Fund focus: Redpoint China leverages its brand

China’s slowing economy and its escalating trade tensions with the US have given some LPs pause for thought. While allocations to the country aren’t necessarily being cut back, capital is being deployed more judiciously – which has exacerbated the established trend of commitments gravitating to managers with brand names and a longstanding local presence. Redpoint China Ventures appears to be among the favored few.

The GP arrived in the country in 2005 and secured its independence from US-based Redpoint Ventures in 2016 after raising $180 million for its first China-dedicated US dollar-denominated fund. Redpoint China has now followed up with a $300 million vehicle for early-stage investments and a $100 million opportunity fund for growth deals. 

“Of course, the trade war has played into LPs’ thinking. That is why we see, increasingly, that GPs with established track records that have been in the market for many years are able to raise ever larger funds,” says David Yuan, a founder and managing partner at Redpoint China. 

The number of LPs participating in Fund II is double the previous vintage, and most of them are global institutional players such as sovereign wealth funds, pension funds, and university endowments. “For some of our new LPs, it’s not only their first time to invest in Redpoint China, but also the first time they have invested in the China market,” Yuan adds.

Meanwhile the GP, a long-time early-stage investor in China’s technology space, has followed many of its peer group in recognizing the need to be in growth rounds. About 80% of the opportunity fund’s corpus will go into Series B rounds and above for existing portfolio companies. The rest will be invested in new businesses, including some Redpoint China previously passed on but now feels comfortable enough to back. 

“We have observed that, even when a company is at its Series C stage or later and has achieved a valuation of $100-200 million, there is still significant upside at around 10x multiple for GPs, a phenomenon that we call ‘venture-like return opportunities,’” Yuan explains. 

The core early-stage fund will pursue largely the same themes as its predecessor, which focused on consumer, enterprise and emerging frontier tech start-ups. When it comes to business models, the GP likes companies that combine a technology angle with an asset-light approach, for example those that use mobile technology to solve consumer pain points. 

“We like Didi Chuxing’s ride-sharing model because it helps the flow of information between passengers and drivers become much more efficient, while at the same time Didi does not have to rack up a lot of cars,” Yuan says. “By contrast, bike-sharing businesses like Mobike and Ofo have to replace and manage their inventory regularly, a situation that has raised questions about their sustainability.”   

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• Topics
• Greater China
• Venture
• Technology
• GPs
• China
• Redpoint China Ventures
• TMT