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This MoneyTreeTM China Telecommunications, Media and Technology (TMT) Report for Q1/Q2 2017 includes information on private equity and venture capital (PE/VC)investment in the TMT industry for 2017, 2016, 2015, and 2014.

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PricewaterhouseCoopers Zhong Tian LLP

MoneyTreeTM China TMT ReportQ1/Q2 2017Data source: Zero2IPO Research

Contents

1. Overview 1

2. PE/VC investments in the TMT industry 2

TMT industry investments compared with all industries 2

Investments by quarter 5

Investments by sub-sector 7

First-round funding compared with follow-on funding 11

Investments by stage of development 13

Investments by region 16

3. PE/VC exits in the TMT industry 17

Exits by quarter 17

Exits by type 18

Exits by sub-sector 20

4. Methodology and definitions 21

5. Contacts 24

1 MoneyTreeTM China TMT Report

1. Overview

In the first half (H1) of 2017, the China TMT industry experienced one high point after another with bicycle sharing becoming popular, social gaming continuing to expand, and short video gaining momentum. After the slight drop in the second half (H2) of 2016, private equity and venture capital (PE/VC) investments in the TMT industry rebounded significantly in value and volume in H1 2017. Significant financing transactions of Unicorn companies took place again in H1 of 2017.

In H1 2017, the number of deals in the TMT industry hit a record six- month high since we began tracking the data in 2014, validating investors’ belief that TMT is the most active among all sectors in China. The TMT industry accounted for more than half of overall industry investment value in H1 2017. The total TMT deal value in H1 2017 increased over H2 2016, and was second only to the all-time high recorded in H1 2016. By and large, first-round investments accounted for the majority of investments in the TMT industry in H1 2017, with the average value of a single deal increasing slightly over H2 2016.

H1 2017 witnessed 49 investments each valued at more than US$100 million, remaining at the high end since 2014. The total amount of such investments in H1 2017 rose approximately by 50% over H2 2016 with the biggest investment in a Unicorn valuing US$5.5 billion, illustrating that leading enterprises with stable business performance in sub-sectors still attract great attention in the capital market.

Wilson Chow

PwC GlobalTMT Leader

Jianbin Gao

PwC ChinaTMT Leader

First-round investments in H1 2017 represented more than 50% of the total with the deal value of first-round investments rising slightly over H2 2016. From this we could say that the further promotion of the “mass entrepreneurship and innovation” fixes some investors’ eyes on innovation and entrepreneurship projects. Seen from historical data since 2014, first-round investments almost bottomed in H1 2017 in both number and value due to investors’ conservative attitude towards innovation and entrepreneurship projects featuring mediocre quality and high risk. On the one hand, great innovation and entrepreneurship projects are of only limited number; on the other hand, investors have become more prudent when assessing the prospects of innovation and entrepreneurship projects that have been sought after for quite a while before, and they now tend to invest in new promising projects or those that have cut a figure in the market.

Internet and Mobile Internet remained the most attractive sub-sector in TMT. With sharing services penetrating into everyone’s daily life and short videos and social platforms increasing in popularity, Internet and Mobile Internet attracted heavy investments. Entertainment and Media grew steadily. E-Sports, video production and some other sub-sectors attracted extensive attention due to the constant increasing entertainment spendings.

In H1 2017, the IPO remained the principal method of capital exit from the TMT industry due to the vibrant

A-share market and a faster IPO review process. However, the proportion of exits through IPO in H1 2017 was lower than in H2 2016. Lots of enterprises with new business models emerge in the TMT industry in recent years. While, these new business models confront great challenges from the strict regulations in the domestic market and their own profitability issues, which increases the difficulty of IPO exits for the investments in such entities. Listing IPOs on Chinese exchanges continued as the most common approach in H1 2017, especially on China Growth Enterprise Market because the review process is quite short.

In H1 2017, the TMT industry grew steadily while also struggling from fast changing market and customer requirements. The need for larger amounts of capital also raised investment risks. This report brings you the details of the PE/VC investments and exits in the TMT industry and its four major sub-sectors for H1 2017, serving as an update on the key trends and trajectories shaping TMT industry investments. We welcome the opportunity to discuss the implications of this report with you, and encourage you to contact us with any queries.

MoneyTreeTM China TMT Report 2

2. PE/VC investments in the TMT industry

In H1 2017, the total value of all industry investment rose from H2 2016, with deal value rebounding to its second highest level since we began tracking the data in 2014. The highest on record was in H1 2016. The first half of each year has always been higher than the second half and H1 2017 kept this trend.

In H1 2017, there were over 4,300 deals - was less than H2 2016, but still kept at a high level. TMT accounted for 54% of total deal value and 36% of total deal volume for overall industry investments.

