China's Surplus Venture Capital May Risk Entire Sector, Insiders Warn
Yicai Global
/SOURCE : Yicai
China's Surplus Venture Capital May Risk Entire Sector, Insiders Warn

(Yicai Global) Nov. 14 -- Chinese venture capital has become much more widely available than before, providing a favorable financing environment for startups. But insiders warn that surplus capital and funding for unpromising projects might bring risks to the whole sector.

"China's VC industry has plenty of capital to invest, yet good projects can hardly be found," said Jennifer Zhu Scott, a member of the World Economic Forum's China Council and a founder of investment firm Radian Partners. "As a result, some poor projects can still get investment and, therefore, pose risks for the whole industry, which is not a positive development."

The number of venture capital companies jumped just over 14 percent to 1,775 last year, according to the latest figures. Total capital under management reached CNY665.33 billion (USD97.2 billion), up almost 32 percent. The companies are primarily based in eastern coastal areas such as Jiangsu, Zhejiang and Shanghai as well as in Beijing and Guangdong. Beijing-based VC firms appear to be the most generous ones, pouring in an average investment of CNY57.41 million for each project.

Some experts also warn about a recent trend in venture capital funding, saying that most of the funding goes into specific sectors at the expense of others.

"Most innovative projects in China focus on coming up with new business models, which will inevitably lead to serious homogenization," Zeng Peng, founding partner of Nanfang Chuanggu Investment Management Co., said in an interview with Yicai Global.

The direction of the venture capital investment in China is also gradually shifting towards technological innovation projects such as biomedicine, novel material and the new energy, different from the past tendency of investing in internet startups, Zeng added.

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