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The “Best” Chinese Venture Capital Firms

If you follow the latest news coming out of Silicon Valley, you may have heard tech pundits bantering recently about the extent to which the Chinese plan to dominate the world using a complex strategy called working harder. Confucius says, “the harder you work, the luckier you get”, and the Chinese have taken this to heart, much to the chagrin of those who would rather we all clocked out at 16:00 and turned our work phones off in preparation for some employer-subsidized hot yoga. This led to lots of good-natured banter about whose work ethic is bigger. Maybe we should all just agree that China has now moved from fake BMW sports utility vehicles to some real world firsts in global technology that shows that they need to be taken seriously.

Sequoia partner Mike Moritz was recently raked over the coals for talking about how “Silicon Valley should Follow China’s Lead“. (This is coming from a guy who has dedicated more than 30 years of his life to successfully identifying what leads would be most lucrative to invest in, so take what he says with a grain of salt.) One thing that Mr. Moritz said which was surprising is that opportunities are readily available and “in many respects, doing business in China is easier than doing business in California”. If it’s that easy to invest in China, then we wanted to see who are the best venture capital firms currently operating there.

We’ve taken a look before at the The Top-12 Venture Capital Firms You Should Know About and now we’re going to put together a similar list of names for Chinese venture capital firms. The first thing we’ll get out of the way here is that Japanese company you keep hearing about called Softbank (TYO:9984), and that massive wad of cash they’ve been throwing around. We’re here to talk about China, so if you want to know more about how and why to buy Softbank stock, read this article instead. Just be aware that the emergence of Softbank’s massive +100 billion dollar fund has helped contribute to a staggering increase in the amount of venture capital Asia has contributed globally (about 43% in 2017). This chart from the PwC / CB Insights MoneyTree Report – Q4 2017 shows that growth over time:

Chinese business magazine CBNWeekly put out a list of the “best Chinese venture capital firms” which uses something other than financial metrics to rank the VC firms in China. That’s because Chinese venture capital firms don’t like to disclose financial information, so they used a method called “the ability to unearth unicorns” which sounds a lot more fun. According to this unicorn-centric methodology, the second most successful venture capital firm in China is Sequoia Capital China (2). Along with Sequoia, we also see a handful of other Silicon Valley names like Matrix Partners (3) and Redpoint Ventures (9). Here are the remaining Chinese venture capital firms in order of highest ranking first:

  • GSR Ventures (1) – About $2 billion of Assets Under Management (AUM) and a penchant for “entrepreneurs building large, disruptive businesses”. First to get in on a number of notable deals.
  • Tencent (4) – More on our section below about the “BAT stocks”
  • Morningside Venture Capital (5) – Founded in 1986, by the Chan family of Hong Kong. $1.7 billion AUM and some good past exits. Led the recent $112 million round into Pony.ai which barely missed our list of the 10 Most Funded Self-Driving Startups in 2017.
  • Bertelsmann Asia Investments (6) – Offers startups the means to scale which they call “Investor as a service” (IaaS). Their portfolio now generates annual revenues of over $2 billion. Seems like an incubator for startups that have great traction.
  • ZhenFund (7) – Seed fund established in 2011 in collaboration with Sequoia Capital China and with more than 400 portfolio companies. Dedicated to getting students who studied overseas to return to China and start businesses. 
  • K2VC (8) – Not a whole lot to add on this firm given their website isn’t localized. According to Crunchbase, they’ve made at least 39 investments so far. 
  • Qiming Venture Partner (10) – Backed over 210 companies since 2006 with $2.6 billion in AUM

Since we’re trying to come up with a list as judged by the Chinese, we stuck with the most recent “top 10 VC list” we could find which was the one published by CBNWeekly in spring of 2017. When we cross-checked the list against an older ranking of China’s top 10 venture capital firms according to China Daily, the results were completely different. While the China daily top-10  list came out in 2015 as a copy derivation of an unnamed Forbes list, the names turned out to be entirely different from those picked by CBNweekly. Here are the new Chinese venture capital firms that came out of the China Daily list along with a bit about each:

