China Venture Capital

                    FESTEL CAPITAL

Chemical / Lifescience Related Venture Capital Opportunities in China

Background

VC activities in China are expected to increase significantly during the next years due to the increasing establishment of high tech R&D and production facilities in China, large government investments in universities and research institutes and the wish of many Chinese to found their own company.

As there is no clear picture available on VC activities especially in chemical/lifescience related fields in China, in 2005, FESTEL CAPITAL ran a market study to investigate the current situation and trends as well as the opportunities with regard to VC activities in chemical and lifescience related fields in China.

Summary of the results of the market study

Core Messages

  • VC financing for early-stage ventures is very recent, but with the progress in VC regulation, the improved IP rights protection and the greater emphasis on private sector development the VC industry is becoming more important.
  • It is predicated that VC investments will increase significantly during the next years and it is predicted that China will become the second largest VC market worldwide.
  • Nowadays, global leading investors are establishing independent VC operations in China, whereas in the past, foreign investors only established their business outside of China as off-shore VC operations (mainly in Hongkong and Singapore) in order to invest in China from there.
  • Local expertise is still required and foreign investors often team up with trusted Chinese VC partners as co-investors.
  • The new Chinese government is encouraging and strongly supporting the development of chemicals and lifesciences (such as biomedical, healthcare, pharmaceuticals, new materials, new energy, etc.).
  • The importance of chemical and lifescience technologies is also reflected in the fact that in China there are currently 20 biotech parks located in Beijing, Shanghai, Gunagzhou und Shenzen.
  • In the fields of nanotechnology, polymeric biomaterials for drug release and tissue engineering, block copolymers for self assembly as well as hyper-branched and dendrimeric polymer materials many promising start-up companies are arising from the universities and looking for VC funding.
  • It is predicted that chemical and lifescience opportunities will attract enormous interest in the near future and that now is the right time for foreign investors to participate in chemical and lifescience related VC opportunities.
  • Early engagement of Western investors (industrial companies and financial investors) is necessary in order to gain experience with investments in China and to stake “claims”.
  • There are still significant problems and risks surrounding VC investments, some of which relate to the fact that China is lacking explicit, detailed and specific regulations under economic laws in order to provide legal protection for capital flowing in and out of the market.
  • An exit through IPO remains difficult, even after the SME sub-board opened in Shenzhen in May 2004.

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