Legend axes consumer from latest China TMT fund

The venture capital firm closed its eighth US dollar-denominated TMT vehicle on USD 500m in late 2020, in line with previous vintages. Fund IX launched last autumn with a view to raising about the same amount, but the target has been set at USD 400m following the decision on consumer coverage, according to a source close to the situation. Legend declined to comment.

Legend has traditionally emphasized enterprise services, advanced manufacturing, and deep technology within its TMT strategy. The consumer allocation was 20%. The team responsible for that sector has been reassigned to the renminbi side of the business, the source added.

Many Chinese VC firms began to build up B2B and healthcare-focused teams several years ago, reasoning that B2C was approaching saturation. This trend has been accentuated in the past 18 months following a widespread regulatory crackdown on consumer-facing internet companies.

Midway through last year, Chinese authorities added another layer of approvals for offshore IPOs, adding to existing unease about the future of US-listed Chinese companies over a longstanding tax assessment dispute. Consequently, there hasn’t been a private equity-backed offering of meaningful size in the US since the first half of 2021.

The source noted that uncertainty over US IPOs – a preferred exit route for consumer internet companies – was a key factor in the decision to exclude consumer from the Fund IX mandate.

A decline in China PE and VC fundraising started around the same time. A total of USD 20.1bn was committed to US dollar vehicles last year, consistent with the average for the previous five years. However, more than 70% of the capital was raised before the end of June. Fundraising for 2022 to date is a paltry USD 4.5bn, according to AVCJ Research.

Unlike many of its peers, Legend hasn’t been heavily dependent on US-based LPs in recent vintages. New investors have tended to come from the Middle East and Southeast Asia. Existing investors from these geographies plus Japan and Korea – as well as family offices – are expected to account for the bulk of the first close.

While domestic consumer-facing investments are in decline, Legend is looking at such business models outside of China. Up to 20% of Fund IX might be deployed in cross-border deals, specifically in Korea – where the firm has a dedicated team – and to some extent in Japan and Southeast Asia.

In addition to backing Hybe Corporation, best known for managing K-pop sensation BTS, the venture capital firm has invested in the likes of Korean online education business Mathpresso and Japanese virtual YouTube platform Anycolor. There are clear parallels with China, where Legend’s portfolio includes Zuoyebang and Bilibili.

The GP is also raising its third US dollar healthcare fund, which achieved a first close of USD 177m last November against a target of USD 300m. Other funds in the market include a renminbi TMT growth fund, which is expected to close on CNY 10bn (USD 1.5bn).

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