TMT industry investments compared with all industries

Overall PE/VC investments in China picked up significantly in H1 2017 over H2 2016. Total deal value in Q1 2017 amounted to US$ 31.33 billion, second only to Q2 2016 since we began tracking in 2014. Investors were more prudent in Q2 2017 than in Q1 2017, but their confidence in the TMT industry remained high.

The TMT deal value in a single quarter accounted for more than half of overall industry investment. TMT deal value in Q2 2017 equaled Q1 2017 and remained at a histrocial high level, which accounted for 60% of overall industry investment. The largest single value of any deal in H1 2017 was US$5.5 billion, a record high. Leading enterprises with stable business performance in sub-sectors still attract great attention in the capital market.

PwC Viewpoints

By quarter:

• After a decrease in Q4 2016, total TMT deal value in Q1 2017 nearly doubled over Q4 2016, to US$ 15.37 billion, 49% of overall industry investment. In Q2 2017, total TMT deal value remained stable at US$15.38 billion, accounting for 60% of overall industry investment.

• Total TMT deal volume rebounded to the high level in Q1 2017, accounting for 45% of overall industry investment, but fell back in Q2 2017, accounting for 27% of overall industry investment.


In Q1 2017, there were 2,091 PE/VC investments with total value of US$31.33 billion. Compared to Q4 2016, total deal volume fell 44% and total deal value increased 13% in Q1 2017.

Overall PE/VC investments

In Q2 2017, there were 2,302 PE/VC Investments with total value of US$ 25.55 billion. Compared to Q1 2017, total deal volume rose 10% and total deal value decreased 18% in Q2 2017.

US$m

PE/VC funding in TMT industryPE/VC funding in all industries

$11,230

$18,584

$24,176 $25,632

$15,325

$21,104

$41,250

$20,366

$27,742$31,328

$25,551

$16,084

$5,137

$15,383

0

10,000

20,000

30,000

40,000

50,000

$3,865

$8,577 $8,957$13,289

$5,723

$13,936

$20,051$17,109

$7,913

$15,371

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

Figure 1: Comparison of total PE/VC investments and TMT investments - Q3 2014 - Q2 2017 (Deal value)

Overall PE/VC investments

PE/VCfunding in all industries

Q1’17

31.33

Q1’17

2,091

2017Q1vs2016Q4

2017Q1vs2016Q4 Q2vsQ1

13%

-44%

-18%

10%

US$ billionQ2’17

25.55

Q2’17

2,302PE/VCdealvolume in all industries

Q2vsQ1


In Q1 2017, there were 951 PE/VC investments in TMT, accounting for 45% of PE/VC investments in all industries in the quarter, and up 73% from Q4 2016. The Q1 2017 deal value was US$ 15.37 billion, up 94% from Q4 2016, and accounted for 49% of the Q1 overall PE/VC investments.

PE/VC investments in the TMT industry

In Q2 2017, there were 631 PE/VC investments in TMT, accounting for 27% of PE/VC investments in all industries in the quarter, and down 34% from Q1 2017. The Q2 2017 deal value was US$15.38 billion, about the same as Q1, and 60% of the Q2 overall PE/VC investments.

PE/VC deal volume in the TMT industryPE/VC deal volume in all industries

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

400

1,000

1,500

2,000

2,500

3,000

3,500

4,000

618 593

1,814

2,486 2,379

1,242 1,401

2,075

1,927

3,721

2,091

2,302

466 429

716 577954

481717 634

927551

951631

Figure 2: Comparison of total PE/VC investments and TMT investments - Q3 2014-Q2 2017 (Deal volume)

PE/VC investments in the TMT industry

Q1’17

15.37

Q1’17

951

2017Q1vs2016Q4

2017Q1vs2016Q4

Q2vsQ1

Q2vsQ1

94%

49%

60%

45% 27%

73%

0%

-34%

Q2’17

15.38

Q2

Q2Q1

Q1

Q2’17

631

US$ billion

PE/VCfunding

PE/VCfunding in all industries

PE/VCdealvolume

PE/VCdealvolume in all industries


Total deal value and deal volume rose in Q1 2017

In Q1, TMT deal value and deal volume rose sharply over the previous quarter with the average single-deal value rising by 21% quarter over quarter. The number of investments valued at more than US$100 million reached 27, compared to 19 in Q4 2016, and second only to Q3 2016 (33), the highest since we began tracking this data in 2014. The total value of investments valued at more than US$100 million each was US$11.20 billion in Q1, 73% of overall TMT investment. The highest single-deal value was US$ 1.78 billion.

