Ever heard of Sequoia China, Hillhouse, Matrix Partners, etc.? These big names in China keep writing fat checks to startups and popping out everyone’s eyes. However, aside from them, Corporate Venture Capital has become more and more active in China and bring in unique values to the ecosystem; sometimes, for entrepreneurs they are even preferable to their traditional VC peers.
1. CVC in China at a glance
In recent years, the amount invested by CVC accounts for around 20% of total money invested by VC in China. Considering the number of deals by CVC is less than independent VC, the average deal size by CVC is larger than independent VC. The median number of deal size on average of CVC in 2018 was RMB 21 million, while it was RMB 13.5 million by traditional VC.
For industries, TMT is no doubt the NO.1 sector CVC focus on, mainly due to the giant players such as Tencent, Alibaba, Baidu. In terms of geography, Beijing is the NO.1 target place for both CVC and traditional VC as more startups are there, however, CVC also explores opportunities in overseas market while traditional VC does not as many of them are mandated to invest in China only.
2. Main players
Tencent and Alibaba doubtlessly have the biggest unrivalled reputation, even in ASEAN as they backed Shopee, Lazada and more. In addition to that, many others conduct their investments out of the spotlight, especially those in traditional industries.
Players in high tech-driven sector such as Bosch Ventures Capital, Qualcomm Ventures, Lenovo Capital, NGP Capital (by Nokia), Samsung Venture Investment, etc. are active. Real estate and auto sectors are not far behind with players like Country Garden (Bi Gui Yuan) Venture Capital, Vanke, and SAIC Motor, Geely, etc.
BASF, as SCG’s peer company in chemical sector, also set up a team in China by its CVC arm BASF Venture Capital in 2018.
Compared to traditional VC whose top and only goal is to generate ultra-high return for LP, CVC’s strategy is a bit more complicated and in China it has adjusted by time as CVC digs in.
Strategic synergy is the reason why corporates set up the VC arms in the first place. And CVC in China aims to source the opportunities vertically and horizontally in their ecosystem, and at the same time provide value for startups as well. Distribution network, supply chain resources, talent and capital contribution, and industry experience are the key words we see from CVC.
At the early stage, CVC strictly sticks to synergy-driven strategy and BU’s involvement is required. This keeps CVC on the original track, but some CVCs admitted that they have missed some pretty good investment, such as NGP Capital. As a result, at the second stage CVC started to focus a bit more on financial return and tried to do investments with a little bit more flexibility. One interesting thing we have noticed in China is that some CVC funds are even open to other third-party LPs and start to raise money on the open market; LPs like this idea because they believe a CVC GP has the industry knowhow. Nonetheless, strategy synergy and the potential to bring in the S-curve growth remains the priority for all CVCs in China.
In 2018, BASF Ventures in China invested in Prismlab, a 3D printing tech startup in China. Later in 2021 they rolled out a new 3D printing material product for dental use. BASF Ventures in China also invested in a smart farming and livestock tech company.
Lenovo Capital focused on IoT, edge computing, cloud, big data and AI-driven industry internet. Some of them are not strictly aligned with Lenovo’s current business but Lenovo Capital sees the future potential. In early 2019 Lenovo invested in NEDplusAR, an AR/VR startup in Beijing. As an exceedingly popular startup, NEDplusAR chose Lenovo Capital among many investors because they preferred the assistance in supply chain in later mass production period from Lenovo Group. Besides, NEDplusAR also supplies optical components for Lenovo’s industrial-use AR glasses.
Country Garden, the largest real estate developer who recorded highest sales in China in 2020, set up Country Garden Venture Capital in early 2019. First theme is real estate and along its upstream and downstream such as robots, building material, etc. Another theme is about community, focusing on the 20 million homeowners who bought from Country Garden. In this context, Country Garden Venture Capital looks at EV, PV solution for buildings, healthcare, consumer product, etc.
Quicktron, a leading automated smart warehouse logistics solution provider, in 2017 raised its Series B fund from Cainiao and Softbank China; this is one of many strategic investments made by Cainiao, the largest 4PL and logistics platform company in China. Now Quicktron’s robots and systems serve both Cainiao and many other customers in e-com, logistics, retail, etc.
5. New trend
CVCs also aim for the big future and thrive to help their mother companies get prepared. Tech companies focus a lot on 5G application, IoT, AI and automation; unmanned driving is definitely a hot topic for transportation related companies including logistics players; green energy and EV are also a popular area for big companies in China. Consumption sector as an old good sector still draws lots of attention from CVC, recently Meituan just beat many other investors including ByteDance to solo invest in a fast-growing coffee brand called Manner Coffee.
6. AddVentures in China
China is one of the key markets for AddVentures doubtlessly and we focus on B2B, industrial and enterprise just like we do in other markets, plus certain specific topics we prefer including cross border, logistics, e-commerce, etc. We have invested in China Renaissance, who is one of the leading GPs in China covering all main sectors and the investor of JD.com, Xiaomi, Didi, etc.
In addition to investment, AddVentures also actively searches for potential collaboration and commercial opportunities. We look to bring in great technology, product or service to our customers in ASEAN. Discussions we are having right now include with an agriculture tech startup, a leading B2B supply chain startup, cross-border logistics and some other high-tech startups.
By Zesu Wei, Investment Manager