Fund focus: Eastern Bell targets digitalisation

In the second half of 2021, as China’s technology sector was blanketed in clouds of regulatory uncertainty, many international LPs switched to a “wait and see” approach regarding commitments to managers focused on the country. Eastern Bell Capital was not unduly deterred.

“Several new LPs came in after July 2021. They did pause for one to two months, but they quickly restarted due diligence and finally made commitments,” said Daniel Sun, a partner at the private equity firm, which has exposure to the technology sector through its focus on supply chains and digitalisation.

Eastern Bell launched its second US dollar-denominated fund in August 2020 with a USD 600m target. A first close of USD 350m came four months later and the hard cap was set at USD 700m. The firm recently announced a final close of USD 800m, with a 95% re-up rate.

Existing investors accounted for about half the final corpus. New LPs includes foreign sovereign wealth funds, pension funds, European family offices, and one overseas-based insurer.

Sun admits there continues to be a reticence among LPs regarding China, but most want to retain a China allocation. Rather, they are making more concentrated bets and favouring managers they know well. “Originally, they planned to support, say, five GPs; they end up choosing only two or three,” he said.

Industrial angle

Fund II will follow the same strategy as its predecessor – which closed in 2019 on USD 365m – with a focus on industrial digitalisation. Eastern Bell's renminbi funds also take this approach. A final close on the sixth, of around CNY 8bn, was announced concurrently with the latest US dollar fund. The firm’s total assets under management now exceed CNY 27bn.

When 2B and industrial digitalization has emerged as popular themes among Chinese GPs, Sun claimed that Eastern Bell’s strategy is distinct because it emphasizes "industry,” whereas 2C investors entering this space typically prioritize “technology.” Deal-sourcing, therefore, is different, with Eastern Bell better-positioned to leverage industrial networks and entrepreneurs.

One example is Zhenkunhang, or ZKH Industrial Supply, a leading player in maintenance, repair and operations (MRO) best-known as a one-stop shop for industrial accessories, consumables, and spare parts. The company, which stocks four million products under 8,000 brands and supplies over 15,000 customers, raised USD 315m in Series E funding in 2020.

ZKH was founded by Long Chen, initially a sales agent in the adhesives space. His vision was to rebuild traditional procurement channels through supply chain digitalisation, integrating trading platforms, digital tools, and intelligent services. Eastern Bell first participated in a USD 53m Series B in 2017 and it has re-upped in each subsequent round.

“When we invested in ZKH, it was only the third-largest player, the two leading ones were both built by entrepreneurs with consumer-internet backgrounds. But we saw value in Chen’s industrial experience. Accumulating SKUs [stock keeping units], distinguishing the good from the bad, and serving industrial customers is very different from the 2C market,” said Sun.

Supply chain specialist

Eastern Bell’s relatively tight focus is a product of its origins. The firm was co-founded in 2010 by Li Yan and Zhiming Mei, CEO of GLP China, the country's largest warehouse operator. Yan serves as CEO. Logistics was a logical starting point, but thereafter Eastern Bell gradually expanded into consumer and supply chains.

“Logistics is the flow of goods. Retailers are natural customers of logistics players. We decided that we needed to understand business flow to invest better in logistics, so we expanded into consumption," said Sun. "When logistics, supply chains, and consumption are all connected together, the circulation of commodities is a complete cycle.”

Eastern Bell claims its approach to the consumer sector is also differentiated. The firm emphasizes supply chain capabilities rather than purely focusing on consumer demand and the consumer experience. This informed a decision to invest in electric vehicle manufacturer Xpeng in 2018 as part of a Series B extension. Xpeng went on to list in the US two years later.

“Usually, when people think about supply chains it is only about supplier management and how to procure parts, but we believe that R&D capability is part of a successful supply chain management,” said Sun. “We chose Xpeng because its R&D investment is the largest among all Chinese new energy vehicle brands.”

Eastern Bell claims to have invested in 200 companies to date. Of these, 30 have achieved unicorn status, including trucking platform Manbang and delivery start-up Lalamove. Five companies went public last year, among them JD Logistics and Xpeng.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Growth
• Technology
• GPs
• Fundraising
• China
• Eastern Bell Venture Capital
• Logistics