Lightspeed nets $168m for China fund
Lightspeed Venture Partners' China fund has been more than seven years in the making, having been under consideration ever since the GP included an international allocation – Asia and Israel, in addition to the US – in its seventh global vehicle. The decision to proceed was taken in 2010.
"The VC market is in a better place than in 2005-2006 and a dedicated fund makes sense," Ron Cao, co-founder and managing director of Lightspeed China Partners, tells AVCJ. "When we launched the fund in 2011 we were completing the investment phase of global Fund VIII. We felt that prior to raising our global Fund IX, it was the right time to launch our China vehicle."
The latest global fund closed last year at $675 million, down from the $800 million raised for its predecessor in 2007. Lightspeed China Partners I has now completed fundraising, beating its $150 million target to close at $168 million after about 14 months in the market.
The US parent is a significant LP in the China fund and roughly half the investors are also participants in the global vehicle. Cao notes that there are more Asian, Middle East and European names on the LP roster for the China fund than for its global affiliate. The broader geographical mix also means a stronger family office presence - many of the Asian LPs fall into this category - alongside the pension funds, fund-of-funds and endowments that feature prominently in the global fund.
Fund IX has no formal co-investment rights with the China vehicle but it will come in on certain deals, typically later-stage investments. The previous global fund deployed about 15% of its corpus in the country.
Lightspeed China Partners I is expected to invest in 15-18 companies over a three-and-a-half-year period, predominantly on Series A transactions. Cao says the fund size was restricted to within range of its $150 million target so this investment thesis wouldn't be overextended.
"There aren't many funds in China that really focus on early-stage Series A deals," he explains. "You need to have the right fund size and the right entrepreneurial operating background. Entrepreneurs want more value-add than before. They realize that Series A isn't just about maximizing the valuation but finding the right investment partner."
Lightspeed's previous China investments have involved internet, mobile and technology-enabled consumer and business services. These industries will dominate the new fund's portfolio - it has already completed four deals, including vacation rental service provider Tujia.com and internet-based financial services search provider Rong360 - but Cao expects to see more activity in enterprise solutions as well.
"We are spending a lot of time looking at areas such as big data and software as a service," he says. "Chinese companies are adopting technology faster than people think. They have to respond to labor costs getting higher so they leverage technology to become more efficient."
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