Fund focus: Redpoint restates its local credentials

Redpoint China Ventures was established in 2005 under the umbrella of Redpoint Ventures, a US-based early-stage investor. More than a decade later, in October 2016, the local team raised $180 million for its debut China fund and soon after secured its independence. This localization went a step further last year with the launch of a renminbi-denominated vehicle. It has now closed at RMB700 million ($110 million) after six months in the market. 

“In today’s China venture market, you really need to have two currencies to be regarded as a top contender. For practical reasons, increasingly we have encountered situations where target companies are engaging in sectors where participation is limited to domestic investors, such as content creation and cybersecurity,” says David Yuan, a managing partner at Redpoint China. 

Even in areas where offshore investment is permitted, some entrepreneurs would still prefer renminbi funding because transactions are quicker and easier to complete. With this in mind, the renminbi vehicle is expected to help Redpoint China secure positions in target companies at early stages. There is often an option for the US dollar fund to take part in later rounds. 

The new fund was raised from 10 institutional LPs. About one-third of the corpus comes from government guidance funds, with the remainder contributed by large domestic fund-of-funds – which manage capital on behalf of government entities such as the Ministry of Finance – and private investors. 

“LPs in our renminbi fund are professionally managed with a long-term investment horizon. As such, the fund life of the renminbi vehicle is comparable to the US dollar fund,” Yuan says. “Having said that, many Chinese internet companies have generated strong revenues thanks to their large customer bases and they are acquisitive. This has made the exit environment more favorable, so our holding periods might not be that long.” 

The strategy for the renminbi vehicle is largely consistent with that of the US dollar fund, targeting the technology, media, and telecom (TMT) sector with a focus on consumer internet and enterprise software. The GP also invests in “front-tier technology” like artificial intelligence, big data, and autonomous driving. 

Redpoint China has so far deployed about a half of the US dollar fund and 25% of the renminbi fund. Several portfolio companies, including second-hand car trading platform Renrenche and news reading app Qutoutiao, have raised substantial follow-on funding from strategic and PE investors. 

“We do see increasing valuations among Chinese start-ups, especially at the growth stage with companies that are generating considerable revenue or may even be profitable. This is pushing up valuations in the early stages that we focus on,” says Yuan. “But I think it’s our duty to work hard and find top-notch entrepreneurs and high-quality projects at reasonable valuations.”   

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• Topics
• Greater China
• Renminbi fund
• Fundraising
• Venture
• Technology
• China
• Redpoint China Ventures
• TMT
• Renminbi