC

3

19

Northern Light

16

10

Cowin Capital

-

20

Shenzhen GTJA

-

Top 10 VC, 2008 (by ChinaVentures)

3

Top 50 VC, 2008 (by ChinaVentures) Rank 2008

VC

Rank 2007

Rank 2008

VC

Rank 2007

21

China Renaissance

7

36

Orica Capital

-

22

DCM

41

37

Infotech Pacific

33

23

Fidelity

13

38

Jiuding Capital

-

24

CDH VC

8

39

ZSVC

-

25

NewMargin

10

40

BlueRun

28

26

Tsinghua VC

17

41

SoftBank China

34

27

DT Capital

15

42

CID

45

28

KPCB China

21

43

Govtor

11

29

LIghtSpeed

36

44

Suzhou VC

19

30

Qiming VC

24

45

GGV

32

31

Capital Today

25

46

DFJ Dragon

48

32

GSR

22

47

Matrix

47

33

Chengwei

14

48

Top Bridge

-

34

Silicon Paradise

44

49

CDF Capital

-

35

Walden International

12

50

Huaou

-

Top 10 VC, 2008 (by ChinaVentures)

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Growth Enterprise Market (GEM) •

•

•

After 10 years since the inception of the idea, the Provisional Administrative Measures for Initial Public Offerings and Listing on the GEM (the “Measures”) was finally published on March 30th, and will take effect on May 1. Criteria of listing on GEM: (source: Xinhua, March 31, 2009) – Be profitable for consecutive 2 years with combined profits of at least RMB10 million – Be profitable of at least RMB 5 millions for the most recent year on revenues of at least RMB 50 millions and annual revenue growth rate of at least 30% in recent two years. – Net asset of at least RMB20M – Been in operation for more than 3 years – Innovative business model with potential of high growth rate China Securities Regulatory Commission (CSRC) is still the central authority to approve any IPO on GEM but it will invite more outside experts to review the applicants’ qualification.

Growth Enterprise Market (GEM)

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Growth Enterprise Market (GEM) • The Measures is the first step. There are still a lot of work to do before official launch. GEM still need more related regulations, for example, list of application forms and material required; the methodology of pricing…etc. It also takes time to train underwriters, lawyers, and accounting firm. • If the whole system is ready in May or June, considering that the lead time of examining the application is at least 3 months, the earliest IPO on GEM will be August. CSRC estimated at least 8 companies will be the first pioneer group. • Currently, about 300 companies are qualified and preparing for list on GEM

Growth Enterprise Market (GEM)

6

Growth Enterprise Market (GEM) • In the past, many new companies or start-ups which have very creative business model and high potential to grow cannot go IPO on the main board due to their revenue / profit do not meet the criteria. This situation more or less strangles VC’s interest in these companies and cause the company suffering from capital shortage. • GEM could be a Nasdaq-like market, spiriting up VC community, enterprises, capital market and local investors. • GEM could further improve the onshore divestment and encourage offshore investors get involved in RMB investment. • GEM is just an initial step of a long journey for local VC investors. Before local VC environment further improve, China VC will still be contributed by offshore funding and dominated by foreign VCs.

Growth Enterprise Market (GEM)

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Growth Enterprise Market (GEM) • GEM will NOT make A-share market less attractive or distract capital from A-share. The reasons are: – GEM is more appropriate for SMEs. Qualified companies are not competent on A-share. – A company can raise only about RMB100~300M on GEM. If there are 100 listed companies on GEM, the capital raised is only RMB10 billion to 30 billion, which will be just equal to the capital raised by a big corporation on A-share main board. – The scale of capital-raised on GEM is only 60% of Shenzhen SME – Hence, different stock markets serve different target company. They are not competitors.

Growth Enterprise Market (GEM)

8

Growth Enterprise Market (GEM) •

New GEM launch and future listing still come with potential risks, mainly on following six areas: (Source: http://news.xinhuanet.com/fortune/200904/01/content_11110061.htm )

•

– Operation: These companies are still at expansion stage. It’s business model and profitability are still under test. – Integrity: How real are the information and material disclosed by the company? – Price fluctuation: A company’s scale is smaller so the price is easily manipulated. – Technology: It’s hard to identify the marketability of new technology – “Blind investors”: Investors might create a hype and make GEM become another “bubble” due to not well understand the new technology – Underwriters: The underwriter might beautify an unqualified company to IPO. GEM board is not panacea. In short term, both enterprises and investors may just wait-and-see. GEM’s liquidity, valuation, and case quality will be examined after launch.

