Chinese Angels Becoming More Savvy and VC/PE Cooling down in 2012: ZhenFund

ZhenFund, the angel investment fund founded by angel investor Xu Xiaoping and later joined by Sequoia Capital China, unveiled its findings on China’s tech startup ecosystem as of 2012.

There are 309 Chinese angel investors that did at least two deals, making the total to 747 deals, and committed over one million yuan in startup funding in 2012. For 20% of those deals, some of them took more than 50% of the company! ZhenFund, however, saw the strategy declining as Chinese angel investors were becoming more savvy. Mobile Internet, e-commerce and consumer services are still the top areas. 50% of them report returns of 30% and 18% report 200+%.

60% of angels would exit by selling shares to VCs. However, VC/PE market saw 40% – 50% YoY decline in both deals and amount of investments in 2012. The causes include poor performance of Chinese tech stocks on US markets, exit bottleneck, changes in macroeconomic and political climate, and that investors stopped burning money through in hot sectors such as group buy, according to ZhenFund.

Chinese Internet giants, such as Tencent, Baidu and Alibaba, have been more willing to acquire small companies. ZhenFund found that investors, including those big Internet players, still would like to acquire or invest in copycats. In 2012 we saw some copycats falling — such as Tumblr copy Diandian, while Western companies like Evernote landed in China to fight against the copies.

When it comes to startup services, ZhenFund found that many in the U.S. are absent in China (see below).

Local and national governments, in order to boost GDP and corporate taxes, are supporting startups with cash, tax rebate and free office spaces. As we discussed before, we saw more startups moved to or established in second-tier cities such as Chengdu for lower operation costs and local government support.

Also the presentation includes a very nice sum up on the overall China tech scene. The full presentation is definitely worth checking out.