【News Release】

Newly-raised Capital Hits US$1.26B in Q3; RMB Funds

Outstripped USD Funds in Amount Raised; Traditional

Investment Scores New High; IPO Exits Increase Sharply

Zero2IPO Research Center Oct. 27 2009 Beijing

In the second half of 2009, world economy continued to pick up amid fluctuation and
uncertainties. Chinese economy took the lead to show signs of stabilizing and recovery. But
on the whole, the pace is prudent. The Zero2IPO Group, a prestigious institution in Chinese
Mainland specializing in VC and PE research, consultation and investment, reported that
China’s VC market has seen stable fundraising in Q3 and the amount raised was on a par
with the previous quarter. VC investment has also climbed up since the beginning of 2009,
and by Q3 the pickup has become obvious. In terms of exit, IPO has again become the
main exit option on VC market. As more than more enterprises to be listed on the Growth
Enterprise Market (GEM) opened subscriptions, VC institutions are embracing a spring for
exits via IPOs.

According to statistics from Zero2IPO Research Center, 18 funds were established by 16

VC institutions at home and abroad in the quarter, among which newly-raised funds
available for investment in Chinese mainland amounted to US$1.26B. Compared with the
previous quarter, the number of newly-raised funds increased by 6.0% and the newly
added capital dwindled by 8.0%. In terms of VC investment, both the number of VC
investment deals and investment amount reported a huge rise from last quarter. VC
institutions invested a disclosed amount of US$785.10M in 122 enterprises. The number of
investment deals was up by 23.0%, and the investment amount increased by 38.0%
quarter-on-quarter. In this quarter, an investment diversification structure has taken shape
as Traditional industry outstripped Broad IT to take the top slot in investment. Beside, late-
stage investment has gradually become a thing of the past, and PIPE has come under the
spotlight instead. With the resumption of IPOs, IPO is likely to become the main exit
channel for VC institutions.

The statistics and conclusion were mainly derived from Zero2IPO Research Center’s
investigation and research on Chinese VC investment and its upcoming China Venture
Capital Annual Report Q3’09. Since 2001, the Center has been researching and ranking
enterprises (including foreign-funded enterprises) on Chinese VC market, producing
quarterly and annual research reports.

VC Fundraising Cautious but Stable; RMB Fundraising Dominates VC

Market
In Q3’09, 18 VC funds were newly raised by 10 domestic, five foreign and one Sino-foreign
joint VC institutions, involving a total amount of US$1.26B. Quarter-on-quarter, the number

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of new funds was up by 6.0%, while the amount raised was down slightly by 8.0%. Year on
year, the number of new funds declined 14.0% but the amount raised jumped a staggering
113.0%.

Due to such favorable factors as the sound economic fundamentals at home, the gradually
complete multi-tier capital market and high price/earnings ratio of the GEM, domestic VC
institutions have staged a quick rise and become a bellwether on domestic VC market.
However, as a result of the small scale of RMB funds, the increase in the amount raised
was not impressive in Q3. On the other hand, foreign LPs whose assets have shrunk have
yet to walk out of the economic grim, hence hindering the VC institutions’ progress in
fundraising. In general, domestic VC fundraising was cautious and stable in Q3’09.

Chart 1 Quarter-on-quarter Comparison of Fundraising by VC institutions between

Q3’08－Q3’09

In Q3, 17 RMB funds pooled in a total of US$1.06B, accounting for 94.4% of the total new
funds and 84.1% of total amount raised. On the one hand, government guidance funds
continued to participate in the fundraising of domestic VC funds; on the other hand, more
foreign VC institutions took part in the fundraising of RMB funds for their long-term
development and to share the IPO feast on the GEM. For example, IDVC Suzhou RMB
Fund and Yinke Detong VC Sub-fund were both established by foreign institutions.

Chart 2 Distribution of Newly-raised Funds by Currency (By No. of New Funds)

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Chart 3 Distribution of Newly-raised Funds by Currency (By Amount Raised, US$M)

VC Investment Climbs Quarter-on-quarter

In Q3’09, 122 Chinese companies secured VC investment and 108 of them disclosed a
total investment amount of US$785.10M. In quarter-on-quarter comparison, the number of
VC investment deals was up by 23, or 23.2%, and the investment value also climbed

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38.2% from US$568.00M to US$785.10M. Year-on-year, the number of investment deals

was down by 12.9% from 140 in Q3’08, and the investment amount also fell by 19.4%.