Investments by quarter

In Q2 2017, deal volume declined, but the total deal value of investments valued at more than US$100 million each set a record

In Q2, TMT deal volume declined by 34% from Q1, but deal value was almost unchanged, with the average deal value rising by 36% quarter over quarter. The number of investments valued at more than US$100 million was 22, and the total value of investments valued at more than US$100 million each was US$11.16 billion in Q2, 73% of overall TMT investment. A sharing commuting service company received US$5.5 billion, the highest single-deal value and a record since we began tracking this data in 2014.


US$m Deal volume

Deal value Deal volume

0

5,000

10,000

15,000

20,000

25,000

400

600

800

1,000

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

$3,865$5,137

$8,577 $8,957

$13,289

$5,723

$13,936

$20,051

$17,109

$7,913

$15,371 $15,383

466429

716

577

954

481

717

634

927

551

951

631

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’160

5

10

15

20

25

30

35

79

1920

21

11

2223

33

19

27

22

Figure 3: TMT investments by quarter - Q3 2014 - Q2 2017

Figure 4: Volume of TMT investments with single value over US$100 million - Q3 2014-Q2 2017

After the “capital winter ” in H2 2016, deal value and volume in the TMT industry rebounded in H1 2017 with deal volume rising to 1,582, a new half-year record. Clearly, investors continue to place their confidence in the TMT industry. The total value of single investments valued at more than US$100 million each in H1 2017 rose 50% over H2 2016, 70% of overall TMT investment, and the highest single-deal value since 2014 occurred in the period. All these lead to one conclusion: Unicorns with stable business performance in sub-sectors are quite attractive to the market and will have their business and value promoted with the constant inflow of capital.

There were 1,500 individual investments valued at less than US$100 million each in H1 2017 with the total deal value of these investments more than US$ 4.0 billion for each of the quarters. Investors are still seeking the next Unicorn and the polarization of market investment will remain for quite a while.

PwC Viewpoints


The TMT sub-sectors are Technology, Internet and Mobile Internet, Telecommunications, and Entertainment and Media. Mobile Internet has been included in Internet since 2017 as Internet and Mobile Internet. We updated investment data by sector in 2016 based on this new classification.

Internet and Mobile Internet: Internet and Mobile Internet was the hottest investment sector in the TMT industry in H1 2017. Deal value totaled US$ 21.31 billion, up 11% over H2 2016. Deal volume declined by 21% from H2 2016, but single-deal value rose compared to H2 2016. H1 2017 saw 33 investments valued at more than US$100 million each, including 3 valued at more than US$ 1 billion each. Investment in a sharing commuting service platform marked the highest single-deal value at US$ 5.5 billion.

Technology: Deal value and volume in Technology were second only to Internet and Mobile Internet. In H1 2017, deal volume and deal value increased by 52% and 56% respectively over H2 2016. Deal volume was 346 and deal value was US$ 4.07 billion in Q1 2017, both historical highs for the sub-sector since 2014. Deal value fell to US$ 2.60

Investments by sub-sector

billion in Q2 2017, but deal volume stood still at a high level of 227 deals. H1 2017 had 12 investments valued at more than US$100 million each, with the highest single-deal value at US$ 1.78 billion.

Telecommunications: In H1 2017, deal value rose sharply by 411% over H2 2016 to US$ 942 million, and deal volume increased by 139% over H2 2016. The single- deal value increased by 200% over H2 2016 with the highest amounting to US$ 608 million.

Entertainment and Media: Deal value amounted to US$ 1.83 billion in H1 2017, a 40% increase over H2 2016. Deal volume in H1 2017 grew to 237, a 45% increase over H2 2016. Volume in Q1 stood at 146, the highest since 2014. As there was no significant investment in H1 2017, average-single-deal value in both Q1 and Q2 remained stable. H1 2017 had only three investments valued at more than US$100 million each, ranging in value from US$ 100 million to US$ 160 million.

Among the 27 investments valued at more than US$100 million each in Q1 2017, 67% were in Internet and Mobile Internet, 22% were in Technology, 7% were in Entertainment and Media, and 4% were in Telecommunications.

Among the 22 investments valued at more than US$100 million each in Q2 2017, 68% were in Internet and Mobile Internet, 27% were in Technology, and 5% were in Entertainment and Media.