  • Sequoia Capital China (1) – Another vote of confidence for Sequoia being the only venture capital firm to be found on both lists
  • IDG Capital Partners (2) –  Sold to a private Hong Kong conglomerate called China Oceanwide Holdings Group which controls around $20 billion in assets. Here are 5 things to know about the acquiring company if you’re interested. 
  • SB China Capital (SBCVC) (3) – Founded in 2000, not one bit of company news has been posted on their website since 2014 so who knows what they’ve been up to. They certainly haven’t been spending that time working on their web presence:

Think globally, act locally…

  • Legend Capital (4) – Founded in 2001 with a present AUM of around $5.5 billion. By 2016 they had invested in over 300 companies, of which over 50 are successfully listed and around 40 achieved exit through M&A.
  • Shenzhen Capital Group (5) – State-owned venture capital firm that was founded in 1999 and has since invested $3.5 billion into 683 different projects in “emerging industries”. Sounds like they have loads of capital to access and they’re ambitiously looking outside China as well according to this article by China Daily
  • Capital Today (6) – Launched in 2005 and said to be the “first independent private equity firm in China”. Manages about $1.5 billion in funds. Looking for mid-caps with growing pains.
  • Fortune Capital (7) – Founded in 2000 with about $3.2 billion in assets under management. Among their 410 portfolio companies, 105 investments successfully exited (70 through IPO and 35 through M&A) and another 77 listed as Chinese over-the-counter stocks
  • NewMargin Ventures (8) – Founded in 1999 with $3 billion under management. So far they’ve invested $1.7 billion in 160 companies of which more than 40 have gone public in domestic or international stock exchanges. 
  • KPCB China and TDF Capital (9) – Founded in 2000 and then did a joint venture with noted U.S. VC Kleiner Perkins Caufield Byers in 2007. No mention made of current AUM.
  • SAIF Partner (10) – Founded in 2001 with about $3 billion AUM and investments in 100 companies. Originally spun out of Softbank as an infrastructure fund but now focused on investing in both China and India. 

Along with Tencent mentioned earlier, a few more names often crop up when talking about Chinese technology investing. These are collectively referred to as the “BAT stocks” with BAT being an acronym for Baidu, Ali Baba, and Tencent. Here’s a bit about their venture capital investing efforts.

  • Baidu (NASDAQ:BIDU) – Established Baidu Capital in 2016 with $3 billion and a focus on mid- and late-stage deals in the internet sector (also autonomous autos). Another $200 million fund called “Baidu Ventures” was raised that same year with a focus on artificial intelligence, virtual reality, and augmented reality projects in both the USA and China.
  • Ali Baba (NYSE:BABA) – With a market cap more than half a trillion dollars, Ali Baba makes investments as part of their growth strategy similar to what Google or Apple would do. Here’s a pattern on their investments over time:
    You may want to check out this excellent article from Tech in Asia which talks about Ali Baba’s ten biggest investments around the world in 2017 (7 of which took place in China).
  • Tencent (HKG:0700) – Weighing in at about the same size as Ali Baba, Tencent also dabbles in lots of acquisitions, and most notably has managed to catch more unicorns than any other player according to data Bloomberg took from CB Insights:

We’ve now briefly covered some of the more notable venture capital firms in China, though it was disheartening to find such differing opinions on what “best” really means. There will always be many ways you can measure the “best” venture capital firm based on meaningful metrics like AUM, number of deals, investments in unicorns, successful exits, etc. The key here is to learn some names of the more notable Chinese venture capital firms because they will be coming up a lot more in global market news.

Going back to Mr. Mortiz and his thoughts on China, another thing he picked up on was the ability most Chinese people have to sleep on demand (especially in tour buses). That’s actually a trait (genetic as far as we can tell) that all Chinese seem to have – they can literally sleep anywhere. It’s not just the hard working ones that you’ll find taking a kip in the office after dim sum. It appears that the Chinese are now starting to copy a common American corporate practice – to “work smarter not harder”. Maybe the key to being more productive in Silicon Valley is to just spend more time at your desk sleeping.

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