Fund focus: Ince eyes global entrepreneurs

As architect of Binance, one of the world’s largest cryptocurrency exchanges, Changpeng Zhao has accumulated a USD 96bn fortune, according to the Bloomberg Billionaires Index. His journey into the asset class began at a Shanghai poker game in 2013, where the founder of BTC China was among the players. So was J.P. Gan, founding partner of Ince Capital Partners.

“CZ [as Zhao is commonly known] listened and did something about it. I laughed about it,” Gan (pictured) recalled. “But we are interested in this area now.”

Zhao is relevant to Ince’s second fund – which recently closed at USD 478m and was accompanied by USD 222m later-stage vehicle – in two respects. First, cryptocurrencies (outside of China), metaverse, non-fungible tokens (NFTs), and Web 3.0 are expected to play a more prominent role.

Second, Ince is keen to back Chinese entrepreneurs in international markets. Zhao, a Chinese-born Canadian citizen who was active on the Shanghai entrepreneur scene before establishing a virtual business that largely defies geographical boundaries. Ince has existing international exposure through Patpat, an online children’s apparel platform with sizeable North American footprint.

“China has a huge number of software engineers who are willing to work longer hours for less pay than Silicon Valley engineers. That resource is an important advantage,” Gan said.

“China is also a supply chain for everything – so experimenting by trial and error is easier – and then the market is so competitive, it’s almost like everything worth trying has been tried. We see companies like Facebook and Snapchat learning from e-commerce in China. The entire concept of social commerce was invented here.”

Ince tapped the rise of social commerce by backing Nice Tuan, a community group buying platform that relies on designated individuals to aggregate demand within their communities, place orders, and arrange bulk delivery. Capital poured into the space until last year, when regulators began cracking down on anti-competitive activity, specifically dumping products at prices below cost.

While noting that the business model remains valid, Gan admitted that it remains to be seen whether start-ups can still raise capital, especially in the later stages. Nice Tuan sought to raise a USD 1bn round in the first half of 2021 but ended up with less than half that amount.

Community group-buying was one of numerous consumer technology verticals targeted by regulators last year. The climate of uncertainty took its toll on venture capital fundraising, including Ince. The GP surged to a first close of USD 450m in July, two months after launch. Then Didi was investigated shortly after its US IPO, prompting widespread panic about the viability of offshore IPOs.

“I thought I was going to be way oversubscribed, at USD 800-900m. When we did the first close in July, LPs were throwing big numbers at me. One institutional investor said to me, ‘We have a global board meeting in October, please hold off on your final close until then, I will sign the day after.’ With all the regulatory changes, that check didn’t come in,” Gan said.

Although some new investors came in, Ince finished above its USD 450m target largely thanks to re-ups. All the endowments, foundations, and fund-of-funds in Fund I re-upped for Fund II. Among them are Duke University, Carnegie Mellon University, University of Pittsburgh, Kaiser Permanente, The Dietrich Foundation, Commonfund, Unicorn Capital Partners, Axiom Asia, and Siguler Guff.

The final close came as knee-jerk reactions were replaced by cool-headed analysis. According to Gan, LPs reviewed their global asset allocations and concluded that China was simply too big to ignore. At the same time, he rationalizes the regulatory upheaval by observing that previous crackdowns have not proved fatal, and the Chinese government is ultimately pro-growth.

“Local governments are very interested in attracting investment and capital, especially foreign capital. Every time we register a WFOE [wholly foreign-owned entity] or joint venture, there’s no resistance. The process has become easier and more transparent in the last few years,” he added.

Ince remains focused on early-stage opportunities at the nexus of consumer and internet, essentially tracking the spending habits of the 300-400m people considered middle class. The current portfolio features the likes of e-commerce platform Black Unique and online-to-offline retailer KK Group, but there are also B2B plays such as education software-as-a-service (SaaS) specialist Eeo Education.

The underlying requirement for hardware investments is that a clear consumer application can be demonstrated. Within this scope, the venture capital firm will consider anything from semiconductors to robots to artificial intelligence. Interest in semiconductors has risen with the advent of Shanghai’s Star Market, global supply chain shortages, and fractured US-China relations.

“We probably won’t be backing those big AI chip companies,” Gan said. “We will look for niches, key components of mobile phones, 5G base stations, robots, or electric vehicles where there is a practical need and solutions can be used immediately in existing hardware.”

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• Topics
• Greater China
• Venture
• Fundraising
• Technology
• China
• Ince Capital Partners
• GPs
• TMT