AVCJ Awards 2020: Fundraising of the Year - Venture Capital: Ince Capital Partners

Q: What trends are you seeing in the venture capital market?

A: I think this is the smoothest exit environment I’ve seen in the past 20 years, with global markets performing very well. It is a golden age for VC. There have been many exits, through different markets, for investors with different focuses. Twenty years ago, a Chinese company had to go to NASDAQ if it wanted to list. Nowadays, the Hong Kong market is good. Many companies are doing secondary listings there and pre-revenue biotech start-ups are listing there. In mainland China, with the Star Market and the reformed ChiNext, the A-share market has become a smooth exit channel. You can do an A-share listing even with a joint venture of VIE [variable interest entity] structure. I believe this trend will continue.

Q: Are Chinese start-ups wary of listing in the US amid the current US-China tensions?

A: When you read the newspapers, you get the feeling that tensions are significant, but in the past several months, many Chinese companies have gone public in the US. From electric vehicle manufacturer Xiaopeng to fintech giant Lufax to real estate platform Beike, these companies are raising hundreds of millions to billions of dollars, and their post-IPO prices are relatively strong. On this basis, I don’t see any political impact. In addition, there is no need to do a US roadshow ahead of a listing; you can raise money on the back of conference calls. This is unprecedented.

Q: What difference will the Biden administration make?

A: Policy will be more consistent; we will not see extreme changes. Chinese entrepreneurs are smart and diligent. If the rules are clear, they can solve any problems. The US capital markets are relatively free and investors don’t need to listen to the government.

Q: The fundraising environment for China venture capital seems to be better than many had expected. Will it last?

A: First, central banks around the world are printing money. Interest rates are almost zero. Two years ago, Germany issued its first negative yield government bond. Now China is doing the same. Clearly, there’s a lot of liquidity out there and investors are willing to take more risk in the expectation of higher returns. The venture capital industry is benefiting from this environment. Second, Chinese VCs have made a lot of money for LPs. A lot of investors have received distributions in excess of $1 billion during the latest wave of IPOs. If a majority of LPs have seen good returns out of China, they will continue investing in China. Third, I think Chinese entrepreneurs and engineers are the smartest, most diligent, and most creative people in the world. Now they have capital and technology, more outstanding companies will emerge. Some of these will become great companies.

Q: Meanwhile, valuations in some segments are still very high…

A: But the returns are also getting bigger. And because the returns are strong, there will be more capital inflows, and more capital inflows mean higher valuations. The capital markets work in the same way. Although valuations are higher than at the same point last year, it is still a relatively healthy development trend.

Q: How is your strategy evolving?

A: We are looking more at technical start-ups, especially those related to our previous consumer investments. For example, we recently invested in Eeo Education, which runs ClassIn, a Zoom platform for schools. It’s a technology company, but we are concentrating on the consumption aspect. We’ve invested in many online education companies before, so we understand the nature of demand. It is also easy for us to conduct due diligence by talking to customers about their needs, so we can make fast investment decisions.

Q: Some investors are shifting their focus to brands because they think the rising cost of internet traffic makes new consumer platforms unviable. What is your take?

A: I totally disagree. The internet is a competitive and fast-changing space. New technologies and user groups are constantly emerging, and these can support new platforms. Fifteen years ago, everyone said that e-commerce was Taobao and Tmall, and it was impossible for anyone else to enter. Then JD.com emerged. After that, many believed the game was over, but Pinduoduo emerged. Consumption patterns will always change. The typical Taobao and Tmall user group comprised people born after 1980. In the past 10 years, the post-90s have entered the workplace. They started to earn money and consume on a large scale. Now we see post-2000s entering university. Soon, they will start leading a new wave of consumption trends. Their interests and habits will nurture new platforms.

Q: So where should the smart money look?

A: Fresh food e-commerce is very popular right now. We previously invested in Dingdong Maicai and MissFresh at Qiming and Ince has backed NiceTuan. This is an interesting direction. I don’t want to say anything more.

Q: Is the platform opportunity bigger than the brand opportunity?

A: The probability of backing a big new platform is relatively low, but if you can do it, the return will be higher.

Q: What do you think about increasing VC investment in biotech?

A: There is specialization within the VC industry and we will continue to focus on the consumer internet space. Healthcare has been very active in recent years and generated some good returns. I think that will continue.

Pictured: J.P. Gan of Ince Capital Partners makes his video acceptance speech

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• Topics
• Greater China
• Fundraising
• Venture
• Technology
• China
• Ince Capital Partners
• TMT
• AVCJ Awards