China Venture Capitalists' Confidence Falls to New Low

Business Wire, Oct 29, 2008

USF Report Confirms Global Economic Crisis Impacts China's VCs

SAN FRANCISCO -- The China Venture Capitalist Confidence Index (Bloomberg symbol: CVCCI) for the third quarter of 2008 registered 3.25 on a 5 point scale, falling from last quarter's measure of 3.54, to the lowest reading in the 3.5 year history of the Index, suggesting that the global economic slowdown are now also straining the confidence that venture capitalists have in the future high-growth entrepreneurial environment in China. This trend is consistent with declining sentiment in Silicon Valley where VC confidence also just marked a multi-year low. Authored by Professor Mark Cannice of the University of San Francisco School of Business and Management and Ling Ding, of MCLD Venture Resources, the current VC Index reading is based on an October 2008 survey of 14 Mainland China and Hong Kong venture capitalists.

Growing caution over the spreading financial crisis and its impact on the venture capital business model were recurring themes among this study's respondents. "In particular, survey respondents were concerned over declining exit opportunities and less committed new capital to venture funds," said Dr. Cannice. Respondent David Zhang of Matrix Partners China indicated, "The global economic depression, especially the decline of the capital markets, will influence the exits of local VC investment in the short term." This is consistent with the Q3 Zero2IPO China Venture Capital Report, which showed a decline in exits of Chinese ventures from 19 transactions in Q3 2008 versus 36 during prior quarter, and 35 transactions in Q3 2007. Marvin Lai of iTM Ventures confirmed, "The slowdown of the world economy today will impact the investment sentiment of private equity firms in China."

However, sentiment was not universally negative. Max Burger-Calderon of Apax praised Chinese entrepreneurs, noting that in a tightening global economy, they focus on building revenues through great products and services. Cannice and Ding expect fewer exit alternatives, scarcer capital commitments and investments in the near term, but believe this current difficult environment will spawn innovative Chinese ventures. In authoring both quarterly VC indexes, Dr. Cannice sees converging trends of VC sentiment across the Pacific, as US VC firms explore high potential Chinese markets. Both Q3 VC Index Reports are available at www.Cannice.net.