IDG Capital: Jack of all trades

Nearly 25 years after International Data Group made its first investment in China, the child has absorbed the parent. In a deal reportedly worth up to $1 billion, IDG Capital and China Oceanwide Holdings Group will acquire International Data Group, giving the China-based GP control over the global investment business of the firm that seeded it. Oceanwide will get the operating assets, including Computerworld and PCWorld, plus a suite of market intelligence, advisory services and events.

It is a logical outcome. With 10 funds under management, covering US dollars and renminbi – the most recent growth fund closing last year at $1 billion – IDG Capital has clearly outgrown IDG Ventures, which has $3 billion under management globally. The China entity can now take ownership of the franchise, eliminating the need to hand over a slice of the economics to a weaker parent.

However, the deal also poses questions about IDG Capital’s wider ambitions. For many – journalists included – the firm is something of a black box. It appears to raise capital swiftly and secretly, like most China venture capital firms; the International Data Group commitment to each fund is unknown. A common criticism from LPs who have conducted initial due diligence on the manager is they find it hard to establish who is actually doing the deals.

Furthermore, there have been several spin-outs, including Banyan Capital, Lyfe Capital and Furui Fund. While the explosion of interest in Chinese venture capital over the past two years has arguably made it easier for first-time funds to raise capital, it makes one wonder how deep IDG Capital’s bench goes and what steps are being taken to share out the economics and retain mid-level talent. There is a reason why succession planning has become a talking point in China’s private equity industry.

Yet for all its opacity, IDG Capital is everywhere, a fixture in technology investments ranging from early winners like Baidu and Tencent Holdings to fledgling unicorns such as Xiaomi and Meitu whose gains are still on paper. The firm’s 2016 “report card” revealed that more than 110 companies had completed funding rounds over the course of the year and 15 achieved valuations of $1 billion or more, taking the total number of unicorns in the portfolio to 26 over 12 years. There were also three IPOs and 14 M&A exits.

The same report card offered insights into what IDG Capital seeks to become. The firm describes its strategy as “VC plus,” in that it now pursues private equity and M&A in addition to early-stage deals. This is also reflected in the name changes. From the launch of the debut fund in 1992 through the establishment of a series of China vehicles with Accel Partners and the introduction of international institutional investors, the firm was known as IDG Ventures China. In 2009, it switched to IDG Capital Partners, recognizing the presence of growth capital funds, and more recently it became IDG Capital.

While Breyer Capital is the partner on the latest growth fund, the firm’s foray into M&A is taking place in conjunction with China Everbright. Their co-GP partnership fund launched last May, achieved a first close of RMB10 billion ($1.5 billion) within a month and is expected to reach a final close of RMB25-30 billion in the first half of this year. It is intended to combine IDG Capital and China Everbright’s respective strengths in identifying new economy opportunities and managing M&A.

For investors considering any of IDG Capital’s funds, the question is whether this broad range of interests is additive or dilutive to the overall strategy. At a time when new competitors are emerging in the China venture capital landscape and there is increased focus on value-add, IDG Capital must show it has the bandwidth and entrepreneurial verve to be all things to all people. Is this possible for a GP that during one fortnight last August bought a stake in French football club Olympique Lyonnais and took part in a Series C round for Chinese e-commerce platform Daling?

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• Topics
• Greater China
• Buyouts
• Venture
• Early-stage
• IDG Capital Partners
• China
• M&A