According to the analysis of Zero2IPO Research Center, on the one hand, due to he
relatively slow recovery of overseas capital market, exit feasibility has yet to improve,
making foreign VC institutions prudent and rational in fundraising and investment; on the
other hand, though RMB funds have outstripped foreign currency-denominated funds in
both number of investment deals and investment amount, their small scale has resulted in
the small rise in investment amount in this quarter. Also as domestic VC market remained
cautious in investment, corporate valuations are still at low levels.

Chart 4 Quarter-on-quarter Comparison of VC Investment Amount and Deals

between Q3'08－Q309

Industry Investment Diversification Takes Shape; Traditional Industry

Scores Record Investment

The industry investment diversification has gradually taken shape on China’s VC market.
After outperforming Broad IT to become the most favored industry by VC institutions for the
first time last quarter, Traditional industry scored new high in both number of investment
deals and investment amount. Broad IT secured second most investment.

Due to a pickup in general VC market, both Traditional and Broad IT secured more than
US$100.00M VC investment. To be specific, 43 Traditional enterprises secured a total of
US$392.52M, representing 35.2% of the total investment deals and 50.0% of the
investment amount. Broad IT fell further behind, with 38 enterprises, or 31.1% of the total,
securing a combined US$133.50M, or 17.0% of the total.

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Chart 5 Industry Breakdown of VC Investment Deals (By No. of Investment Deals）

Chart 6 Industry Breakdown of VC Investment Deals (By Investment Amount,

US$M）

Investment Scale Scattered; Mega Investment Reappears

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87 of the 108 investment deals with disclosed amount involved less than below
US$10.00M, accounting for 80.6% of the total. Ten deals registered an amount between
US$10.00M-US$20.00M, six between US$20.00M-US$30.00M, and five above
US$30.00M. As domestic economy stabilized, the once popular Pre-IPO projects involving
a relatively huge amount again attracted the attention of VC institutions. Besides, the PIPE
projects which are popular with PE funds are also drawing the interest of VC firms due to
their stable development prospects, and projects of this kind usually involved a relatively
huge amount, such as Tsing Capital’s US$30.00M investment in Neo-Neon and Sequoia
Capital’s US$30.00M infusion in American Dairy Inc.

Chart 7 Distribution of Investment Deals and Amount by Scale

IPO Exits Increase Sharply; VC Market Embraces Sound Exit Situation

The facts that Chinese economy took the lead to stabilize, IPOs on the main board market
resumed and 28 enterprises received approval to launch IPOs on the GEM all points to an
upcoming spring for the exit of VC institutions in China. Q3’09 saw 28 exits on Chinese VC
market, among which 20 occurred via IPOs, up from four in Q1 and two in Q2. According to
Zero2IPO Research Center, as more and more companies get approval to launch IPOs on
the GEM in late 2009, more VC institutions will be able to exit via IPO. Chinese VC market
is sure to see a favorable situation for IPO exits.
In terms of exit option, IPO played a major role in this quarter. This is the first time since the
IPO exit channel shrank in 2008 that IPO became the leading player on Chinese VC
market. To be specific, 20 exits were closed via IPO, accounting for 71.4% of the total, six

Note: ① one exit deal refers to one VC institution exiting from one investee. If n VC
institutions exit from one investee, the number of exit deals shall be n.

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via M&A, and two via trade sale, accounting for 21.4% and 7.1% of the total respectively.

By industry, Traditional industry topped its counterparts with nine VC exit deals, accounting
for 32.1% of the total, followed by Broad IT with seven deals, or 25.0% of the total.
Services and Clean-tech each had four exits, or 14.3% of the total. Industry information
was not available for the other four exits deals.

Chart1 8 Distribution of Exits by Option (By No. of Deals)

Chart 9 Industry Breakdown of VC Exits

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Statement on Republication:

The article is publicly released to media by Zero2IPO Group. Please identify the source as
"Zero2IPO China Venture Capital Report Q3 2009". Any questions and suggestions on data
and research, please contact Ms. Leaf Zhang by phone or email:
Tel: +86 10 84580476
Email: Research@zero2ipo.com.cn

If in republication please mail two sample copies to:

Nicole Meng
Rm.1202/03, Tower A, Eagle Run Plaza, No.26, Xiaoyun Road, Chaoyang District, Beijing
100125
Or email the website link of your article to nicolemeng@zero2ipo.com.cn. Thank you.