Deal focus: Nio Capital gets real with Nreal

Nio Capital has known Nreal, a China-based manufacturer of augmented reality (AR) glasses, since the company was founded in 2017. A member of the GP’s investment team and Nreal’s founder are fellow alumni of Zhejiang University, which has emerged as an important foundation stone of China’s start-up community. However, Nio Capital didn’t invest until last year, when Nreal launched its latest product. The reason was simple.

“I was blown away by the excellent experience of the product. It is light in weight and has a great visual effect with high brightness and a wide field of view,” said Ian Zhu, a managing partner of Nio Capital, “In fact, the technology and user experience are world-leading.”

Nreal’s hallmark is a design concept that captures these features in the shape of traditional sunglasses. This means its products are lighter and cheaper to buy than those of comparable peers. Microsoft’s mixed-reality glass HoloLens2 comes with a USD 3,500 price tag; Magic Leap’s debut headset costs USD 2,300; Nreal’s product starts at around USD 600. It is available in Japan, South Korea, the US and Europe, and there are plans to launch in China this year.

Alibaba Group recently led a Series C extension of USD 60m. This followed a Series C of USD 100m in September 2021 led by Nio Capital, Yunfeng Capital, and Hongtai Capital. The USD 15m Series A in 2019 and USD 40m Series B in 2020 featured the likes of Shunwei Capital, China Growth Capital, Aplus Capital, short video platform Kuaishou, robotics developer Siasun, and video streamer iQiyi.

Nio Capital’s angle was that AR glasses – as well as virtual reality and mixed reality products – are a good fit for smart cockpits in next-generation cars, which boast computing power, a strong power supply, and a relatively closed and stable space. The GP has also backed Nolo, another VR start-up, and Ambilight, which makes colour-changing glass well-suited to windshields and windows.

Into the value chain

Nio Capital typically focuses on Series A and B rounds, committing USD 5-30m to companies with go-to-market technologies. The electric vehicle (EV) value chain is the firm’s main battlefield – unsurprising given its industry ties. William Li, founder of EV maker Nio, is one of three managing partners at Nio Capital, though the firm operates independently.

Batteries came first. Nio Capital backed lithium-ion battery manufacturer CATL and battery materials supplier Ronbay Technology in 2017. Autonomous driving led the next investment wave, resulting in investments in Pony.ai, Momenta, Black Sesame Technologies, Inceptio, and Innovusion. They encompass autonomous driving technology, semiconductors, and LiDAR systems.

Since 2019, Nio Capital has focused on auto industry digitalisation. Its portfolio now includes the likes of Newlink, a platform that matches drivers with gas stations and charging piles, Whale, a digital marketing start-up, and Bocloud, a platform-as-a-service (PaaS) provider.

Car-relevant semiconductor products are a key theme given one car can feature multiple chipsets each costing tens of thousands of renminbi. Zhu believes that in the next 10-20 years, the “intelligentisation” of automobiles will lead to upgrades in semiconductor technologies. Nio Capital has backed GPU chip maker Biren and data processing unit (DPU) provider Jaguar Microsystems.

The firm’s investments are often accompanied by access to industry resources. For example, Nreal was introduced to Nio’s product development team with a view to working on in-car scenarios. The two companies announced a partnership at last year’s Nio Day, an event used by the company to showcase new EV models. Nio and Nreal are now working on AR glasses for in-car entertainment.

Zhu stresses that strategic access to Nio does not come at the expense of Nio Capital’s independence or its pursuit of investment returns. However, he claims that Nio Capital’s industry heritage and focus means the firm doesn’t chase hot investment trends for the sake of it. 

"We think more from the end-game paradigm, namely what the auto industry will look like in five to 10 years and what new technologies will emerge. The end is where we start, and our investments are based on this philosophy,” said Zhu.

Road testing

Innovusion is an example of this approach. In 2018, Nio Capital screened all LiDAR companies globally and asked Nio to conduct product tests. Innovusion was selected because Nio believed the technology could meet regulatory requirements and reduce costs to achieve large-scale commercial landing.

When investor sentiment on autonomous driving cooled in 2019, Nio Capital kept on re-upping in Innovusion in expectation of a longer-term payoff. In 2020, Nio announced it would collaborate with the company on EV models equipped with LiDAR. Consequently, Innovution will achieve higher mass-production volume than any other LiDAR developer globally this year.

While Nio Capital leverages its connections to Nio, the GP has cultivated a strong network of its own. Zhu claims that most deals are sourced on a proprietary basis. Moreover, it encourages portfolio companies to pursue relationships with a wide range of industry-relevant investors.

“We encourage our portfolios to partner with other auto companies and serve the entire auto industry. This is what we’ve been adhering to since our inception," said Zhu. "As William puts it, the auto industry is not a winner-takes-all market. We endeavour to promote a more inclusive ecosystem."

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• Topics
• Greater China
• Expansion
• Technology
• Nio Capital
• Electric Vehicles
• TMT
• Growth capital
• Alibaba Group