Emerging China VCs target differentiation in deal sourcing - AVCJ Forum

"We make decisions from the top. It's not like having to meet an analyst and then three months later you get to see Neil Shen," Wayne Shiong, a partner at China Growth Capital, told the AVCJ USA Forum, contrasting his firm – which and has $1 billion under management across US dollar and renminbi funds – with the behemoth that is Sequoia Capital China.

China Growth Capital qualifies as a specialist in China's venture capital space, focusing on financial technology, enterprise technology and deep technology. Half of its deals fall in the $1-3 million range, and the majority of those are pre-Series A rounds. Panda Capital, which was established in 2015, is more generalist, but there is a similar appetite for going in early. Peter Mao, partner with the firm, noted that some unproven ideas are too disruptive for larger GPs.

"No one wanted to invest in Mobike's Series B. They met with 30 top VCs in China and they could not raise any money. When we decided to invest $6 million in the Series B, none of the existing investors wanted to put in any money – at the time there was zero follow-on, not even pro rata. There was no competition for us. We spent two months working on our due diligence and then we made the investment."

Panda Capital claims to have generated a 30x return on the Mobike investment, following Meituan-Dianping's acquisition of the company earlier this year at a valuation of $2.7 billion. Mobike's existence has been defined by an ongoing battle with direct rival Ofo, and in the early days, it was unclear whether both could survive – although Mao and his team turned this to their advantage from a branding perspective.

Allen Zhu of GSR Ventures, an investor in Ofo, said that his portfolio company would wipe out the competition within 90 days, a comment that attracted attention due to Zhu's reputation as a unicorn backer. Panda Capital responded by offering to ride Mobikes naked, and complete three circuits of Beijing's central business district, if the prediction came true. Mao noted that this had done wonders for the firm's name recognition, which may facilitate the deal-sourcing process.

For China Creation Ventures (CCV), a firm set up last year by the technology, media and telecom (TMT) team at KPCB, deal sourcing is a granular endeavor. Every month, the team discusses promising business segments and then each member spends half of their time evaluating whether the firm should invest, and if so, how best to get exposure.

"Within four weeks we meet every good player we can find and decide whether to invest. Most of the time we make investments in companies that are not fundraising. We are the only VC investor looking at them, so it is easier," said Wei Zhou, founding and managing partner at CCV.

He cited Ximalaya, a user-generated content platform for audio, as an example. KPCB decided to enter the space in 2013, reasoning that a move by China Telecom to reduce bandwidth charges for mobile would drive up consumption of media content. The team met with 50 companies before backing Ximalaya. At the time it ranked number four in the segment with two million users. It is now number one with 500 million users, has a $4 billion valuation, and is targeting a Hong Kong IPO.

"In this generation of GPs, each has a different angle and approach to sourcing deals," China Growth Capital's Shiong added. "We talk to entrepreneurs on a daily basis. We are not sitting behind a desk waiting for an analyst to bring us stuff."

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• Topics
• Greater China
• Technology
• Early-stage
• GPs
• China
• AVCJ Events
• Venture
• Panda Capital
• China Creation Ventures
• China Growth Capital