Fund focus: BlueRun defies China fundraising woes

China venture capital fundraising is enduring a bleak winter. Regulatory crackdowns across the technology sector, the repurposing of after-school tuition as a non-profit industry, and uncertain prospects for start-ups that aspire to list in the US have contrived to spook LPs. Some are still doing re-ups; others have put allocations on hold pending review.

Nearly USD 8.5bn was raised for US dollar-denominated China VC funds in 2021, down from USD 10.7bn the year before. Commitments generally faded as the year progressed, with only USD 1.5bn raised in the first quarter of 2022. The renminbi fundraising space is more volatile, quarter to quarter, but some concerns are shared regardless of currency.

The situation hasn’t been helped by lockdowns in top-tier cities as part of China’s “dynamic zero” COVID-19 containment policy. Nevertheless, BlueRun Ventures China (BRV China) recently closed the third iterations of its US dollar and renminbi funds with aggregate commitments of CNY 5.5bn (USD 819m). This compares to CNY 3.5bn in the previous vintage.

According to Jui Tan (pictured), a managing partner at BRV China, the renminbi fundraising process was fast and smooth. It launched in the second half of 2021 and took six months. Several government guidance funds were key contributors as part of their remit to drive innovation.

Foreign LPs were a tougher sell. BRV China began marketing the US dollar piece in the second half of 2020. It was difficult to build up momentum amid mounting LP concerns about China.

“Overseas LPs are unsure whether Chinese start-ups can succeed based on self-developed technologies and whether they can deliver world-class technological innovations,” said Tan. “Seeing is believing, so we take our LPs to visit portfolio companies or set up video chats between them and entrepreneurs.”

One LP, on trying out a Li Auto-made electric vehicle (EV), concluded that “the experience matches that of BMW and Mercedes-Benz, and the price is very attractive,” Tan explained.

Tan is convinced that China is capable of nurturing global-leading technology companies that not only serve China market, but also other countries. Such multi-market strategies not only hedge the regulatory risks tied to single country exposure, but also create higher market ceilings and contribute to larger revenue bases.

BRV China sees new energy as an area in which China has a strong competitive edge. It was responsible for 77% of global lithium-ion battery manufacturing in 2020; the US was second, with 9%. In addition to Li Auto’s cars, the firm has backed electric mining cart player EasyMove, which can handle larger loads than diesel-powered vehicles.

“China's coal production accounts for 50% of the world’s total, and we can leverage this huge market to maximize performance of EasyMove’s product and reduce cost,” Tan said. “After that, it can become a very competitive product globally and serve not only coal mining but also mining of precious metals.”

Historically, China’s start-up success was underpinned by comprehensive supply chain and manufacturing infrastructure. Those are now increasingly integrated with software or artificial intelligence (AI) capabilities – for example, in robots, Tan explained. BRV China-backed Gaussian, which makes commercial cleaning robots, has already entered over 30 countries.

“Why can our robots beat US or European competitors? A new product is not designed to be sold for five to 10 years. Rapid iteration is the key to success, so your manufacturing capability must be able to keep up with your pace of iteration speed,” Tan added. “Lower production costs in China is another reason.”

As for software, BRV China believes the sheer volume of data circulating in China has enabled start-ups to develop strong AI capabilities. Further, it is helpful that domestic companies run effective online community operations, which contributes to a better customer experience and generates even more data – in the form of customer feedback – that guides iteration.

CellRobot provides kits so that users can learn how to build their own robots and runs an online community that showcases new designs. Once a solution or robotic movement is followed by enough users, the person who came up with the idea is rewarded. In this way, users inspire one another to devise new product features.

BlueRun was founded in Silicon Valley in 1998 and entered China in 2005. The local operation later went independent and now has CNY 15bn in assets under management. The team remains bullish on early-stage activity in China’s technology sector, while cautioning that the character of the founding team is just as important as the business fundamentals.

The question is whether the firm has enough capital to stick with stand-out companies through later-stage rounds. “We must consider this, especially as the market has low liquidity right now,” said Tan. “If there isn’t enough interest from other investors, can we continue to support a company? If we can’t afford it, then we have to drop it.”

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

• Topics
• Greater China
• Fundraising
• Venture
• Technology
• China
• BlueRun Ventures
• TMT
• deep-tech