Fund focus: Sky9 seeks early-stage differentiation

“With every fund there are two themes you have to get right in order to generate a significant return,” says Ron Cao (pictured), who raised two venture capital funds with Lightspeed China Partners before closing a third last week with his new firm, Sky9 Capital. “In Fund I, it was fintech and online-to-offline platforms. In Fund II, it was social e-commerce. For this fund, we are currently spending a lot of time on social e-commerce, fintech, and artificial intelligence (AI) and blockchain.”

Two of Sky9’s first four disclosed deals fit in two of these sector buckets: eBroker, a wealth management online marketplace, and Home, a social e-commerce platform focused on home furnishing. The other two – Zhaoyouwang, a B2B e-commerce business for the petroleum industry, and Energy Monster, a power bank sharing service – conform, like the rest, to a wider theme.

“We like business models that can scale. This means platform market plays and large transaction-type environments,” Cao explains. “In this context, we like social-related apps or social-related platforms. We continue to think that young people engaging on social activities is the dominant trend in China. The opportunity is bigger than ever.”

Cao retains some involvement in Lightspeed China’s first two funds, which closed on $168 million in 2012 and $260 million in 2014. He left the firm in June 2016 after 10 years, a few weeks before Lightspeed China closed Fund III, also at $260 million. Sky9 launched in debut vehicle in late 2016 with a target of $150 million but ended up hitting the hard cap of $200 million, having received support from institutional investors, family foundations, and entrepreneurs. 

“The days of capital just trying to get a piece of China, I don’t want to say they’re over, but from this fundraise its clear people were looking for experience, a track record, a unique approach, and a fit with their overall global investment strategy,” Cao says. 

He believes this approach has been shaped by questions about rising competition for deals and valuations, as well as the fact that many investors are still waiting on exits. Another consideration is the amount of capital raised by certain VC managers in recent years, and the uncertainty this has created in terms of deployment and the expected returns.

Sky9, which has 15 people across offices in Beijing, Shanghai, and Shenzhen, as well as a presence in Silicon Valley, is resolutely early stage, writing checks of $1-10 million for seed and Series A rounds. One area of planned differentiation is in portfolio concentration. The firm sees itself as following a path already taken in the US, where certain venture capital investors are emphasizing the need for a more focused approach and value creation capabilities.

“We target strong entrepreneurs and they sometimes do things that are a bit wacky and hard to digest. So, a lot of our decisions are based on judgment. A start-up can talk to 20 VCs and maybe two or three believe in the model,” Cao adds.    

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• Topics
• Greater China
• Venture
• Fundraising
• Technology
• China
• Sky9 Capital
• Lightspeed Venture Partners
• TMT
• Venture