Founder of China's Zhencheng Capital launches SPAC

Li controls the sponsor entity for TradeUp Acquisition Corp. His co-CEO, James Yang, is also CEO of US-listed Chinese health information portal Zhongchao. Li and Yang are described as members of the sponsor, which is a founder of the SPAC. The other founder is Up Fintech, an online brokerage firm focused on global Chinese investors that operates in Asia as Tiger Brokers. It listed in the US in 2019.

The SPAC will consider technology sector targets across all geographies, with a preference for businesses involved in the automotive industry, semiconductors, artificial intelligence, digital health, e-commerce, and education. The plan is to offer an alternative path to liquidity to companies. The prospectus notes that IPOs and trade sales have not kept pace with the proliferation in technology start-ups.

"We believe this creates a dilemma where a growing number of companies are attracting more private capital, but even for those that flourish, exit routes for their investors are limited. We believe special purpose acquisition companies, or SPACs, have become an attractive path to stockholder liquidity for private technology companies," it adds.

The other management team members are Luqi Wen, CFO of Zhencheng, Weston Twigg, a managing director at KeyBanc Capital Markets, Tao Jiang, founder of both the China Software Developer Community (CSDN) and GeekFounders, and James Long, CEO of US-based digital healthcare business MDLand International.

Li established Zhencheng in 2016. Portfolio companies listed on the firm's website include audio streaming platform Dedao, cloud-based videoconferencing provider XYLink, LiDAR specialist Deepwater, Salesforce clone Xiaoshouyi, surgical robot developer Remebot, underwear brand Neiwei, and Up Fintech. ZhenFund also participated in several rounds for Up Fintech.

According to a US regulatory filing, Zhencheng launched its debut US dollar-denominated fund last year with a target of $100 million.

The SPAC structure conforms to industry standards, though the expected size – $40 million – is relatively small. TradeUp Acquisition will offer 40 million units priced at $10 apiece, with an overallotment option of 600,000 units. Each unit comprises one common share and one-half of one redeemable warrant. Each whole warrant can be converted into a common share at a price of $11.50 per share.

Once a target is identified, a majority of investors must vote in favor of the transaction. On completion, they can exercise their warrants and purchase shares or redeem some or all their shares for cash. If there is no deal within 24 months of the offering, investors get their money back.

The SPAC sponsor and Trade Up have agreed to purchase 215,000 units at the IPO price. In addition, the sponsor and management have subscribed to common shares for a nominal sum that will convert into a 20% stake in the entity on completion of the offering.

A host of Asia-related SPACs have been launched by PE firms – serving as sponsors or designated affiliates of the structures – and by individuals with experience in the industry. The China contingent includes Primavera Capital Group, Ascendent Capital Partners, and Hopu Investment.

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• Topics
• Greater China
• Technology
• IPO
• Fundraising
• China
• TMT
• SPAC
• Zhencheng Capital