Fund focus: China’s Glory wins VC backing

When Guang Yang and Zongyi Bai left Infinity Equity Capital, a cross-border VC firm based in Israel, to launch Glory Ventures in 2015, Gaorong Capital immediately offered support. It took a stake in Glory’s onshore management entity, which soon raised a RMB50 million ($7 million) debut fund. The remit was to back deep technology start-ups in Israel and China.

However, once the Chinese government imposed restrictions on outbound direct investments in 2016, Glory needed US dollars for Israel investments. A first US dollar-denominated vehicle closed at $20 million in 2017 and a second renminbi fund of RMB180 million followed later the same year.

Glory has maintained this momentum, closing a third renminbi vehicle at RMB682 million at the end of last year and reaching a $34 million first close on a second US dollar fund in April. The overall target is $100 million. The firm’s total assets under management are around RMB1.5 billion and it counts Gaorong, Morningside Venture Capital, Lightspeed China Partners, and Sky9 Capital as LPs.

“When we started investing in deep technology and 2B sector in 2015, few VCs were in the space, but it has changed significantly over the past two years. VCs like to know our deal flow early and perhaps make investments that follow the same track,” Yang tells AVCJ.

Glory takes a systematic method to screening the technology sector, allocating 70% of its capital to infrastructure and 30% to applications. Its entire investment philosophy is based on dividing data points into four categories corresponding to the four steps of data processing: acquisition, transmission, storage, and computing.

First, Glory has invested in sensors and semiconductor chips that help with data acquisition. Portfolio companies include Vertilite, which develops vertical-cavity surface-emitting lasers (VCSEL). Apple incorporated the technology into the iPhone X in 2017 as a key component in the facial identification function. Vertilite subsequently became the largest supplier to Huawei Technologies.

Second, regarding data transmission, Glory backed Senscomm Semiconductor in the expectation that Wi-Fi speeds must increase with the advent of 5G. Xiaomi led the round. “Xiaomi manufactures a series of home appliances that connect through Wi-Fi. In this industry, you need good customers to work with you at an early stage. That’s why we brought in Xiaomi,” says Yang.

In data storage, the firm invests in equipment that controls data reading and writing to storage devices. Glory backed one at enterprise level and another at consumer level. They merged in April under the Yeestor Microelectronics brand and received a RMB200 million round led by Alphatecture.

Finally, the firm’s computing investments involve big data applications. Glory supported an angel round for Open Ai Lab, a platform that runs AI computing using traditional chips. “You don’t need an AI chip, you can run AI application on any hardware with upgraded computing power,” says Yang. Sequoia subsequently led a RMB100 million round for Open Ai Lab.

While this systematic approach helps Glory find deals, it offers additional value to these start-ups through corporate alliances. Much as VC firms collaborate with Baidu, Alibaba Group and Tencent Holdings to source capital and access to users for consumer internet businesses, 2B specialists target hardware giants. Huawei Technologies, Xiaomi, SAIC Motor, Oppo, Vivo, and Samsung all feature on Glory’s list of strategic partners.

The firm’s other differentiator is its Israel expertise. At Infinity, Yang and Bai – both electronic engineering graduates with strong research backgrounds – would regularly give Chinese corporates tours of Israel’s technology sector. This experience taught them one key lesson. “We must work with top-tier suppliers. If you bring cutting-edge Israeli technology to tier-two customers in China, it’s impossible to do the technology landing,” Yang says.

A more recent complication is trade tensions between the US and China, which is expected to result in a technological decoupling of the two markets. Glory has responded by shifting focus from overseas to domestic start-ups. It presents a different set of challenges, but Yang believes there could be considerable opportunities in the longer term.

“Due to the trade war, all Chinese companies on the sanction list [a blacklisting from the US government means special approval is required to buy components from US companies] must reconstruct their supply chains,” he says. “Those not on the list are thinking about diversifying their supply chains. Many Chinese players can become major suppliers within these supply chains.”

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• Topics
• Greater China
• Venture
• Technology
• Renminbi fund
• Fundraising
• GPs
• China
• Glory Ventures
• Gaorong Capital
• Morningside Technologies
• Lightspeed Venture Partners
• Sky9 Capital
• TMT