Tian Xuan, Associate Dean of Tsinghua University's PBC School of Finance, unveils the 2019 China Corporate Venture Capital Development Report on Monday. (Photo provided by Tsinghua University's PBC School of Finance)
China's Corporate Venture Capital (CVC) witnessed rapid growth in 2018, with an investment of 20.3 billion yuan ($3 billion), accounting for about 17% of the total venture capital, according to the 2019 China Corporate Venture Capital Development Report published on Monday in Beijing.
According to the report, China's software-related industries topped the chart in terms of CVC investment frequency. From 2014 to 2018, China's CVC invested 1,164 times in information transmission, software and information technology services, significantly ahead of the manufacturing industry (260 times), which ranked second.
In terms of investment frequency, the top five most active CVCs in China in 2018 were Tencent, Alibaba, JD, Fosun Group and Haier, with 271 times of investments in all. Meanwhile, active CVCs in the United States include Google, Intel and Qualcomm. The top five giants have invested 278 times in all.
It is worth noting that in 2018, five of the top ten active CVCs were non-US companies, of which China alone accounted for three, namely, Fosun, Baidu and Legend Capital.
From the perspective of investment stage, compared to IVCs, China's CVC investments focused more on start-up stage enterprises. From the perspective of the geographical distribution of investments, Beijing is far ahead, accounting for nearly 40% of the total. In terms of investment industry distribution, CVCs in China pay more attention to high-tech industries, including internet, IT, telecommunications, value-added services and entertainment media.
As an innovative form of investment, CVC is a practice where a large firm takes an equity stake in a small but innovative or specialist firm in an attempt to gain a specific competitive advantage. In 2018, investment in CVCs in the US surpassed that of traditional VCs for the first time.
After nearly 40 years of rapid expansion, China’s industrial capital strength has also been greatly improved. More and more industrial giants have brought industrial resources and huge capital into the investment circle. CVCs have become a force that cannot be ignored in China's venture capital market.
Tian Xuan, Associate Dean of Tsinghua University’s PBC School of Finance, said the biggest difference between CVCs and traditional IVCs is that the former gives priority to strategic objectives rather than financial returns.
He pointed out that CVCs have more advantages in terms of capital sources and term designs, and enterprises can have better long-term innovation, higher probability of a successful exit and higher market valuation.
On the global CVC market, the report said total CVC investment reached $53 billion in 2018, with 2,740 investments completed, and the average single transaction was about $26 million. Compared to that of 2017, the investment scale increased by 47% and the number of transactions by 32%.
In terms of CVC geographic distribution, the most active area of CVCs was still in North America, especially in California, where Silicon Valley is the core of innovation. At present, 40% of global CVC investments are found in North America, nearly 40% in Asia and the remaining 20% in Europe. Among them, CVC investments in Asia have risen rapidly in recent years.