Figure 5: Deal value comparison in TMT sub-sectors - Q3 2014-Q2 2017

US$m

Entertainment and MediaTelecommunic- ationsInternet and Mobile InternetTechnology

0

5,000

10,000

15,000

20,000

25,000

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

$3,865$5,137

$8,577 $8,957

$13,288

$5,718

$13,936

$20,051

$17,109

$7,913

$15,371 $15,383


Figure 6: Deal volume comparison of TMT sectors - Q3 2014-Q2 2017

TechnologyInternet and Mobile InternetTelecommunications Entertainment and Media

0

100

200

300

400

500

600

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

9478

119

125

269

154 136117

224

153

346

227

245228

370316

487

239

507

435

585

335

434

295

112 113

207

105152

61

2415 10 8

25 1815 10 20 31 45

2650

67

108

55

146

91

A great number of Unicorns received financing in H1 2017, arousing enthusiasm in investors and increasing both deal value and deal volume. Internet and Mobile Internet remained the most attractive sub-sector in TMT, driven by trends in sharing services penetrating everyone’s daily lives, and short videos and social platforms increasingly popular. Entertainment and Media growth was steady. As video production enterprises attracted extensive investments with continued growth in consumption in entertainment. E- sports also became popular, and with the rapid development of games on mobile devices, investors were also draw to companies undertaking game live, game related products, etc.

PwC Viewpoints

Figure 7: Deal volume in TMT sectors - Q1 2017

Figure 8: Deal value in TMT sectors - Q1 2017 (US$m)

Q1 2017

Total deal volume in the TMT industry reached 951 deals, with a total investment value of US$ 15.37 billion.

Deal value by sub-sectors

Internet and Mobile Internet: US$ 9.57 billion, 62% of the total

Technology: US$ 4.07 billion, 26% of the total

Entertainment and Media: US$ 1.03 billion, 7% of the total

Telecommunications: US$ 0.69 billion, 5% of the total

QoQ comparison between Q1 2017 and Q4 2016

Deal volume

Dealvalue

Technology 126% 275%

Internet and Mobile Internet

30% 51%

Telecommunications 213% 605%

Entertainment and Media

165% 159%

Deal volume by sub-sectors

Internet and Mobile Internet: 434 deals, 46% of the total

Technology: 346 deals, 36% of the total

Entertainment and Media: 146 deals, 15% of the total

Telecommunications: 25 deals, 3% of the total

Internet and Mobile Internet TechnologyEntertainment and Media Telecommunications

14615%

253%

43446%

34636%


$6895%

$9,57462%

$4,07426%

$1,0347%

MoneyTreeTM China TMT Report9

Figure 9: Deal volume in TMT sectors - Q2 2017

Figure 10: Deal value in TMT sectors - Q2 2017 (US$m)

Q2 2017

Total deal volume for the TMT industry reached 631 deals, with a total investment value of US$ 15.38 billion.

Deal value by sub-sectors

Internet and Mobile Internet: US$ 11.73 billion, 76% of the total

Technology: US$ 2.60 billion, 17% of the total

Entertainment and Media: US$ 0.80 billion, 5% of the total

Telecommunications: US$ 0.25 billion, 2% of the total


Deal volume

Dealvalue

Technology -34% -36%


-32% 23%

Telecommunications -28% -63%


-38% -23%

Deal volume by sub-sectors





Internet and Mobile Internet TechnologyEntertainment and MediaTelecommunications

183%

29547%

22736%

9114%


$7985%

$2532%

$11,73376%

$2,59917%



Q1 2017

A total of 481 enterprises in the TMT industry received first-round funding, 52% of disclosed investment volume in the TMT industry in Q1 2017, up 6 percentage points over Q4 2016. Deal value of first-round funding was US$2.04 billion, 16% of the total deal value in TMT and up 3 percentage points over Q4 2016.

First-round funding compared with follow-on funding

Figure 11: TMT follow-on funding compared with first-round funding – Q3 2014-Q2 2017

Follow-on fundingFirst-round funding

0

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

67%63% 61% 58%

78%73%

65%60% 62%

46%52%

56%PE/VC investments in the TMT industry

Deal value(The number of rounds disclosed)

(The number of rounds disclosed)

Q1’17 First-round funding

2.04 Total deal value

12.79

Q1’17

First-round funding 481 Total deal value 919

16%

52%

15%

56%

US$ billionQ2’17 First-round funding

2.31 Total deal value

15.37

Q2’17

First-round funding 352 Total deal value

626

Deal volume

Q2 2017

A total of 352 enterprises in the TMT industry received first-round funding, 56% of disclosed investment volume in the TMT industry in Q2 2017, up 4 percentage points over Q1 2017. Deal value of first-round funding was US$2.31 billion, 15% of the total deal value in TMT and down 1 percentage point from Q1 2017.


Q1 2017

Enterprises receiving first-round funding, by sub-sector:

Internet and Mobile Internet:227 enterprises, with US$ 1.08 billion in total funding;

Technology:169 enterprises, with US$ 0.76 billion in total funding;

Entertainment and Media:84 enterprises, with US$ 0.19 billion in total funding;

Telecommunications:1 enterprise, with US$ 0.004 billion in total funding;

For first-round funding, 302 enterprises were at the early stage, accounting for 63%; 109 enterprises were at the expansion stage, accounting for 23%, and 70 enterprises were at the late stage, accounting for 14%.

