Fund focus: China's 01VC pursues industrial upgrade strategy

Updating traditional industries is set to be a key theme for 01VC's second fund. "Everything in consumer internet is digitalized – user behavior, purchasing behavior, entertainment consumption behavior – but a lot of industrials are not there yet," says Ian Goh, the Chinese VC firm's managing partner. "We are looking at opportunities in enterprise marketplaces, outsourcing and logistics. We are also interested in how you position real estate in the new economy."

Asked to elaborate, he cites furniture retailer Hommey – known as Zhijia in Chinese – as an example. The 01VC-backed start-up is addressing the dilemma facing purveyors of sofas, beds and accessories: they don't want to bear the expense of opening brick-and-mortar stores, but customers usually want to see the goods first-hand before buying. The solution is to turn people's homes into showrooms.

Hommey publishes its catalogue through an app, and prospective buyers make viewing appointments. The company then takes over an apartment while the occupant is at work, installs its own furniture, and opens for tours. The occupant receives a commission on every item of furniture sold. "[Hommey] now has 200 show flats in Beijing – there is no rental for the platform, which brings down costs," Goh explains.

01VC was established by Goh, who previously spent 10 years at KPCB and Matrix Partners China, and Yong Zhao, founder of domestic online gaming platform Kingnet. They raised approximately $31 million for Fund I in 2015, sourcing capital from investors in the internet industry and the founders of start-ups in their networks. Fund II, which has a corpus of $100 million, is primarily supported by overseas LPs, including foundations, endowments, family offices and fund-of-funds.

The standout investment from Fund I is delivery start-up Lalamove, which has raised $1.6 billion to date. When 01VC backed the company, it had operations in Hong Kong, Singapore and Thailand. Goh claims to have helped Lalamove enter Shenzhen, Guangzhou and Dongguan, which ultimately led to China becoming the largest part of its business.

01VC was a relatively early mover in Southeast Asia among Chinese venture capital firms. While Lalamove expanded from there into China, there are now plenty of companies looking to go in the other direction, ranging from video streaming start-ups to peer-to-peer payment platforms. "By bringing capital and resources from China to Southeast Asia, you can have a comparative advantage over those on the ground there," Goh says.

Lalamove is the only unicorn in 01VC's portfolio looking to raise later-stage funding (it closed a $300 million Series D round earlier this year). Of the 60 companies backed by the firm, 10 are currently in the market for Series B and C rounds. As such, they are not among the cluster of unicorns that Goh says are struggling to raise capital because their valuations haven't come down. In contrast, 01VC has found Series A valuations have fallen by over 20% since the start of 2018.

The drop-off in renminbi-denominated fundraising activity is seen as a major contributor to this phenomenon. Goh hopes the dearth of capital will thin out the number of start-ups, leaving only the best and brightest. "When it is easy to raise money, a lot more entrepreneurs and management from existing companies consider doing start-ups. When the money dries up, the volume of new entrants falls as well," he says. "This year and next year should be good years to deploy."

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• Topics
• Greater China
• Fundraising
• Technology
• Venture
• China
• TMT
• 01VC