Hunting for the next JD.com
Looking for mobile internet start-ups to invest in, Matrix Partners China is determined to take more risks and not turn down another JD.com
The mainland arm of one of the first venture capital funds to invest in Apple is hoping to find similar start-up success stories in the world's biggest mobile internet market.
Although it entered the mainland market years after global firms such as IDG and Sequoia Capital, Matrix Partners China - an arm of United States private equity firm Matrix Partners - now oversees about US$1.1 billion in funds there.
Founded in Beijing in January 2008, it picks 30 to 40 projects to invest in each year, mostly in the mobile internet area. Among its investments are Umeng, China's largest mobile analytics services provider, cab-hailing application Kuaidi Taxi and popular mobile social app Momo.
Three of the companies it has backed - Cheetah Mobile, 21 Vianet and Bona Film - have secured listings in the US.
Co-founder and partner Harry Man, a Hongkonger with 14 years of investment experience in the US and China, said Matrix Partners China was focused on developing in the "right way".
"Many people think a good venture capitalist should be like a sharpshooter, being able to tell who could be the final winner. But the reality is not like that," Man said.
He said the main task in investing in start-ups was to view as many projects as possible and make sure investments covered every major market segment.
"Personally, I would examine about 300 projects all through a year and pick three or four of them to give money to," Man said.
The company also tends to hire information-technology professionals as investment managers to help sift out less-promising projects, even though they may lack financial knowledge.
Mainland mobile internet companies have mushroomed over the past couple of years, thanks to the fast growth of the smartphone market.
Official figures show that more than 70 per cent of the 1.1 billion users of mobile phones on the mainland access internet services through their handsets.
Man said that about 10 per cent of the 130-plus projects Matrix Partners had invested in had failed, while a further 20 per cent could be classified as "walking dead".
While some may see that kind of performance as not bad for a venture capital fund, Man said he was concerned the failure rate was too low.
"This shows that we were too conservative … we may get three to five times return on many OK projects. But we have too few super-good ones that can fetch 100 or 1,000 times return," he said.
A case in point was the firm's negotiations with JD.com several years ago.
The mainland e-commerce retailer was valued at just US$60 million at the time and was attempting to secure an investment of US$10 million from Matrix Partners to expand its online business.
"We were very close to sealing the deal," Man said. "But we gave up at the last minute, with concerns that online retailing was a low-margin business and like a bottomless pit that you'd need to pour money into again and again."
In the following years, JD.com developed into the mainland's second-largest online shopping portal after raising funds from other investors, including Tiger Global and Hillhouse Capital.
Last month, it raised about US$1.8 billion from a Nasdaq listing, with a market valuation of as much as US$26 billion.
Having missed that opportunity to get a slice of the action, Matrix Partners does not want to miss others.
Last year, it decided to invest in Kuaidi Taxi, a cab-calling mobile application that has been engaged in a "money-burning" competition with its major rival in the mainland market.
"We would definitely not have put money into this a few years ago," Man said. "But now we are willing to try."
He said that although there was now a wider range of choices, the core criteria the company used in selecting investment targets remained unchanged.
"We always prefer to pick those start-ups led by people with working experience in big IT enterprises like Baidu, Alibaba and Tencent," Man said.
"It's just like in the US, where the most successful teams were often formed by people from companies like Google.
"We would not consider fresh graduates or those with no local working experience."
Asked whether he felt any pressure from the host of new venture capital firms flocking to the mainland, Man said he was more concerned about established peers.
"There are about 300 VCs in this market, but our real competitors are always those six or seven top players, like IDG, Sequoia Capital, Qiming Ventures and GSR Ventures," he said.
"The rule in this game is that first-class projects would look for first-class investors. They know we can not only offer them money but also provide professional advice and help in this industry."