Q2 2017

Enterprises receiving first-round funding by sector:

Internet and Mobile Internet:

193 enterprises, with US$ 1.12 billion in total funding;

Technology:


Entertainment and Media:


Telecommunications:


For first-round funding, 245 enterprises were at the early stage, accounting for 70%; 87 enterprises were at the expansion stage, accounting for 25%, and 20 enterprises were at the late stage, accounting for 5%.

Q1 2017

First-round funding (US$)

Number of enterprises

<= 100M 185

1M-5M 224

>5M-10M 43

>10M 29

Q2 2017

First-round funding (US$)

Number of enterprises

<= 1M 104

1M-5M 183

>5M-10M 27

>10M 38

1691

227

84

193106

251

After hitting bottom in Q4 2016, first-round funding rebounded in H1 2017 to represent more than 50% of the total with deal value rising slightly over H2 2016. With the further developement of the government policy on “mass entrepreneurship and innovation”, new innovation and entrepreneurship projects attract attention of certain investors. While, telling from the historical data since 2014, first-round investments were at a low level in 2017 in terms of both volume and value due to investors’ conservative attitude towards such projects considering their low project quality and high risk of investment failure. On the one hand, the number of good innovation and entrepreneurship projects is limited; on the other hand, investors are more prudent when assessing the prospects of such projects after the great attention on such kind of projects a while ago. They now tend to invest in the new projects with promising future that can be expected and the ones that proved to be successful in the market. Internet is the main battle field of the Chinese entrepreneurs. In H1 2017, Internet and Mobile Internet took the lead in both deal value and volume of first round funding in all sub-sectors. For the other sub-sectors, Technology soared a lot and Entertainment and Media also began to take off. As the increase in subscriber number slows down, investors are now seeking the next potential high growth sub-sector in the TMT industry.

PwC Viewpoints


Investments by stage of development

Figure 12 : TMT investments by stage of development - Q3 2014-Q2 2017 (Deal value)

Figure 13: TMT investments by stage of development - Q3 2014-Q2 2017 (Deal volume)

Early stage - both deal value and volume declined in H1 2017

Among the four investment stages, the deal volume for early-stage accounted for less than 50% of the total, down 17% from H2 2016. Deal value also declined dramatically by 49% over H2 2016. H1 2017 had one investment valued at more than US$500 million . Specifically, US$600 million to a bicycle sharing company.

Expansion stage - deal value for maintained at a high level in H1, and six-month deal volume set a new record

Deal value for expansion-stage investments hit a historic high in H1 2017 due to one Unicorn investment valued at US$5.5 billion in Q2. H1 2017 saw 542 investments, accounting for more than 30% of the total, the highest level since 2014.

Late stage - deal value and volume shot up in H1 2017

Deal value in H1 2017 rose 160% over H2 2016, when a renowned online-to-offline (O2O) e-commerce platform attracted US$1.1 billion in Q1. In H1 2017, deal volume of late stage investments rose by 112% over H2 2016. Q1 2017 alone had 187 investments, 20% of the total and a historic high since 2014.

PIPE - investments in PIPE maintained at a high level in Q1 but slumped in Q2

Deal value and volume remained at high levels in Q1, but fell sharply in Q2. Q1 2017 saw 15 investments in PIPE with total deal value reaching about US$4 billion, boosted by 5 investments valued at more than US$100 million each, including an investment of US$ 1.78 billion in a technology-oriented auto company.

百万美元

Early stage Late stageExpansion stage PIPE

0

5,000

10,000

15,000

20,000

25,000

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

$3,865$5,137

$8,577$8,957

$13,289

$5,723

$13,936

$20,051

$17,109

$7,913

$15,371 $15,383

Early stage Expansion stage Late stage PIPE

0

100

200

300

400

500

600

700

800

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

314 312

544

367

603

272

477

371

598

280

417

311

12292

129 133

232

119149

181231 193

329

213

21 17 29 62109

65 75 57 62 73

187

99

6 5 4 12 10 25 16 25 36 5 15 7


Q1 2017

Total deal volume in the TMT industry was 951 deals, with a total deal value of US$ 15.37 billion.

