Fund focus: CCV raises $300m for China fund

When COVID-19 began to escalate in Wuhan in January, Wei Zhou (pictured), founding partner of China Creation Ventures (CCV), was already on the fundraising trail in the US with his firm's second US dollar-denominated vehicle. From late February, LPs started getting nervous about meeting a GP from China, so Zhou would reassure them by detailing his travel itinerary. "None of our planned meetings were canceled," he says.

Having secured commitments from fund-of-funds, endowments, and family offices, Zhou returned to Beijing in March and a first close of $160 million took place later that month. The fundraising process was completed in September with commitments of more than $300 million against a target of $250 million.

The final phase was not easy. Progress was sufficiently slow between April and June that Zhou considering postponing the final close until next year. By this point, investors were not only worried about the pandemic but also about the prospects for China's economy amid rising tensions with the US.

However, LPs started to reengage in June, with some new investors relying on virtual due diligence because of travel restrictions. This typically involved interviews with each member of the CCV team, often multiple times, as well as meetings with portfolio company CEOs. Most of these LPs were already personally familiar with Zhou, having caught up with him face-to-face on previous occasions.

"There is a clear distinction between the two main groups of LPs. Some slowed deployment because of the epidemic and the China-US tensions, but others have thought through the risks thoroughly and recognize the opportunities in China. Their conviction is greater than before, and they move faster," says Zhou.

This thinking is partly macro-driven. Having contracted by 6.8% in the first quarter, China's economy grew 3.2% in the second and is expected to hit 5.2% in the third. Questions remain about the composition of growth – how much it relies on government spending on infrastructure versus a real private sector revival – but consumption is said to have been strong during the recent National Day holiday.

LPs might also have been persuaded by CCV's "pack hunting" approach, which it claims is distinct from other venture capital firms. Once a target is identified, all internal resources are directed at it. This means every partner meets with company management, rather than just voting on deals at the investment committee stage.

"As a small GP, the team must fight together as one. Now we have more than 10 investment professionals, sometimes they are divided into two groups, but the concept remains the same. All of us are deeply involved in every investment from an early stage. Our workload might be heavier than many other GPs, but the approach pays off. We have proved this methodology increases the success rate and it is replicable," says Zhou.

Current areas of interest include supply chain integration in specific industry verticals like auto parts and decorating materials, whereby online platforms bring manufacturers closer to end-consumers. Breaking down the traditional multi-layer dealer system brings cost savings and information efficiencies.

CCV remains active in digital health – for example, this year it re-upped in Shukun, which specializes in artificial intelligence (AI) technology used in medical imaging to support diagnosis – and it is exploring the technology-enabled transformation of traditional industries.

The firm's portfolio features Yunhu Technology, operator of a cold chain logistics system that transfers blood and urine samples, thereby allowing patients to visit rural clinics instead of large hospitals. Yunhu also has a dedicated software platform to which doctors upload test results and analysis and share them with patients.

In addition, Zhou believes there could be a revival in financial technology, with two other portfolio companies – JD Finance and Ice Kredit – announcing plans for Star Market listings. "The industry went through a downturn, but after three years, practices have become standardized, so there will be great opportunities for technology to transform finance," he explains.

The latest fund close takes CCV's assets under management to approximately $700 million. The firm was established via a spin-out of KPCB's technology, media and telecom (TMT) team in 2016 and closed its debut US dollar fund a year later at nearly $200 million. A renminbi vehicle of RMB1.5 billion ($220 million) also closed in 2017.

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• Topics
• Greater China
• Fundraising
• Venture
• Technology
• China
• TMT
• China Creation Ventures