Fund focus: Glory's deep-tech thesis gains traction

Glory Ventures received significant support from fellow China VC managers for its debut fund in 2017. Scaling up from $20 million to $120 million for its sophomore vehicle, the LP base was always going to look somewhat different.

While the likes of Gaorong Capital, 5Y Capital, and Lightspeed China Partners came into a first close of $34 million in April of last year, the full investor roster is far more diverse. Glory broke new ground by securing commitments from a US foundation and a US technology corporate. It also won support from top financial groups in South Korea and Hong Kong, several family offices, and a high-profile – yet unnamed – Chinese entrepreneur.

The only new LP that has been disclosed is Unicorn Capital Partners, a fund-of-funds specializing in early-stage venture capital. Gaorong is one of its portfolio GPs.

Glory launched the fund in 2019 and faced challenges in the initial stage. It was tough finding favor with seasoned US LPs that were wary of backing one of China's first deep-tech specialists. When the firm outlined its preference for infrastructure-level tech over application-level tech, investors expressed concerns about exposure to capital-intensive segments like semiconductors.

"They have experienced several cycles and witnessed the first batch of semiconductor-focused funds in China some 20 years ago, which didn't make much money," says Guang Yang, a founding partner of Glory.

The dynamic started to shift in 2020. While the endorsement of leading Chinese VC firms was helpful in mobilizing mainstream capital, a perceived acceleration in the US-China technology decoupling phenomenon was even more transformative.

Suddenly, Beijing was issuing policies in support of "new infrastructure" and even the most conservative LPs recognized that China was going to cultivate its own deep-tech ecosystem.
"Various hot deals in the market have also helped to educate LPs. They acknowledged that this would not be a short-term thing; China deep-tech would be a 20-30-year investment theme," says Yang. "The only question that remained was how we differentiate ourselves from other tech investors."

Glory takes a systematic approach to screening, dividing the market into four categories that correspond to the four steps of data processing: acquisition, transmission, storage, and computing. Nevertheless, the firm found that relevant start-ups were getting very expensive very quickly as other investors pounced on the new infrastructure opportunity. Glory responded by cooking more of its own deals. Of the seven projects in Fund II to date, three were initiated internally.

"When we are optimistic about a particular direction, we go find the best team, and then work with them on the project. We know people in the industry, we know who would be suitable for this or that. It is one of our advantages," says Yang.

Since the first half of last year, the world has been in the grip of a semiconductor shortage, blamed to varying degrees on stockpiling and a slow response to booming demand for electronics during the pandemic. Automotive manufacturers are among those worst affected, given the importance of microcontrollers (MCUs) in electronic control units found in everything from seats to doors to transmissions. China's automotive-grade MCUs come from Europe and the US.

Forecasting continued short supply, Glory approached the design head in a European automotive chip design house's China R&D center and persuaded him to spin out. Over the next six months, a team was built around him comprising some core engineers from the same firm, and the nascent start-up completed a Series A round.

While some ideas emerge through mapping out industry trends, others can be linked to the heritage of Glory's founders, Yang and Zongyi Bai. Both previously worked for Infinity Equity Capital, a cross-border venture capital firm based in Israel, and they draw on that country's cutting-edge technology. For example, Israel invented the concept of SmartNIC whereby network interface cards – previously used only for transmitting data – ease the computing burden on CPUs and GPUs.

"When your data center has too much traffic, your CPU becomes overwhelmed. Since data has to be forwarded to the CPU through the network interface card, why can't I do the processing on the card," explains Yang.

There are two early movers on SmartNIC in Israel; one was acquired by Amazon and the other by Nvidia. Following its $6.9 billion purchase last year, Nvidia started marketing SmartNIC as DPU – or data processing unit – and assigning it similar importance to CPU and GPU. Glory has established a Chinese start-up in the space, drawing on ex-employees from British semiconductor design company Arm and Alibaba Group. A seed round has already been completed.

The venture capital firm now has around RMB2 billion ($314 million) in assets under management across five funds. Three are renminbi-denominated vehicles of RMB50 million, RMB180 million, and RMB682 million, respectively.

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• Topics
• Greater China
• Venture
• Technology
• Fundraising
• GPs
• China
• Glory Ventures
• deep-tech
• semiconductor