Venture Money Flows in India and China

Venture firms are investing more and more in India and Chinaproof that Silicon Valley is no longer the only game in town

In the second quarter of 2008, venture firms invested US$238 million in 17 deals in India, a 120 percent jump from the comparable period a year ago and the second-highest quarterly total on record, according to figures released Thursday from Dow Jones VentureSource. That growth was thanks largely to investments in advertising companies, including US$70 million put into Laqshya Media of Mumbai, an outdoor ad company that runs digital ad networks. The amount of money put into deals was also up because of an increased number of later-stage funding to help companies get acquired or go public.

The deals, according to Jessica Canning, director of global research for Dow Jones VentureSource, highlight two growing trends within India: "One being a growing Interest in advertising plays that capitalize on India's emerging infrastructure and growing Internet usage; the other being an increase in second-round deals."

Investments in China easily eclipsed those in India, but they're also on the rise. That is thanks partly to new China venture funds from U.S. firms including Accel Partners and Matrix Partners.

Last week, VentureSource reported that the amount of venture capital invested in companies in China grew by 85 percent in the first half of 2008, largely because of late-stage investments in Internet companies. Venture firms invested US$2.15 billion in China-based companies in the first six months of the year, up from US$1.16 billion in 2007.

The biggest deals came from Internet companies, including a US$430 million investment in Oak Pacific Interactive, US$57 million in, and US$51 million in Specific to information technology, venture firms invested US$1.1 billion in 42 deals, up from US$553.5 million in 60 deals a year ago.

Still, IT investing in India was down year over year, even though it was the sector drawing the second-highest number of deals. Venture firms put US$33 million in three IT deals, a 55 percent drop from the quarter in the previous year. The overall median deal size of India-based companies has also dropped from US$17 million in 2005 to US$8 million in the first half of 2008.

"While the size of venture deals in the [United States], Europe, and even China continues to climb, venture capitalists have shown some restraint in terms of investments in India, due largely to the risk still associated with this emerging region," Canning said in a statement.

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