Deal volume by stage of development:

Early stage: 417 deals, 44% of the total

Expansion stage: 329 deals, 35% of the total

Late stage: 187 deals, 20% of the total

PIPE: 15 deals, 1% of the total


Deal volume Deal value

Early stage

49% -9%

Expansion stage

70% 107%

Late stage 156% 135%

PIPE 200% 404%

Early stageExpansion stage Late stagePIPE

151%




41744%

32935%

18720%

9916%

31149%

$1,96913%

$9,55162%

$3,43422%

21334%

71%

$4283%

3,80625%

5,89138%

2,79618%

2,87019%


151%




41744%

32935%

18720%

9916%

31149%

$1,96913%

$9,55162%

$3,43422%

21334%

71%

$4283%

3,80625%

5,89138%

2,79618%

2,87019%

Figure 14: Deal volume in TMT industry by stage of development - Q1 2017

Figure 15: Deal value in TMT industry by stage of development - Q1 2017 (US$m)

Deal value by stage of development:

Early stage: US$ 2.80 billion, 18% of the total

Expansion stage: US$ 5.89 billion, 38% of the total

Late stage: US$ 2.87 billion, 19% of the total

PIPE: US$ 3.81 billion, 25% of the total


Q2 2017

Total deal volume in the TMT industry was 631 deals, with a total deal value of US$ 15.38 billion.

Deal volume by stage of development:

Early stage: 311 deals, 49% of the total

Expansion stage: 213 deals, 34% of the total

Late stage: 99 deals, 16% of the total

PIPE: 7 deals, 1% of the total


Deal volume Deal value

Early stage

-25% 23%

Expansion stage

-35% 62%

Late stage -47% -31%

PIPE -53% -89%

Deal value of investments in enterprises at expansion stage and late stage returned to peak level in H1 2017, especially when a significant investment was made in Q2 into a leading enterprise at its late stage. Investors are clearly interested in investing in enterprises that survive market challenges and price competition. However, the risk of significant investments in these enterprises should never be ignored because it is not rare that some went bankruptcy before generating a return on the investment. As for the biggest investments – the Unicorns – it is important to remember they are under considerable impact from the regional business cycle because they primarily provide services to customers in China. As well, the laws and regulations in sectors where many Unicorn companies are doing business are not mature or completed, which puts these companies under potential risks.

PwC Viewpoints

Deal value by stage of development:

Early stage: US$ 3.43 billion, 22% of the total

Expansion stage: US$ 9.55 billion, 62% of the total

Late stage: US$ 1.97 billion, 13% of the total

PIPE: US$ 0.43 billion, 3% of the totalEarly stageExpansion stage Late stagePIPE

151%




41744%

32935%

18720%

9916%

31149%

$1,96913%

$9,55162%

$3,43422%

21334%

71%

$4283%

3,80625%

5,89138%

2,79618%

2,87019%


151%




41744%

32935%

18720%

9916%

31149%

$1,96913%

$9,55162%

$3,43422%

21334%

71%

$4283%

3,80625%

5,89138%

2,79618%

2,87019%

Figure 16: Deal volume in TMT industry by stage of development - Q2 2017

Figure 17: Deal value in TMT industry by stage of development - Q2 2017 (US$m)

Looking at investments by region, deal volume and deal value in Beijing were both far above other areas in H1 2017. Beijing remained the core area for the Chinese TMT industry, and chances for other regions to overtake Beijing are slim in the short run. Judged by deal volume, Shanghai secured the second spot, followed by Shenzhen. Shanghai and Zhejiang ranked second and third respectively in deal value, which was mainly attributable to more high value single deals.

PwC Viewpoints

Investments by region

Figure 18: The top five regions for TMT investments in Q1/Q2 2017 (Deal volume/Deal value)

Beijing 582

Shanghai 250

Shenzhen 169

Zhejiang Province

128

80Guangdong Province (excluding Shenzhen)

Deal volume

US$m

0 5,000 10,000 15,000 20,000 25,000 30,000

$18,072

$3,173

$1,228

$2,539

$688



3. PE/VC exits in the TMT industry

Exits by quarter

Q1 and Q2 2017 recorded 35 and 15 exits respectively. As such, H1 2017 with 50 exists total saw a 25% decline in exits from 67 exits in H2 2016.

Figure 19: Exit volume in the TMT industry - Q3 2014-Q2 2017

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’1610

20

30

40

50

60

70

80

1720 23

26

69

53

46 46

20

47

35

15

Exit volume in H1 2017 declined from H2 2016. In H1 2017, IPOs remained the principal way of capital exits due to the vibrant A share market and a faster IPO review process. However, the proportion of IPO exits to the total dropped in H1 2017 from that in H2 2016. Lots of enterprises with new business models emerge in the TMT industry in recent years. While, these new business models confront great challenges from the strict regulations in the domestic market and their own profitability issues, which increases the difficulty of IPO exits for the investments in such entities. Analysed by sector, exits from Technology and Telecommunications were primarily done through IPOs while fewer IPO exits were seen from Internet and Mobile Internet.

Chinese stock markets remained the main choice for listings in H1 2017, especially the ChiNext of Shenzhen Stock Exchange in Q1 due to its faster review process.

