Fund focus: Future Capital looks forward

"It was the perfect time to start fundraising," jokes Mingming Huang (pictured), founding partner of Future Capital, in reference to launching his firm's latest US dollar-denominated vehicle in late February, when COVID-19 was at its peak in China.

At the time, China was entirely locked down and travel within or outside of the country wasn't an option. Nevertheless, Future Capital achieved a first close in four weeks, relying heavily on re-ups from existing LPs. A final close of $187 million came seven months later. It was ahead of schedule and the fund was 60% oversubscribed.

New LPs account for 40% of the corpus, and they include four of the world's top 20 university endowments. "We're the only Chinese GP some of these LPs added this year. For a number of them, it's also their first time backing an early-stage specialist GP in China," Huang adds.

Some of the new investors have yet to meet Huang in person. The entire due diligence process was conducted online, through interviews with team members and portfolio companies as well as reference calls with other investors industry participants.

While COVID-19 proved challenging from a fundraising perspective, it has underscored the relevance of Future Capital's investment thesis as consumers gravitated to online channels in greater numbers.

Even traditional aspects of the capital markets process have been disrupted. When Li Auto, a Future Capital portfolio company went public in July, the roadshow was entirely virtual and the listing ceremony took place via video link with NASDAQ. "When my friends saw me ring the bell that day, they asked me if I was in New York. Actually, I was in Shunyi district in Beijing," says Huang.

About 50 Future Capital portfolio companies have completed new funding rounds this year, with online due diligence playing an important role. The firm also made seven new investments. The initial meetings were all online, with offline meetings only resuming once China reopened.

Software that enables co-working might be a logical investment angle given this fundamental shift in operating practices, but Huang is disinterested in the space. "As an early-stage VC, it's too late for that sector. We've backed Shimo since 2015 and they are now the top document-sharing and collaboration software in China," he explains.

Rather, Future Capital is focusing on opportunities in transitions to the cloud, notably opensource software – including underlying and middleware products – for cloud-based infrastructure.

"There will be a huge change. Many businesses are built on cloud-native architecture today," Huang says. "Traditional databases and infrastructure software can no longer support the flexibility and high-speed expansion requirements of cloud-based enterprises."

Other areas of interest for Future Capital include logistics technology, the internet of things, electric vehicles (EV), and autonomous driving. Li Auto sits in the firm's first US dollar fund alongside Niu Technologies, a specialist two-wheeler EV manufacturer that listed in 2018. Future Capital was the sole participant in the first funding round for each company and went on to participate in seven for Li Auto and three for Niu.

"Each of these companies can pay back multiple times the value of our first fund," says Huang.

Future Capital now manages four US dollar and one renminbi fund, with approximately $500 million in assets under management. It claims an 8-10x multiple and a gross IRR of 45-55% across all its funds.

For early-stage technology investors, Huang thinks the biggest challenge is finding the right combination of technology and application scenarios. "What are the key application scenarios for a particular technology? And what kind of change will happen in the external environment? These are the key questions in judging whether a start-up can take-off quickly," he observes.

China represents the world's biggest treasure trove of data and it boasts the largest application scenarios, which put the country in a favorable position to deliver global leading business-facing and consumer-facing companies. Huang cites Duckbill as an example. Future Capital recently participated in a $30 million pre-Series B round for the digital fleet management platform provider for the trucking industry.

"The ports in Shanghai and Ningbo are respectively the world's largest and third-largest container terminals, and China accounts for 30% of global exports by volume. Duckbill is already the number one player in Shanghai and Ningbo Port, so it is the world's largest digital truck dispatching platform in container terminals," says Huang.

He compares Duckbill with Los Angeles-based Next Trucking, which has raised around $125 million in venture capital funding and closed its most recent round in 2019 at a reported valuation of $500 million. While the companies have a similar product offering, Los Angeles only ranks 17^th among container terminals globally.

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• Topics
• Greater China
• Fundraising
• Venture
• Technology
• Early-stage
• China
• Future Venture Capital
• TMT
• enterprise software