Vision Knight’s institutional upgrade

Vision Knight Capital relied on commitments from high net worth individuals and family offices for 75% of the $250 million raised for its first fund in 2012. But Fund II, which last week closed at the hard cap of $550 million, is more of an institutional affair. Sovereign wealth funds, pension funds, endowments and fund-of-funds account for 70% of the corpus.

David Wei, the former CEO of Alibaba.com who co-founded Vision Knight, says the new fund was substantially oversubscribed, with more than $1 billion in prospective commitments. The GP decided against seeking to increase the hard cap, concluding that $500-$550 million was appropriate for its strategy.

US investors make up the bulk of Vision Knight's more diversified investor base, followed by Asia. However, there was still room for all LPs in Fund I to re-up in Fund II, including Jack Ma, co-founder of Alibaba Group and Wei's former boss, and Hong Kong telecom operator PCCW.

Wei stresses that Ma is investing from his own pocket, not Alibaba's. "As a private equity house, we need to be independent and keep a neutral stance from the corporate money, because corporates will have a strategic agenda and purpose for investing," he says.

The new fund will continue its predecessor's strategy of focusing on internet-related businesses, e-commerce and traditional retailers that can be transformed by e-commerce.

Since Vision Knight's approach is operations-driven, it positions itself as a PE rather than a VC investor. The firm has five consulting operational partners and one investment partner. Once a suitable target has been identified, Vision Knight will provides three months of free operational and strategic consulting to convince the entrepreneur that it can add value. This contrasts with the typical PE model of post-investment improvement.

"We're not competing with other funds. They follow the opportunity, chasing hot deals, but we are creating investment opportunity," says Wei. "Of our first 10 projects, seven weren't looking to raise capital when we invested in them."

After two-and-a-half years, Fund I is almost fully invested in those 10 companies. "The holding period for internet firms is around three years because the industry is much more volatile. For the consumer sector, we will hold longer," Wei explains.

Vision Knight has made two full exits from Fund I, online video business PPS and NetDragonWebsoft's mobile app store 91 Wireless, both through trade sales to Baidu. Another portfolio company, lottery site 500.com, went public in the US last year but the PE firm has yet to sell any shares.

For Fund II, Wei expects more cross-broader transactions as Chinese tech and consumer players expand overseas. "That's why we need our global LP base - they might be able to help on cross-border deals," he adds.

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• Topics
• Greater China
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• Vision Knight Capital
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