Report on the impact of financial crisis on China's internet industry

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As shown in figure I, China's third quarter of 2008, the number of new venture capital fund only 20, the chain fell 50%, the amount of funds raised only 490 million U.S. dollars, the chain fell 84%. The large decrease of the number of new fund raising funds and the number of fundraising funds shows that the investors ' preference for internet risk is greatly reduced under the financial crisis.

Because of the particularity of the Internet industry, venture capital can be said to be the lifeblood of China's internet industry. The reduction of venture capital funds will make it difficult for internet companies in financial crisis to raise funds needed for development, which will lead to the collapse of Internet enterprises in the start-up or development period.

As shown in Figure II, China's internet industry IPOs and mergers and acquisitions have plunged in the third quarter of 2008. IPO only 2 cases, the chain fell 50%, the number of mergers and acquisitions only 7 cases, the chain also fell 50%. The number of IPOs and mergers and acquisitions in the internet sector has fallen sharply, showing that the IPO window was almost closed and mergers and acquisitions dropped sharply in the financial crisis.

IPO is the most popular and most commonly used exit mechanism of venture capital. The uncertainty over the closure of the IPO window and the reopening of the timetable will lead to more conservative and cautious investment in the Internet industry.

Merger and acquisition is also a kind of exit mechanism of venture capital, but the ROI (return on investment) brought by venture capital is lower. The financial crisis has led to a wave of premium Internet assets priced below their reasonable valuations, but internet companies with large cash flows are still waiting for lower PE to buy high-quality but cash-strapped small companies to gain greater benefits. When the market continues to fall to a certain extent, venture capital will dominate the emergence of a merger case and exit the market. Internet companies, unable to be merged and unable to make a profit, will face the danger of liquidation.

As shown in figure III, the number of investment cases and total investment funds in China's internet sector began to show a downward trend after entering 2008. The number of investment cases disclosed in the third quarter of 2008 was only 28, falling by 26% per cent, and the amount of capital disclosed was only 365 million dollars, falling by 7% in the chain.

The deteriorating sources of funding and uncertainty about exit markets are the causes of the sharp decline in the number and volume of venture capital cases.

The conservatism of venture capital will have a profound negative impact on Chinese Internet companies under the financial crisis.

Video site revenue model is not clear, high operating costs, content copyright legality and other issues, its lack of profitability, is still in a large number of rely on venture capital to maintain the operation of the stage, so 2008 venture capitalists more difficult to continue to invest in no clear business model of video sites, 2008 only 5 video investment cases, Year-on-year decline of more than 100%.

Take Youku For example, its CDN structure monthly bandwidth cost of 24 million yuan, the other monthly cost of around 10 million, then its annual cost of 400 million yuan, its 4th round of financing in July 2008 after the paper reserves of 50 million U.S. dollars (including 10 million U.S. dollars to repay the technical loans), Even with tens of millions of of advertising revenue for the year 2008, its current funding can only be sustained until next July. Video-leading Youku is still the case, and other video sites are more nervous about cash flow.

Video sites are starting to cut back on spending when they are looking for new investments that are less likely and expensive. and its cost-control efforts are mainly reflected in the human resources and infrastructure control.

Table 2-1 the number and extent of recent layoffs in video site

Company

Type of Company

Number of layoffs

Downsizing

Six rooms

Video sharing site

140 people

70%

Popcorn

Video sharing site

20

15%

Yau Visual Network

Peer-to-peer Streaming Media

20

10%

PPLive

Peer-to-peer Streaming Media

15

10%

Exciting Network

Video sharing site

Unknown

Unknown