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China: The new star in the venture capital market

Beijing: Number 1 in VC Megadeals

China is well on its way to removing the venture capital crown from America. San Francisco, the traditional home of start-up financing, has already lost its leading position in megadeals to Beijing.

The United States of America is considered the home of venture capital (VC). Here, VC in its modern form developed in the 1940s in Boston. When young high-tech companies settled in Silicon Valley in the 1950s, 1960s and 1970s, the business moved to the San Francisco Bay Area. For decades, venture capital was almost exclusively an American phenomenon – even in the mid-1990s, almost all global venture capital investments went to US companies.

However, this monopoly has changed, as the Center for American Entrepreneurship stated in a recent report. The Center examined the growth of VC over the last 15 years. According to the report, there has been an explosion in VC activity in the last five years. The global transaction volume has increased from 8,600 transactions worth $52bn in 2010 to 14,800 transactions worth $171bn in 2017.

China is the new player in the venture capital market

While the US continues to account for the largest share of start-up and venture capital activities, its share of the total global volume has fallen significantly. Whereas in the mid-1990s the share was still more than 95 percent, it fell to more than two-thirds in 2012 and to just over half today.

China gained the most with almost a quarter of global VC investments. India and the United Kingdom account for 9 percent, Germany, France, Israel, Singapore, Sweden and Japan for a further 9 percent.

The recent expansion of global venture capital investment has been driven by a relatively small number of locations – only four cities have accounted for half of the global increase in investment over the last five years. Beijing has a 20.5 percent share, followed by San Francisco (16.2 percent) and New York (7.4 percent). Shanghai ranks fourth with 6.6 percent.

Beijing also ranks first among mega deals ($500m and more), followed by San Francisco, Shanghai and Delhi.

Emerging markets are also catching up in venture capital

The report of the Center for American Entrepreneurship also identifies 30 emerging global start-up hubs. Southeast Asia, Bangkok, Ho Chi Minh City and Manila play an important role. Many of these hubs have experienced rapid growth over the past five years, with capital growth of more than 7,000 percent in Bangkok and more than 2,000 percent in China’s Hangzhou tech hotspot.