PwC Viewpoints


Exits by type

• IPO remained the principal method of capital exit from the TMT industry with 44% of all exists in H1 2017. In Q1 2017, 46% of exits were via IPO, also first, but in Q2 2017, the IPO fell to second place at 40%.

• In Q2, strategic sales edged out the IPO as the most common method of capital exit with 47% of the total. For H1 2017, strategic sales accounted for 34% of exists, second overall.

• In H1 2017, secondary sales came back in the picture with 22% of exits from the TMT industry.

• There were no management buy-outs in H1 2017.

Figure 20: TMT exit trends by type - Q3 2014 - Q2 2017

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’160

10

20

30

40

50

60

70

80

IPO Strategic salesManagement buy-outs (repurchase included) Secondary sales

611

5 5

3225 29 28

1610 7

1 1

8

22

4

19

13

98

7 14 20

10

15

1218

19

3116

6

2

2

3

1

2017Q1 2017Q2

IPO

Strategic sales

Management buy-outs (repurchaseincluded)

Secondary sales

16

10

9

0

46%

29%

25%

40%

47%

13%

6

7

2

0

Deal volume


35 exits in Q1 2017

IPO: 16 deals, 46% of the total

Strategic sales: 10 deals, 29% of the total

Secondary sales: 9 deals, 25% of the total

Figure 22: Exit types in the TMT industry - Q1 2017

Figure 23: Exit types in the TMT industry - Q2 2017

15 exits in Q2 2017

Strategic sales: 7 deals, 47% of the total

IPO: 6 deals, 40% of the total

Secondary sales: 2 deals, 13% of the total

Figure 21: Comparison of TMT IPOs in Mainland China, Hong Kong and US capital markets - Q3 2014-Q2 2017

Q1 2017

Q2 2017

Shanghai Stock Exchange

ChiNext of Shenzhen Stock Exchange

SME Board of Shenzhen Stock Exchange

NYSE

11

1 2

0 14

3 0

Deal volume

Listed company

• Impacted by the rise in the rejection of the IPO applications by the regulator, fewer exits were completed by IPO in H1 2017, 56% less than in H2 2016.

• Most Chinese companies were listed on domestic stock exchanges in H1 2017, primarily ChiNext of Shenzhen Stock Exchange and Shanghai Stock Exchange. New York Stock Exchange was the only overseas stock exchange where some Chinese companies were listed in H1 2017.

Mainland China Hong Kong The United States

100%

86%

14%

71%

29%50%

25%

25%57%29%

14%

80%

10%10%

90%

10%

67%

33%

8%

92% 87%

10%

3%

94%

6%

89%

5%5%

Q4’16 Q1’17 Q2’17

Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15

Q1’16 Q2’16 Q3’16

Strategic sales Secondary sales

IPOStrategic sales Secondary sales

IPO

1646%

1029% 9

25%6

40%

747%

213%


Figure 24: Exit volume in the TMT industry by quarter - Q3 2014-Q2 2017

Exits by sub-sector

Q1 2017

Exits by sector in the TMT industry:





Q2 2017

Exits by sector in the TMT industry:


Internet and Mobile Internet:

6 deals, 40% of the total


15 11

3 6

6

7

2

• More exits from Internet and Mobile Internet were seen in H1 2017, reaching a historic high.

• Exits from Technology and Entertainment and Media decreased somewhat to the level of H2 2014.

Technology

Internet and Mobile InternetTelecommunications


0

5

10

15

20

25

30

35

Q4’16 Q1’17 Q2’17Q3’14 Q4’14 Q1’15 Q2’15 Q3’15 Q4’15 Q1’16 Q2’16 Q3’16

11

7 7

17

35

27

16

22

14

26

117

4

7

3

4

16

9

5

12

3

15 15

6

2

4 6

2

10

9

3 3 1 2 32

02

7

3

8 8

22

9

2

46

0

TMT is an acronym for Telecommunications, Media and Technology. In this report, we analyse the four most active TMT sub-sectors: Technology, Internet and Mobile Internet, Telecommunications and Entertainment and Media. In recent years, with the rapid migration of Internet users from PCs to mobile devices, more companies providing services to Internet users over the Internet and the mobile Internet. The boundary between Internet companies and mobile Internet companies is fading. Thus, we have classified Internet and Mobile Internet as one sub-sector since 2017.

This report covers Q1 and Q2 2017. However, to show trends and make comparisons, we have included data from H2 2014 to 2016, and have updated figures on investments and exits by sub-sector based on the new classification. In this report, only deals disclosing specific investment data were included. Deals that did not disclose the specific investment period, deal value or investment stage were excluded to maintain the accuracy of the analysis and this report.

All data in this report was provided by Zero2IPO Research.

