[Editor’s Note: Vertex Ventures China has clarified that it has raised 4 billion yuan ($566 million) for two funds – including the largest USD fund (that has been closed) and an RMB fund that is yet to be closed. This copy has been amended to reflect the changes].
Vertex Ventures China, the China-focused venture capital arm of Singapore-based Vertex Ventures, has closed a USD-denominated fund for investments in the Chinese market.
The new fund, which is the largest fund the firm has ever raised in China, was oversubscribed by overseas limited partners due to “strong past performance with good realized returns,” said Tay Choon Chong, managing director and head of Vertex Ventures China in a written reply to DealStreetAsia on Monday.
The company did not disclose the size of the USD-denominated fund. But the firm said that it secured a total of nearly 4 billion yuan ($566 million) in capital commitments for the USD fund and an RMB fund that is yet to reach the final closing.
The USD fund will back early and growth-stage startups in the fields of high-tech and mass consumption with a focus on semiconductor, artificial intelligence (AI), enterprise services, healthcare and online education, according to a company statement on Monday.
Venture capital deals in China plummeted in the second quarter of 2019 as investors grew more cautious amid concerns over trade tensions between China and the United States as well as growing concerns over inflated startup valuations.
The value of investments in China dived 77 per cent year-on-year to $9.4 billion in the second quarter, while the number of deals almost halved to 692, according to market research firm Preqin.
“There are negative as well as positive impacts in the ongoing trade tensions. The technology and enterprise services sectors are particularly attractive ones,” Tay wrote. “Greater China is a huge market and hardly saturated, it is going through to the next phase of growth such as technology development and productivity improvement through automation.”
He added that the VC firm’s limited partners still consider China to be a market that can offer good returns on their investments.
“Just over the last 18 months, we have had more than six exits for the China portfolio,” he wrote.
Some of the most prominent recent exits of Vertex Ventures China include bike-sharing business Mobike and Shenzhen Chipscreen Bioscience, a pharmaceutical company that specialises in developing original drugs for tumours and diabetes.
Mobike was acquired by Meituan-Dianping, China’s largest provider of on-demand services from food-delivery to ride-hailing, in a $2.7 billion deal in April 2018, which resulted in more than 10 times cash return for the limited partners of Vertex Ventures China. The firm first invested in Mobike by leading its Series B+ round worth about $10 million in September 2016.
Chipscreen contributed to an excess return of nearly 400 times – the highest return for the Beijing-based investment outfit – after the drugmaker raised 1 billion yuan ($141 million) in an initial public offering (IPO) on China’s Nasdaq-style STAR Market in August 2019. The listing price was set at 20.43 yuan apiece, or 467.51 times 2018 earnings, which is the highest so far for a STAR Market company.
Vertex Ventures China was one of the three investors in Chipscreen’s Series A round worth 6 million yuan ($848,248) in March 2001.
Vertex Ventures China said that it will continue to make investments in the Chinese market “no less than the pace of previous years” despite the overall market cooldown. The company has already poured money into a range of early-stage startups in the first half of 2019, including smart driving chip developer Semidrive, online education firm Class100.com, intelligent customer service robot developer Xiaoduo, and Shanghai-based tea brand Lele Cha.
“The economic slowdown will not hinder the development of technologies nor the innovation of business models. Enterprises with true value will reveal their disruptive potential in the market downturn,” said the company in the statement.