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US and China Lead Venture Capital Investment Activity in Manufacturing Sector – June 2014

by Joel Coulson

  • 04 Jun 2014
  • PE
  • VC

Preqin Venture Deals Analyst records 457 deals in the global manufacturing space during the period 2007 - 2014 YTD, with an aggregate deal value of $3.1bn. The largest deal during this time is the CNY 629mn PIPE investment in Hunan Boyun New Materials by Hunan Da Boyun Investment and Hunan High Technology Venture Capital in May 2014. 

The countries that had the most venture capital activity within the manufacturing sector were the US (150 deals) and China (119 deals) – these were the only two countries to record over 100 deals in the manufacturing space, and combined represent 59% of all manufacturing deals. When looking at the aggregate deal size, again the US and China are the only two countries to see substantial activity. US aggregate deal value for venture capital investments in manufacturing between 2007 and 2014 YTD is $1.4bn, while China’s is $913mn - collectively they account for 75% of the global aggregate value of manufacturing deals. 

2014 YTD has seen a total of 19 venture capital deals in the manufacturing sector, a figure which seems rather low for almost the midpoint of the year, with an aggregate deal value of $269mn. However, data shows that manufacturing deal activity has in fact been progressively falling year on year since 2011, when it accounted for 81 deals at an aggregate value of $606mn. The number of deals then fell by 14% in 2012, along with a great drop in aggregate value, down to $314mn. This was then followed by another sharp fall of 24% in 2013, and another aggregate value decline to $258mn. A possible reason for this downward trend could be linked to the uncertain economic climate across this period, given the typically positively correlated relationship between the manufacturing sector and the wider economy. With this in mind, looking at the period between January-May 2014 against the same period in previous years, this period in 2014 has the second lowest number of deals at 18 financings (on par with the number of financings in January-May 2013) compared to an average of 24 for this period between 2007 and2012. It is interesting to note, however, that January-May 2014 actually had a far greater aggregate deal value at $269mn vs. an average of $152mn in the first five months of the year between 2007 and 2012, and 333% higher than in January-May 2013. This indicates the potential for this year to counteract the negative trend seen in this part of the venture capital realm. 

The round which has seen the greatest amount of deal activity is Series A, with 46 of such deals completed between 2007 and 2014 YTD at an aggregate value of $257mn. However, Series C has the largest aggregate deal size of any round, $368mn, despite only having 21 completed deals. The round with the largest average deal size however is PIPE, $21mn, presumably due to the characteristic of it typically demanding larger capital amounts. Early stage deals (angel, seed and Series A) have a small presence in this data with 64 deals across all three stages being completed to an aggregate value of $270mn. 

Overall, manufacturing, despite it being used as a key economic indicator, seems to be a mixed bag for venture capital investments, with strong dominance by US and China. The relatively large sizes and the infrastructure in these two countries present strong potential investment opportunities against a backdrop of the traditionally high barriers to entry for the market - possibly discouraging manufacturing start-ups.

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