China VCs raise $1.2B

More than a year after the Summer Olympics were played in China, investors are still racing to raise money for China-focused funds and put money into Chinese startups.

A total of 18 VC funds raised $1.26 billion during the third quarter, more than double the $592 million raised during the same period last year, according to Chinese research group Zero2IPO.

Perhaps more notable than the continued stability in funds available for Chinese entrepreneurs is the move to Renminbi-denoted funds (Renminbi, a.k.a RMB, the currency of the People’s Republic of China). Investors have been cautious about raising funds in the local currency thanks to rules that have not been clear regarding foreign partners’ ability to eventually exit their investments.

Yet the third quarter was the first time that RMB-denoted funds surpassed U.S. Dollar-denoted funds. Of the $1.26 billion raised, more than 84% were raised in China’s currency, according to Zero2IPO. The currency shift is a sign of the growing power of local firms.

If local investors are gaining confidence, it is well deserved. They’re getting exits thanks, in part, to the country’s vibrant IPO market, which hosted 12 venture-backed offerings during the third quarter, according to Zero2IPO. The companies raised a combined $943.3 million from offerings on the Shenzhen SMEB and HKMB exchanges.

The biggest VC-backed offering was Peak Sports, a clothing manufacturer backed by Sequoia Capital, ProIPO, CCBI, Schenzhen Capital Group and Legend Capital and which raised about $222 million in total funding. Other big offerings include Saturday Shoes, a clothing maker backed by Sure Joyce Ltd., which raised $144.95 million, and Accelink Technologies, an optoelectronics company backed by Changyuan Yingjia, which raised $93.7 million, records show.

Liquidity events like these help keep the financing to startups flowing. On the deals front, VCs put $785.1 million in to 122 investments during the third quarter, representing the third consecutive quarter of increased investment this year. Still, the amount invested is significantly lower than the $973.5 million VCs put to work in 140 deals during the same quarter of 2008, according to Zero2IPO. —Alexander Haislip