THIS YEAR'S HONOREES: Businesses in the education, medical, telecommunications and clean technology fields highlight this year's list of Venture 50, the annual selection of top 50 companies for venture capital investment by Zero2IPO Group (COURTESY OF ZERO2IPO)

Chinese economic growth accelerated in the second quarter of this year as a massive stimulus package paid off. Accordingly, Chinese venture capital (VC) and private equity (PE) markets have shown signs of improvement.

VC and PE investments on the Chinese mainland have embraced an upsurge in both fundraising and investment in the second quarter, according to statistics released on July 16 by Zero2IPO Group, a Beijing-based research company specializing in the research, consultation and investment of VC and PE. Zero2IPO's statistics have also shown some changes in investment structure and strategies: enterprises in traditional businesses, clean technology and services have gained favor with investors.

Meanwhile, the exit channel via domestic listing reopened when initial public offerings (IPOs) on Chinese stock markets were resumed in June after more than nine months' suspension. The launch of China's Growth Enterprise Market (GEM) is around the corner and expectable in October. All these have pushed domestic and overseas VC and PE investors to have candidate enterprises gear up for IPOs.

At the China Venture Capital and Private Equity Semiannual Forum organized by Zero2IPO on July 9-10, about 70 venture capitalists, private equity investors, and company leaders brainstormed issues including how to adapt to the worldwide economic downturn, and find and embrace the future targets of investment.

Opportunities in the crisis

Startup businesses, especially those in technology, media and telecommunications (TMT), were burning cash fast in China's racing economy during 2005-07. The ongoing financial crisis reminds them of the importance of a healthy cash flow.

"It (the cash burn) was not prudent or safe for them, although it looked good," Chuan Thor, Managing Director of Highland Capital Partners, said during a panel discussion on how to manage through the downturn, referring to this cash burn.

A financial crisis like this one would offer the best opportunities for startup companies to expand, since labor costs will return to a reasonable level.

Franki Lai, Chief Financial Officer of Net Movie Ltd., agreed with Thor and advised a breakdown of all their expenses in order to analyze how each expense will affect their cash flow and discriminate production costs that will generate profits directly from operational expenses.

"Easy come, easy go, that was why many a Chinese company overlooked the importance of details and internal control of their cash flow health," Lai said.