China VC specialization to accelerate as ecosystem expands
China’s venture capital ecosystem is set to see a rapid proliferation of niche sector funds as overall economic growth piques domestic competition in the asset class.
“We’re now seeing [overseas Chinese] entrepreneurs either coming back because the market is so strong or they’re spinning out of the super-unicorns, creating much more opportunity to have dedicated funds,” Jarlon Tsang, a managing partner at Eight Roads Ventures Asia told AVCJ. “It will continue to get more specific because the entrepreneurs want people who can really value-add. That’s a term everybody throws around, but what it really means is you have to understand what you invest in.”
Eight Roads, the proprietary investment arm of Fidelity International, has been one of the more aggressive subscribers to this thesis, having launched a China healthcare fund last year and an China IT fund earlier this week that will focus on deeply technical B2B segments. Tsang predicts that China will support funds focused on areas such as semiconductors and medical devices in the near term based on precedent in Silicon Valley and increasing local demand for highly specialized development support.
“You can’t do cloud infrastructure or big data without that backbone,” Tsang added. “To be competitive, we have to show entrepreneurs that we have a fund that is truly dedicated to funding businesses like that in order to get the entrepreneurs to feel that this is the right money to take.”
Other Chinese investors taking a tighter approach to fundraising and deal targeting include internet giant Baidu, which reached a first close on a dedicated artificial intelligence fund via its VC arm in February. This followed closely on the establishment of a $200 million smart transportation fund.
Earlier this year, Cathay Capital Private Equity launched a RMB1.5 billion ($240 million) vehicle focused on smart energy, and China First Capital Group launched a $200 million preschool education fund. This week, the government of Shenzhen set up a VC fund with a corpus of RMB500 million to invest in blockchain start-ups.
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