Palo Alto, California-based early-stage venture firm Amino Capital is raising $100 million for a USD-denominated fund to finance data-driven startups primarily located in the United States and China.
The new fund, which started raising capital earlier this year, is expected to close in the second quarter of 2020 with capital commitments from Amino Capital’s general partners, as well as family offices, public companies and individual investors, Sue Xu, managing partner of Amino Capital, told DealStreetAsia in an interview on Wednesday.
Amino Capital has about 10-20 active limited partners who also serve as its venture partners to provide professional knowledge and industry know-how, including Wu Zining, the former CTO of global semiconductor major Marvell who founded InnoGrit Corporation in October 2016.
David Wei Xiaoliang, Facebook’s vice president of engineering, has also put money into the new cross-border fund, Xu revealed, adding that commitments from these venture partners accounted for about 20 per cent of the new fund.
Amino Capital has so far secured over 30 per cent of its target corpus, said Xu. The $100-million fund will mainly back startups at seed to Series B stages of financing. It has already invested in over 10 startups, writing cheques ranging from $500,000 to $5 million.
Amino Capital plans to allocate over 50 per cent of the fund to investments in the United States with China accounting for 30-40 per cent. The remaining capital will be deployed in other markets, including Thailand, India and Africa.
The US-based investment company established an office in China about half a year ago with a dedicated team on the ground, sourcing deals in data-driven companies in the healthcare, fintech and professional consumer industries.
Investing against headwinds
The company is upping the ante in the Chinese market despite economic headwinds, an ongoing trade war between China and the United States, and growing concerns about startup valuations that have eaten into deal flow in China and worldwide.
Venture deals in China continued to plummet in the third quarter of 2019. The value of investments in the country tumbled 48.7 per cent to 30.39 billion yuan ($4.33 billion) in the third quarter from a year earlier, while the number of deals decreased 38.7 per cent to 753, according to Chinese research platform Zero2IPO Group.
“Many investment companies have become reluctant to invest in the Chinese market because of what is happening right now,” said Xu, who considers it “a great opportunity” to invest in top-notch entrepreneurs in the country.
“Amino Capital tends to make investments in talented entrepreneurs, data-driven ventures, and sectors that are not in a blaze of hype,” said Xu. “Previously, we might not be unable to participate in some investments in top-notch companies while they were raising capital, simply because of the fierce competition [among investment firms]. But now, it is quite easy for us to write cheques for them.”
“Because of the clouded economic condition and slumped confidence level, we are able to invest in these companies that we have been watching for quite a long time,” she added.
A humble beginning
About 30 per cent of its portfolio companies, which translates to around 45 firms, are based in China. The investment firm favours Chinese entrepreneurs with “a humble beginning” who are “capable of defining the future products,” said Xu, referring to the founders of its portfolio companies CoWrite and Mobike.
Amino Capital was the earliest backer of CoWrite, a Chinese business similar to Google Docs that mainly serves co-workers for project collaboration. The business was started in 2014 by Peking alumnus Cai Jian, who was then a Google engineer.
CoWrite was bought out by Chinese video-sharing app Kuaishou, generating a 7x investment return for Amino Capital.
The VC firm backed Chinese bike-sharing giant Mobike, thanks to personal connections between Mobike’s co-founder Davis Wang and Amino Capital’s partner Jun Wu who became close friends while working together at Google China and Tencent.
Mobike was acquired by Meituan-Dianping, the largest online on-demand service in China, for $2.7 billion in April 2018.
“We believe the next Google or Facebook will also start with a humble beginning,” said Xu.
Amino Capital, formerly known as zPark Venture, was founded in 2012 to back companies specialising in artificial intelligence (AI), big data and domain expertise. The company has so far backed 150 companies, about 25 of which have been acquired by technology giants such as Facebook, Amazon and Tencent while over 21 are valued at more than $100 million.
“Our portfolio companies in the healthcare and fintech industries have generated the best investment returns in the past years,” said Xu. Two of the company’s six unicorns are in the healthcare sector, while the other four are in fintech.
The company introduced its maiden fund in 2012 to focus on seed and pre-Series A rounds of investments. In September 2016, Amino Capital announced the final close of the $50-million second fund to cover investments from seed to Series B rounds.
