As well, the level of second-round investment activity illustrates the growing maturity of the venture capital market in China. Investors are helping companies to move past the start-up stage into the next phase of development.

As expected, considering the relative youth of the Chinese venture capital market, new and first-round deals continue to make up the majority in China, some 62 percent, but that is down from 68 percent in 2005.

Deal flow to second and later rounds is also increasing. Second-round investment contributed 22 percent, up from 15 percent in 2005. In addition, 156 percent more capital was invested in second-round development in 2006 compared to 2005.

Deal sizes also grew. The median size of a first-round deal was $4 million in 2006, up from $3.1 million in 2005. For second-round investment, the median was $10 million, up from $7.5 million a year ago illustrating that investors in China are willing to provide substantial amounts to companies that are maturing into their concept.

In fact, it was larger than second-round deals in the US in 2006, where the median was $8.5 million.

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