Definitions Technology sub- sector

Hardware: Computer hardware, computer peripherals, network equipment, etc.

Software: Basic software, software applications, etc.

IT Services: IT consultation, software outsourcing, hosting services, computer and network security, etc.

Electronics & Optoelectronics Devices: Optoelectronic components, optoelectronics, electronics, power supply, etc.

Semiconductor: IC design, IC testing and packaging, IC equipment manufacturing, etc.


E-commerce: B2C, B2B, C2C, etc.

Internet Marketing: Information portal, search engine, advertising agency and Internet marketing services

Internet Services: Online travel services, online recruitment services, online housekeeping services, etc.

Online Education: E-learning, online classroom, etc.

Online Entertainment: Online gaming, online video and online music

Social Media: Bulletin board/forum, online networking, etc.

Internet Finance: I-finance, E-payment, etc.

4. Methodology and definitions


Mobile: Mobile entertainment, Mobile advertising, Mobile shopping, Mobile healthcare, Mobile technology, Mobile education, Mobile services, Mobile social media, and Mobile messaging

Telecommunications

Telecom Equipment and Terminals: Telecommunications and mobile equipment , telecommunications and mobile terminals, telecommunications and mobile software, etc.

Other Telecommunications Subsectors: Mobile operators, fixed-line operators, virtual network operator (VNO) and others


Traditional Media: Newspaper, magazines, publishing, etc.

Outdoor Media: Outdoor print ads, outdoor LED TV, mobile TV, building TV, etc.

Video Production and Distribution: Film and television production and distribution, film projection, etc.

Advertising Creation/Agency: Ad creation, media buying, ad agency, etc.

Cultural Transmission: Culture brokerage and agency, etc.

Entertainment and Leisure: Animation and other industries

Stage of development

Early stage: This stage varies from one to five years while the product or concept is under development and not yet in mass and commercial production. During this stage, funds are mainly used for acquiring production equipment and developing products as well as marketing and setting up management systems.

Expansion stage: The investment period at this stage usually lasts about two or three years. The products or services have been recognised by the market. The company generally needs more funds to further develop the product, and to expand facilities and production. Inventory planning and marketing efforts are also ramped up.

Late stage: During this stage, the company has grown its operating revenue, and is more likely to be, but not necessarily, profitable. The company may have plans to go public. The main purpose of financing is to seek capital to grow capacity, and to introduce shareholders with industry experience and influence, thereby increasing corporate recognition and attracting shareholders. The company will aim to improve its financial structure and management system in preparation for listing. At this stage, the investment risk is the lowest, but the chance of high returns on investment is also lower.

PIPE (private investment in public equity): PE investments in publicly listed companies via preferential allotments or private placements, and the acquisition of shares by PE firms via the secondary market.

Exits

IPO: IPO stands for initial public offering. IPO refers to listing on the stock markets in Shanghai, Shenzhen, Hong Kong and overseas to begin selling and trading shares.

Strategic sale: This includes the sale of the PE or VC investors’ equity stakes (or the entire investee company itself) to a third-party company.

Management buy-out: The purchase of a company by its management through either debt- credit finance or stock transaction, resulting in changes in corporate ownership, control, residual claim and assets to alter the structure of corporate proprietary rights. Through a management buy-out, the company’s operators become its owners.

Secondary sale: Any purchase of the PE or VC investors’ equity stakes by another PE or VC investors constitutes secondary sale.



If you’d like to discuss PE/VC investments in TMT market in China or how PwC might be able to help your company meet its challenges, please reach out to one of the TMT industry leaders listed here.

Wilson Chow PwC Global TMT Leader+86 (755) 8261 [email protected]

Jianbin Gao PwC China TMT Leader+86 (21) 2323 [email protected]

Beijing

Amanda Zhang+86 (10) 6533 [email protected]

Shanghai

Jianbin Gao+86 (21) 2323 [email protected]

Shenzhen

Wilson Chow+86 (755) 8261 [email protected]

Vincent Cheuk+86 (755) 8261 [email protected]

Hong Kong

Cecilia Yau+852 2289 [email protected]

MoneyTreeTM China TMT Report Editorial Team:

Frank LinPartner, TMT+86 (21) 2323 [email protected]

Brian B YanSenior Manager, TMT+86 (21) 2323 [email protected]

Lina Miao

Marketing & Communications Manager, Private Equity & TMT+86 (21) 2323 [email protected]

Layla PengCoachee on PwC YouPlus

5. Contacts

www.pwccn.comThis content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2017 PricewaterhouseCoopers Zhong Tian LLP. All rights reserved. PwC refers to the China member firms, and may sometimes refer to the PwC network. Each member is a separate legal entity. Please see www.pwc.com/ structure for further details. CN-20170808-8-C1

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