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Venture capital eyes Chinese software sector

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2008-07-24 16:27

Alibaba Group, the largest e-commerce trading company in China specializing in global trading, announced it has established the "Investors' Alliance" in association with 20 domestic and overseas venture capital (VC) firms, targeting China's software market, the China Business News reported today.

The alliance plans to invest 1 billion yuan ($146.41 million) within five years to cultivate China's Software-as-a-Service (SaaS) market, and harvest more than 10 billion yuan in sales revenue. The program will also help some software developers qualify for listing.

VC firms involved in the alliance include Gobi Partners, Walden International, Shanghai Xiangfeng Investment and a private equity firm in China.

The alliance will recruit 3,000 to 5,000 software developers in five years and help them grow, according to Wang Tao, senior vice president of Alibaba Software (Shanghai) Co Ltd, Alibaba Group's software unit.

According to CCW Research, a leading Chinese IT market research and consulting company and a subsidiary of China Computer World Media Group, China's SaaS market will reach 40 billion yuan by 2010 with a compound annual growth rate of more than 40 percent.

Wang also said multinationals like Google and Microsoft have launched SaaS suits, and Cisco acquired WebEx, a SaaS application firm, for $3.2 billion, as they hope to be SaaS platform operators.

VC firms are also active in China's software sector. A report released by ChinaVenture, a VC research firm in China, predicted that investments in China's software industry will grow more than 30 percent annually in the coming three to five years.

Statistics show there were 24 investment cases in China's software industry in 2007, with a combined investment of $240 million, up 33.3 percent and 41.1 percent compared with 2006.

China Venture says a total of 28 software investment cases will be seen in 2008 with investment amount reaching $330 million.

China software industry's annual output value topped 583.4 billion yuan in 2007, making it the world's fourth largest software producer. The country's share of the global software market rose to 8.7 percent in 2007 from 1.2 percent in 2000, with an annual growth rate of more than 30 percent.

The country exported $4.12 billion worth of software in the first five months of this year, up 45 percent year-on-year. Software exports grew swiftly from $720 million in 2001 to $10.24 billion in 2007.