-- Wealthy Chinese individuals shun investments in private equity funds due to economic uncertainties, managing director of venture capital fund says.
-- Executive says Chinese firms' accounting scandals affect private equity industry.
-- Executive says due diligence for Chinese start-up firms more intense than in the U.S. SHANGHAI (Dow Jones)
-- Private equity firms will face hurdles in raising money this year because of global economic uncertainties and slower growth in China, a senior executive at a China-based venture capital company said in a recent interview.
Data from Zero2IPO Research show that in 2011, venture capital firms raised US$28 billion for investments in China, more than double the amount raised in 2010.
However, given the U.S. presidential election, euro-zone debt crisis and the upcoming leadership change in China, a repeat of last year's feat will be difficult this year, said Gary Rieschel, founder and managing director of Qiming Weichuang Venture Capital Management (Shanghai) Co., which has more than US$1 billion under management.
"Everyone is a little more nervous," he said, adding that investment enthusiasm is ebbing among high net worth individuals in China, who are a major source of yuan-denominated funds. "China's property market is taking a huge hit. So they don't feel so rich, and don't want to invest in a fund."
Qiming, which was established in 2006 through an alliance between Seattle-based Ignition Partners and other individuals, already manages three dollar-denominated funds and a yuan-denominated fund. It is set to complete raising CNY700 million for a second yuan fund at the end of February, Rieschel said. "I'm happy we don't have to raise more money this year. China is still attractive. If you don't have money, it will be a problem," he said.
However, Rieschel said alleged accounting frauds at U.S.-listed Chinese companies last year are affecting Chinese companies seeking overseas listings. "It's a huge problem...even a good company now really has a hard time in listing in the U.S.," said Rieschel.
"We have seven companies currently in the process of listing--five in China and only two outside China. It's a big change."
Qiming, which focuses on information technology, clean technology and health care, has invested in more than 60 Chinese companies, including Kaixin001, a Chinese equivalent of social networking website Facebook, Vancl, an online fashion apparel retailer, and Dianping.com, a dining and lifestyle website.
Due diligence on Chinese companies is "much more intense and concentrated than it would be in the U.S.", said Rieschel, who also founded Mobius Venture Capital, which focuses on Internet start-ups in the U.S.
"For several times in China, we looked at two years of cash receipts (of a company), and we've added them and created our own audit," he said, adding QIMING USAually invests in start-up companies.
-Rose Yu contributed to this article, Dow Jones Newswires; 8621 6120-1200; rose.yu@dowjones.com
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