Alibaba-Backer GGV Raises $1.2 Billion in Hunt for China's Musk

  • GGV Capital has offices in Silicon Valley, Beijing, Shanghai
  • Some $250 million allocated for early-stage startups in China

GGV Capital, the venture capital firm that backed Alibaba Group Holding Ltd. and Airbnb Inc., raised a total of $1.2 billion in new capital to invest in startups in China and the U.S., a sign of resiliency amid skittishness in the global startup market.

The money will be used across four GGV funds, including $250 million allocated for early-stage startups in China. The firm is seeing more opportunities with entrepreneurs in the country who are on their second or third startup, a pattern in the U.S. with founders such as Tesla Motors Inc.’s Elon Musk and Twitter Inc.’s Jack Dorsey.

“We’ve had a lot of consolidation in the market; entrepreneurs are stepping out of companies they just sold to start new ones,” Jixun Foo, Shanghai-based managing partner at GGV, said in an interview. “The serial entrepreneur which was traditionally seen in the U.S. is now in China.”

The fundraising comes amid concerns over the health of the startup market in Asia and the U.S. Venture capital firms raised $48 billion globally last year, down from $51 billion the year before, according to the London consultancy Preqin Ltd. The amount of venture money invested in startups fell in the fourth quarter, and investors wrote down the value of stakes in high-profile companies such as Snapchat Inc. and India’s Flipkart Pvt.

Venture investments in China did bounce back in the first quarter and several other China-focused venture capitalists are raising record funds. Sequoia Capital is looking to pull in as much as $1.45 billion for a pair of funds to invest in Chinese technology startups, people familiar with the matter said last month. In February, Qiming Venture Partners raised $648 million, the firm’s largest fund since it was founded in 2006.

“The industry is sitting on a lot of dry powder, so we expect deal volume to pick up,” said Felice Egidio, head of venture capital products at Preqin, in an e-mail.

The biggest startups in China are attracting big dollars. The ride-hailing app Didi Kuaidi, Alibaba’s finance affiliate and online property service Homelink are raising a total of at least $6 billion, people familiar with the separate deals said last week. Alibaba’s affiliate, operator of the Alipay payment service, is targeting more than $3.5 billion alone, which would mark the technology industry’s largest single round of financing.

China’s tech boom last year came with the declining price of smartphones that fueled explosive growth in everything from online shopping apps to phone-ordered massages and manicures. Now that so many people have phones, that growth is over, said Foo. “Before there was so much growth, it was hard to differentiate quality because the rising tide brought everybody up,” he said. “But as the tide recedes, you can tell what’s real from what’s not.”

That means capital will go to fewer companies as investors bet on what they see as category winners, he said. Foo’s firm is looking to invest in consumer and industrial robotics and automation, Chinese consumer upgrades in products and services, virtual reality-powered entertainment, and enterprise efficiency products. “As China’s labor force is growing, productivity is more and more important,” he said.

GGV said apart from the early stage $250 million GGV Discovery I fund, the new funds include $900 million in the main funds, GGV Capital VI and VI Plus, and $50 million in the GGV Capital VI Entrepreneurs Fund, which consists mostly of company founders as limited partners. The fundraising will bring GGV Capital to a total of $3.8 billion under management. The firm has had a net internal rate of return of more than 35 percent in GGV Capital IV, according to data compiled by Bloomberg.

Foo said he thinks the cooling off of the startup market isn’t such a terrible thing. Valuations will come down and China will become a much more attractive place to invest. “It will be a buyers’ market,” he said.

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