Deal focus: H&Q's reinvigoration factor

This year Shanghai and Shenzhen became the first Chinese cities to increase their monthly minimum wages above the RMB2,000 ($315) threshold. While notable, these hikes are by no means exceptional.

Over the past decade, minimum wages nationwide have risen by an average of 13% every year. China became the world's factory by virtue of its scale, ability to get goods to port, and low-cost labor. The government wants to climb the manufacturing value chain so shoe factories relocating to cheaper Vietnam is no great loss, but companies at every level must adjust.

"Up until 3-4 years ago an Asian company could survive in sub-contract manufacturing mode, but things have changed," says Ta-Lin Hsu (pictured), founder and chairman of H&Q Asia Pacific. "Furthermore, the old method of transferring technology from the West to Asia is changing due to the globalized world. Competition is based on innovation and this is where we saw that Asian companies usually fare more poorly compared to some of these very successful companies in Silicon Valley, for example."

H&Q's solution is a technology hub with a difference. Rather than focus on start-ups, it supports established companies looking for ways to survive in an increasingly competitive environment. And instead of taking talent and technology from the US to China, H&Q brings the companies to the US.

To this end, the PE firm has launched the Global Innovation Center (GIC) initiative, which is housed in two commercial properties in Burlingame, about a 10-minute drive from San Francisco International Airport. The overall space is 260,000 square feet and the private equity firm paid $90 million for it. Another $10 million will go towards developing and operating the GIC concept - networking, programming, technology transfer, and marketing to prospective tenants.

H&Q has 6-7 funds, including its flagship offshore fund, which closed at $550 million a few years ago and is about 50%-invested. GIC is a real estate project and it doesn't sit within the investment criteria of any of these vehicles, so the private equity firm raised a special project fund, comprising $50 million in equity and $50 million in debt.

In certain cases, H&Q will also back its tenant companies financially. "Rather than waiting in our office for the deal to hit us, then doing due diligence and making an evaluation, we will help companies to innovate and come up with new ideas, devices, software and technology," Hsu says.

"If they are receptive to this concept of getting access to what Silicon Valley has to offer and making changes, we have first right of refusal to invest."

The facilities are already 85% occupied and there is space to add another 200,000 square feet to the campus if necessary. But as old tenants move away they will be replaced in the cluster by others in H&Q handful of target sectors: medical instruments, batteries, automotive, the internet, software, and wearable devices.

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• Topics
• North America
• Greater China
• Technology
• Venture
• Expansion
• Technology
• TMT
• USA
• China
• Asia
• H&Q Asia Pacific
• Venture
• Growth capital