Growth Enterprise Market (GEM)

9

Current Macro Economy •

•

Chinese government has a 4-trillion stimulus plan to help the economy. The plan will be fully executed within 2 years. 4 trillions are 16% of China’s total GDP. The stimulus plan covers 6 areas: 1) Infrastructure in rural regions; 2) Overall infrastructure including railway, airport…etc.; 3) Education, health, and other social issues; 4) Environmental protection; 5)Technical renovation; 6) Recovering work in the earthquake areas (source:FJKX (东 南在线 ), March 6, 2009)

•

• •

The government also disclosed revitalization plans for 10 industries including iron & steel, automobile, textile industry, equipment manufacture, ship, electronic information, light industry, petrifaction industry, nonferrous metal, and logistics. Among the 10 industries, equipment manufacture, logistics and electronic information are already VCs’ focuses. The 4-trillion stimulus plan is expected to bring new investment opportunity for VC industry. Macro Economy in China

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Outlook of Macro Economy • China has been forecasted to be the first major economy to recover from the global meltdown. The reasons: (source: China Economics, by Merrill Lynch, 10 Feb. 2009)

– Massive FX reserves – Low debt levels ensure financial institutions have enough capital to support enterprises. – Current account surplus – Economy is mainly driven by domestic demand, instead of external demand: China is still during the process of industrialization, market-oriented, and urbanization. The consumer based is continuously enlarging. Comparing with the U.S., personal consumption still accounts lower percentage and has big potential to become the boost of economy situation. Hence, the impact from contraction of China’s export is limited.

Macro Economy in China

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Outlook of Macro Economy • Some other indicators are showing light at the end of the tunnel. – Shanghai A Share market have been on the rise, from as low as 1800 points last November to 2,439 as of April 7th, 2009. – Export slightly bounced back in March. – PMI in Feb has been in the lifting mode for 3 consecutive months. (source: www.shihua.com.cn (世华财讯))

• In 2009, China could contribute half of world’s growth. Comparing with the U.S., Europe and Japan, China is very strong to survive this cold market. China has confidence to achieve keep 8% GDP growth rate • After the financial crisis, China will emerge as a stronger player in the global economies.

Macro Economy in China

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RMB Onshore Investment • During 2008, US$1.4 billion was invested into RMB deals, up more than 247% from 2007. • New regulation releases the right of approving RMB fund set by join venture of local and foreign VCs from Ministry of Commerce to local provincial authority. • Qualified RMB LPs are still not sufficient on the market. • We expect RMB investment will surpass USD investment in the long run.

RMB Investment & Local Stock Market 13

Local Stock Market • Since Sept 18, 2008, there was no new IPO on A-share and Shenzhen SME board. • VCs see a light of hope of IPO market from the listing of Singyes (iDT’s portfolio) on the main board of HKSE (Zero2IPO 3Weekly, 2009-01-06) • Until March 3, all 273 companies on Shenzhen SME board unveiled their financial performance last year: Approximately 60% have profit growth comparing with 2007, about 30% with lower profit than 2007 and less than 10% is loss.

RMB Investment & Local Stock Market 14

China VC 10 Years (1999-2008) VC Investment CAGR: +25% in investment amount (US$M) + 9% in the number of cases

No. of Inv.

Inv. amount

* Source: Zero2IPO research center China VC 10 Years

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China VC 10 Years (1999-2008) No. of Inv. Cases : 3,176

Cleantech, 163, 5%

Investment Amount: US$15B Not Disclose, 1310, 9%

Not Disclose, 304, 10%

Cleantech, 806, 5% Bio / Health, 987, 7%

Bio / Health, 246, 8%

Broad IT, 1683, 53%

Service, 293, 9%

Traditional, 487, 15%

Service, 1847, 12%

Traditional , 2158, 14%

• After 2006, the investment in broad IT has been decling in terms of number of investment and investment amount • The investment allocation in Broad IT in 2008 was only 38% and 36% in terms of number of investment and investment amount

* Source: Zero2IPO research center China VC 10 Years

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Broad IT, 7905, 53%

China VC 10 Years (1999-2008) Market Value of VC-Sponsored Companies has surpassed US$80B

No. IPO sponsored by VC

Overseas Market

Domestic Market

Market Value of VC Sponsored (US$B) * Source: Zero2IPO research center China VC 10 Years

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China VC 10 Years (1999-2008) Comparison of Fund Raising between Foreign VC and Domestic VC

New Domestic Fund

New Foreign Fund

New Foreign Fund * Source: Zero2IPO research center China VC 10 Years

18

New Domestic Fund

USD Million

Thank You

Contact Window: Hanne Chen Investor Relations email: [email protected] Tel: +886 2 3518 3902

HuiHui-ju Chen Investor Relations email: [email protected] Tel: +886 2 3518 3903 19

Disclaimer: The content contained in this presentation has been prepared based on current information available. These are outcomes dependant on future events, and under no circumstances can they be treated as commitments by iD TechVentures. TechVentures.

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