China’s Sky9 Capital optimistic about investing in SE Asia, says founder

Early-stage venture capitalist Sky9 Capital, which has been investing in sectors such as consumer internet, enterprise services, and deep technology in China, could soon look at opportunities in Southeast Asia.

“We are very optimistic about the burgeoning Southeast Asia market where we think great opportunities exist in areas of internet finance and social platforms,” Sky9 Capital founder and partner Ron Cao told DealStreetAsia.

“Some of our portfolio companies are making forays into overseas markets, in which case Southeast Asia is probably a top priority.”

With over $1.1 billion in assets under management, the Shanghai-headquartered firm is currently busy helping its portfolio companies such as HokBee (integrated furniture supply services provider) and BTS·AND (retail firm) enter the Southeast Asian market by bridging partnerships and sales networks. Plant-based meat provider STARFIELD, in which Sky9 Capital invested earlier this year, is also gearing up to expand in the region,” said Cao.

Sky9 Capital made headlines in April when two of its portfolio companies got listed on Nasdaq. While power bank rental player Energy Monster raised about $150 million from the IPO, TuSimple garnered a valuation of $8.5 billion in its trading debut.

During the same month, Sky9 Capital also closed two deals. Not only did it join hands with SIG and GGV Capital, among others, to re-invest in Chinese car trading and allied services platform YI Auto, it has also made a follow-on investment in Alibaba-backed software-as-a-service (SaaS) specialist Leyan Technologies.

Edited excerpts of the interview with Cao:

Even as the e-commerce sector in China is witnessing rapid growth, investors are of the view that offline retail in the country looks equally promising. What’s your take on it?

On one hand, as e-commerce continues to get more sophisticated and mature, commission fees and channel expenses are rapidly escalating, which impedes growth of new and existing brands. For instance, if you want to launch an online store on Alibaba’s Taobao, then your total cost of sales and customer acquisition can be quite high. On the other hand, consumers have been re-embracing shopping in brick-and-mortar stores after the lockdown loneliness during the COVID-19 pandemic last year.

A point that deserves attention is that the integration of offline networks plus online retail, more precisely, an omnichannel ecosystem, becomes a sought-after advantage.

How is your view of the emerging retail brands of today like the one you invested in – BTS·AND? 

BTS·AND is a new retail brand that sells accessories like bangles, necklaces, pendants, and earrings. Unlike traditional retailers, BTS·AND creates an immersive, playful and interactive shopping experience for younger generations. Besides online channels, consumers can choose the items they like throughout an extensive network of stores where they can try on and share posts on social platforms.

Generally, brands [of today] are inclined to set up offline stores in shopping malls with large crowds. Additionally, price is not a decisive element for young consumers, but instead, how the brands meet their needs and desires is the key to increased purchasing.

Are there any specific segments in new retail that are attractive to investors?

We’ve observed four key segments heating up in China, which are [led by] female consumers, health-oriented, high performance-to-price ratio products, and fast fashion.

In terms of health-oriented investments, Sky9 Capital led a $10-million Series A round of funding in Shenzhen-headquartered Chinese plant-based meat brand STARFIELD with the participation of Joy Capital and Matrix Partners China in August last year.

And in terms of consumer products with high performance-to-price, we also joined hands with GSR Ventures investing ‘millions of US dollars’ in the Series A round of HotMaxx, a fast-moving consumer goods (FMCG)-focused retailer that helps sell safe and quality leftover stocks in partnerships with supermarkets, FMCG brands, among others.

Sky9 Capital had secured as much as $440 million for USD-denominated funds in 2019 – could you share details from there?

We closed $440 million in capital commitments for two USD-denominated funds – including the fourth USD fund Sky9 Capital Fund IV, L.Pand Sky9 Capital MVP Fund, from a set of limited partners (LPs) located in Europe, the Middle East, North America, South America, and Asia-Pacific. The former fund has concentrated on early-stage startups, mostly at seed, angel, Series A and B funding round, while the latter fund has been active in growth-stage and break-out companies in the Sky9 portfolio.

The funds are still actively investing in opportunities in new retail, deep tech, technology innovation, internet, social e-commerce, video curation, and online-to-offline industry platforms. Aside from consumers, we also see promising opportunities in “To Business” such as semiconductor, AI, cloud-computing, and SaaS.

One of your portfolio companies – Energy Monster – got listed on Nasdaq in April. Could you take us through the investment?

We had initially invested in the power bank rental player Energy Monster in its 2017 Series A round financing of 100 million yuan ($15 million) with a group of leading investors like Hillhouse Capital, Shunwei Capital and BlueRun Capital.

Subsequently, Sky9 Capital had also backed its 200 million yuan ($31 million) Series B round in 2017 and the 500 million yuan ($77 million) Series C round in 2019.

Sky9 Capital been engaged in early-stage investments? Take us through your portfolio companies and your investment strategy?

First and foremost, the team at Sky9 Capital has strong experience in early-stage investments.

I’ve participated in an investment in Yunmanman – a truck-hailing firm merged with Huochebang as Manbang Group in 2017. At that time, we injected ‘millions of US dollars’ for Yunmanman’s Series A round. Now we predict that we will return around a billion dollars from our investment if Manbang lists. And the simple truth is that the earlier investments we make, the higher returns we can have.

[So far this year], we are investing at a healthy pace, albeit no radical strategy change. This year we target to close up to 20 investments, mainly in sectors such as consumption, deep tech, and enterprise services.

Southeast Asia is an emerging market for many Chinese startups. Has Sky9 Capital seen any potential there?

We are very optimistic about the burgeoning Southeast Asia market where we think great opportunities exist in the areas of internet finance and social platforms. In fact, some of our portfolio companies are making forays into overseas markets, in which case Southeast Asia is probably a top priority.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.