China Daily

Shen­zhen Cap­i­tal Group backs win­ner star­tups

While in­vest­ing, Shen­zhen Cap­i­tal ex­ploits its pri­vate sec­tor mind­set

- By CHAI HUA in Shen­zhen grace@chi­nadai­lyhk.com Business · Finance · Startups · Venture Capital · Investing · Small Business · Shenzhen · China · United States of America · Australia · Singapore · Capital One Financial · Lenovo · Beijing · South Korea · Japan · Israel · Russia

Shen­zhen Cap­i­tal Group Co Ltd, a State-owned ven­ture cap­i­tal firm, will strengthen in­ter­na­tional co­op­er­a­tion and in­vest­ments to bring in new tech­nol­ogy to emerg­ing in­dus­tries in China.

Through in­vest­ments in in­no­va­tive com­pa­nies over­seas, the firm hopes to take full ad­van­tage of its cap­i­tal re­sources to speed up upgra­da­tion of China’s tech­nol­ogy and in­dus­trial struc­ture, said Ni Ze­wang, chair­man of SCGC.

He said the firm could also help con­nect the star­tups it has backed in China with over­seas in­dus­try re­sources so that they could ma­ture more rapidly.

Since its found­ing in 1999 till Novem­ber-end, SCGC has in­vested 24.3 bil­lion yuan ($3.52 bil­lion) in 683 projects in ar­eas like mod­ern ser­vice, high end man­u­fac­tur­ing, IT, tech­nol­ogy and many other emerg­ing in­dus­tries.

By the end of Novem­ber, 112 com­pa­nies listed on stock ex­changes. Of them, 74 were A-share list­ings. Oth­ers listed on over­seas bourses, in­clud­ing some in the United States, Aus­tralia and Sin­ga­pore.

Ni said com­pe­ti­tion among VC firms is in­ten­si­fy­ing in China. Also, projects se­cur­ing in­vest­ments are be­com­ing ex­tremely ex­pen­sive. On the other hand, some over­seas in­vest­ment op­por­tu­ni­ties have arisen of late.

China’s VC firms such as Huashan Cap­i­tal One Inc, which in­vests in firms in fi­nan­cial tech­nolgy, and Leg­end Star, owned by Len­ovo Hold­ings, have been in­vest­ing abroad.

In fact, China’s VC and PE firms had made 265 in­vest­ments worth 31.7 bil­lion yuan in the first 11 months of 2016, ac­cord­ing to Zero2Ipo Re­search, a Bei­jing-based re­searcher of fi­nan­cial in­sti­tu­tions.

Its data shows the num­ber of in­vest­ments and the money in­vested rose 105 per­cent and 189 per­cent on aver­age year-onyear re­spec­tively from 2009 to 2015.

SCGC’s in­vest­ments over­seas ac­count for only 6 per­cent of its to­tal. Its goal is to in­crease the fig­ure to 15 per­cent by 2020.

To reach that goal, SCGC will hire pro­fes­sion­als, co­op­er­ate with well-known in­vest­ment in­sti­tutes, and es­tab­lish cross­bor­der fund­ing, Ni said.

He be­lieves such fund­ing could con­nect do­mes­tic and for­eign fi­nan­cial mar­kets, lead­ing to pre­cise al­lo­ca­tion of re­sources.

SCGC’s var­i­ous funds had cap­i­tal as­sets worth about 200 bil­lion yuan un­der man­age­ment by Novem­ber. It also has 1.2 bil­lion yuan worth of joint ven­ture funds in­volv­ing fi­nan­cial in­sti­tutes in Sin­ga­pore, South Korea, Ja­pan and Is­rael.

It is rais­ing an­other 5 bil­lion yuan for a new joint fund with US in­sti­tutes, eye­ing star­tups in cut­ting-edge tech­nol­ogy in­dus­tries, such as 3-D metal print­ing.

In Novem­ber, it signed a strate­gic co­op­er­a­tion agree­ment with a Rus­sian ven­ture cap­i­tal firm, a gov­ern­ment-ini­ti­ated fund of funds, in a bid to in­vest in Chi­nese star­tups reg­is­tered in Rus­sia and Rus­sian star­tups in China.

“The fund will fo­cus on Rus­sia’s com­pet­i­tive in­dus­tries, in­clud­ing ad­vanced equip­ment man­u­fac­tur­ing, en­ergy, chem­i­cal in­dus­tries and pre­mium con­sump­tion,” said Ni, adding these sec­tors could also drive China’s eco­nomic growth.

Though State-owned, SCGC’s op­er­a­tions have been in line with in­ter­na­tional con­ven­tions. For in­stance, its project man­agers and high-level ex­ec­u­tives who vote for a project, need to co-in­vest an amount of at least 1 per­cent.

“The co-in­vest rule is com­mon in pri­vate ven­ture firms, but an ex­cep­tion in Sta­te­owned ones,” said Ni, who per­son­ally has in­vested lots of money him­self.

SC G Cs wears by strict eval­u­a­tion, care­ful project se­lec­tion, time-tested man­age­ment pro­cesses and hav­ing sea­soned pro­fes­sion­als on its team. It has en­sured its in­vest­ments gen­er­ate rel­a­tively high rate of re­turns of around 40 per­cent, ac­cord­ing to United Credit Rat­ings Co Ltd, a Bei­jing-based pro­fes­sional credit rat­ings agency.

Ni is con­fi­dent of sus­tain­ing high re­turns on in­ter­na­tional in­vest­ments de­spite the slug­gish global econ­omy. He be­lieves in­no­va­tive com­pa­nies will drive econ­omy growth, but ad­mit­ted com­pe­ti­tion from in­ter­na­tional VC firms with abun­dant re­sources and ex­per­tise in spe­cific fields is fierce.

Shen Lingkun, an an­a­lyst with Zero2IPO Re­search, said the big­gest chal­lenge for China’s VC firms go­ing abroad is tech­nol­ogy risk. “In­vest­ment in the most ad­vanced tech­nol­ogy comes with stronger un­cer­tainty.”

So far, many VC firms in China have re­garded in­ter­na­tional in­vest­ments as op­por­tu­ni­ties, but few have im­proved their strat­egy, she said.

With SCGC go­ing global, do­mes­tic VC firms can seek its guid­ance to explore over­seas mar­kets and build VC brands with global out­look, Shen said.

The co-in­vest rule is com­mon in pri­vate ven­ture firms, but an ex­cep­tion in Sta­te­owned com­pa­nies.” Ni Ze­wang, chair­man of SCGC

 ?? PRO­VIDED TO CHINA DAILY ?? Ex­ec­u­tives of Shen­zhen Ki­azhong Pre­ci­sion Tech­nol­ogy Co Ltd ring the open­ing bell at the Shen­zhen Stock Ex­change to mark the com­pany’s list­ing on the bourse on Nov 24, 2016. Ki­azhong is one of the 112 com­pa­nies ini­tially backed by State-owned Shen­zhen...
PRO­VIDED TO CHINA DAILY Ex­ec­u­tives of Shen­zhen Ki­azhong Pre­ci­sion Tech­nol­ogy Co Ltd ring the open­ing bell at the Shen­zhen Stock Ex­change to mark the com­pany’s list­ing on the bourse on Nov 24, 2016. Ki­azhong is one of the 112 com­pa­nies ini­tially backed by State-owned Shen­zhen...

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