Some of the most prominent exits enjoyed by its debut fund include Orbeus, a computer vision algorithm maker (acquired by Amazon in 2015), and Assemblage, which provides tools and infrastructure to enable browser collaboration (bought by Nasdaq-listed technology conglomerate Cisco in 2014).
Another portfolio firm, Contastic, which offers natural language-based predictive sales tools, was acquired by California-based software company SugarCRM in 2016.
Xu, who leads investments in data-driven solutions and Web 3.0, has been involved in more than 150 investments since 2012, including Assemblage and Orbeus, American cancer-testing startup Grail, as well as conversational AI startup Ozlo and AI-enabled visual shopping app GrokStyle, which were both acquired by Facebook.
Xu spoke to DealStreetAsia about the investment strategy of Amino Capital, the investment performance of its previous two funds, as well as the firm’s growing focus on the Chinese market. Below are the edited excerpts:
Could you talk about the investment performance of your previous two funds?
The previous two funds have backed 150 data-related companies, among which are six unicorns including two in the healthcare sector and four in the fintech field. Our portfolio companies in the healthcare and fintech industries have generated the best investment returns in the past years.
Among the 150 companies, 25 were acquired by technology giants like Facebook, Amazon and Tencent, and over 21 are valued at more than $100 million.
Which sectors are most attractive bets for Amino Capital based on past investment returns?
The portfolio companies that gave us the best investment returns are companies involved in the new type of enterprise sales. One of Amino Capital’s founding partners, Larry Li, was an angel investor of cloud-based remote conferencing service Zoom. Li made the investment before he started Amino Capital and earned an almost 600-time investment return.
Amino Capital also made an over 140-time investment return from an angel investment in Webflow, a no-code drag and drop platform for web development. The company closed $72 million in a Series A round led by Accel in August 2019. Webflow became profitable right after the Series A round.
Zoom and Webflow belong to a new type of enterprise services companies operating under the premium model that persuades corporate clients to pay for its value-added premium services by first offering basic products to their employees, or the so-called professional consumers, free of charge. This is a new bottom-up enterprise sales approach compared to the traditional top-down method. Cloud-based instant messaging platform Slack and American file hosting service Dropbox are also these kinds of firms.
I think it is a very interesting sector on the rise. This professional consumer, or prosumer, type of investments is quite hot in Silicon Valley right now.
As a cross-border investment company, how are the investment strategies of Amino Capital being influenced by the current economic and political conditions, including the Sino-US trade friction and Chinese economic slow-down?
Amino Capital tends to make investments in talented entrepreneurs, data-driven ventures, and sectors that are not in a blaze of hype. Many investment companies have become reluctant to invest in the Chinese market because of what is happening right now.
Previously, we might be unable to participate in some investments in top-notch companies while they were raising capital, simply because of the fierce competition [among investment firms]. But now, it is quite easy for us to write cheques for them. Because of the clouded economic condition and slumped confidence level, we are able to invest in these companies that we have been watching for quite a long time.
Bubbles can sometimes create [portfolio] supplies for venture capital firms, even though bubbles may not be good for some venture capital companies that don’t have industry insights.
Do you mean that Amino Capital is now increasing investments in China?
We definitely consider it as a great opportunity to invest in top-notch Chinese entrepreneurs. But are we increasing the capital allocation in China? Not necessarily. Amino Capital has a dedicated team actively sourcing deals on the ground in China. We will certainly take the opportunity if we capture any good ones.
In China, Amino Capital also looks at investment opportunities in data-driven companies in the healthcare, fintech and professional consumer sectors.
Amino Capital set up an office in China about half a year before.
In your opinion, how will the artificial intelligence (AI) industry develop in the next five years?
The future development of AI will be reliant on three pillars: massive data, teams with data analytical capabilities, as well as domain integration [application scenarios]. There will be a lot of opportunities in the AI industry in the next three to five years.
AI is not just limited to utilizing big data to empower services and business. There is also a convergence among AI, blockchain, 5G and internet of things, which combined will form the so-called “Web 3.0” to ensure the security for individuals to upload and share their precious credit data and genomic sequencing data.
We are already seeing 5G and IoT disrupting the world, thanks to venture financing and cooperation from many other fields.
How will you comment on the Chinese government’s involvement in pushing the AI industry forward?
The AI industry should be regulated. AI technology is essentially like CRISPR technology. These advanced technologies should be regulated when they become more accessible and democratised to the public, and kids in particular.
The regulation will also drive the adoption of these technologies.