Gaorong seeks $1b for China VC fund

The GP was founded as recently as 2014 by Xiang Gao, Zhen Zhang and Yue Bin, who previously led technology, media and telecom (TMT) investments for IDG Capital. Should Gaorong achieve its fundraising goal, the firm’s assets under management would near $4 billion.

AVCJ learned of the target from sources familiar with the situation. Asked about the substantial step up in size from Fund IV, which closed at $500 million in late 2018, one LP said: “A 30x gross fund will do that.” This is a reference to the performance of Gaorong’s second fund, which includes companies like e-commerce platform Pinduoduo.

Gaorong was one of the first institutional investors in Pinduoduo. The company went public in 2018 with a market capitalization of $24 billion. The stock has gained more than 70% this year, largely due to rising demand driven by COVID-19, giving Pinduoduo a valuation of $88 billion. Gaorong, which invested in the company through its second and third funds, holds a 7.7% stake worth $6.8 billion.

The venture capital firm raised $206 million for its debut vehicle, relying heavily on contributions from Chinese technology entrepreneurs. Its LP base has become more institutional over time. Fund II closed at $362 million in early 2015 and was followed by a $100 million co-investment vehicle that made follow-on investments in existing portfolio companies. Funds III and IV closed at $400 million and $500 million, respectively.

Gaorong has also raised approximately RMB3.9 billion ($578 million) across four renminbi funds. AVCJ Research has records of three core venture capital vehicles and one growth fund.

The GP claims on its website to have backed more than 150 start-ups, of which at least 20 have subsequently achieved valuations above $1 billion. There have also been a dozen IPOs. Listings by Gaorong-backed companies since 2019 include online education business GSX Techedu and smart vacuum manufacturer Roborock, and apartment rental platform Danke Apartment.

Another portfolio company, co-working space operator Ucommune, was acquired by a US-listed special purpose acquisition company (SPAC) after failing to get traction with an IPO.

Gaorong – originally known as Banyan Capital – concentrates on early- and growth-stage TMT investments. Areas of particular interest include new retail, consumer and industrial internet applications, enterprise services, consumer upgrades, and culture and entertainment.

Capital continues to pour into China venture capital despite the economic damage created by COVID-19 and tensions with the US. More than $10 billion has been committed to China-focused funds so far this year, compared to $9.8 billion in 2019. Fundraising for US dollar vehicles alone stands at $8.2 billion. For the full 12 months of 2019, it was $7.7 billion.

However, the fundraising environment is polarized with most of the money committed to a relatively small number of managers. There have been 14 partial or final closes on US dollar funds so far this year, compared to 27 in 2019. The likes of Sequoia Capital China, Qiming Venture Partners and Matrix Partners China together account for more than half of the overall US dollar funding.

Earlier this week, it emerged that GGV Capital is targeting $2 billion for its latest set of China and US-focused venture capital funds. The firm raised $1.88 billion last time around.

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• Topics
• Greater China
• Fundraising
• Venture
• Technology
• China
• Gaorong Capital
• TMT