The Shanghai Daily reported yesterday that VC firms in China, invested in 50% more Chinese start-ups in 2011 compared to 2010. According to China Venture, a research firm, 976 firms received investment valued at US$8.95 Billion. In 2011, the average investment size was US$9.17 Million, up 30% from 2010.

However the second half of 2011, saw a slowdown in investment. Key reasons were the world economic news of doom and gloom, a saturated investment market and fierce competition among VCs. In the fourth quarter alone, the number of investments dropped by 43%. The trend is reflected in discussions with many entrepreneurs in Beijing about the difficulty of securing investment recently and in the coming months ahead. They are saying that 2012 is going to be a massive storm and start-ups need to prepare by scaling back costs to survive it.

Unsurprisingly, internet companies made up 8 of the top 10 biggest venture capital investments, including Vancl, a clothing e-commerce website. In 2012, investors will probably more weary of internet companies, after a spate of investigations into accounting fraud, which caused company stocks of Youku and Baidu to crash in September last year. The perception of fraud by Chinese companies has been highlighted by investigations by legal firm, Muddy Waters LLC into Chinese companies such as Focus Media.