Deal focus: Gobi sees 100x return on Airwallex

Airwallex is commonly hailed in its native Australia as evidence of the local ecosystem coming of age to produce unicorns that have what it takes to muscle into competitive global markets. Interestingly, the financial technology start-up is waving that flag for China as well.

The four founders were Chinese exchange students in Melbourne when they cooked up the idea for an automated international payments provider in 2016. They were young and well acclimated to Western culture and business practices but still boasted meaningful China connections and insights. At the time, Australia’s VC space offered scant early-stage investment support, so they turned to their home market.

Gobi Partners became the first institutional investor later the same year and re-upped in three more rounds, using three different renminbi and US dollar-denominated funds. As part of a recent $300 million round that valued Airwallex at $2.6 billion, the Chinese VC firm exited about 25% of its stake for a more than 100x return. Gobi expects to hold its remaining interest until IPO, although Airwallex CEO Jack Zhang has stated there are no such plans in the near future.

“This is an important milestone for Gobi, not just because we’re creating early liquidity for our LPs but because it shows that China VC is working,” says Michael Zhu, a managing partner at Gobi, who discovered Airwallex through a mutual China-based contact. “More business models are being innovated by Chinese entrepreneurs and brought to the world now. It’s not just Silicon Valley that’s going global. The impact of that is very important for Chinese VC firms.”

As students, Airwallex’s founders were acutely aware of the pains involved in transferring money to and from home, so they set about building a consumer-facing model. By the time of their $13 million Series A round in 2017, this had proven unworkable, and incoming investors Tencent Holdings and Sequoia Capital China joined Gobi in advising a shift toward B2B. It’s worth noting that Sequoia’s US franchise is an investor in Stripe, a global B2B payments leader with a valuation of $95 billion.

“They had the technology, and the team was solid, but they couldn’t launch their product for several months because the cost of acquiring customers was so high,” Zhu says. “We were constantly in discussions with them at that time, and they soon decided to do this pivot toward being an enterprise solution provider in the payments and foreign exchange sectors. That was a meaningful moment, and I think it set the tone for their success today.”

Zhu describes Airwallex as a clear leader in Asia with significant but early-stage inroads in Europe and the US. The company has more than 600 employees – versus around 15 in 2016 – across 12 offices. There are nine bases in Asia, two in Europe, and one in the US. Headquarters were moved to Hong Kong about two years ago, which is hoped to facilitate a partnership with Alibaba Group’s Alipay. Technical operations are still rooted in Melbourne.

Most of the client base is currently Chinese, but further internationalization is a key priority. This is expected to be supported by a geographically diverse investor base, including MasterCard, Salesforce, and ANZ Bank, as well as a wider product offering. Recent additions here include multi-currency debit cards provided in conjunction with Visa, a bank feed integration service with Xero, a rewards program, and online payment acceptance capabilities.

Breaking into Western markets will not be easy. In addition to Stripe, heavyweight incumbents include Paypal, Checkout.com, and Adyen. Market share in this space can be as difficult to defend, however, with industry standards still being set and the pie growing ever larger. According to Acumen Research, the global B2B payments market is growing 15% a year and set to cross $5 billion by 2027.

“It’s such a huge market, it’s not winner-take-all,” Zhu says. “Everyone will have their own niche, and the niches are not small either.”

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• Topics
• Australasia
• Trade sale
• Expansion
• Technology
• Financials
• Greater China
• Australia
• Fintech
• Gobi Partners