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China technology

Fidelity’s investment arm Eight Roads sees hunger for China tech-focused funds

Growing number of China deep tech start-ups supports demand for US$275 million China tech-focused fund, says Eight Roads.

PUBLISHED : Friday, 31 August, 2018, 11:57am
UPDATED : Friday, 31 August, 2018, 5:47pm

Chinese technology companies are showing increasing sophistication in innovating deep technology that caters to the needs of the domestic market, sparking growing investor demand for China-dedicated technology funds.

Jarlon Tsang, Asia managing partner for Eight Roads, which is the proprietary investment arm of Fidelity International, said he had observed a gradual deepening of the Chinese venture capital market over two decades after venture investing started in country in the mid 1990s. In May, Eight Roads launched its US$275 million China tech fund, which invests in early stage fintech, consumer tech and enterprise tech.

“We are seeing true innovation is happening in China. And the current generation of big technology groups such as Meituan Dianping, Alibaba, Tencent are demonstrating how they have their own ideas about what innovations are suitable for China,” Tsang said.

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Dedicated tech funds represent a leap forward in increasing specialisation from China country-focused funds, a domain that has been drawing US dollar investors’ money in sizes of billions of dollars managed by both private equity and venture capital firms.

Tsang said the breadth of the Chinese technology sector has grown so that today there is enough diversity of deep technology companies – ranging from artificial intelligence, autonomous driving technology, enterprise technologies, or internet payment services – that can better support a China tech-focused fund of its own.

With Fidelity International as its only investor, Eight Roads – which was formerly called Fidelity Growth Partners before a rebranding in 2015 – has been investing in China since 1996.

It was an early investor in the Alibaba Group, all the way up to its 2014 mega US$25 billion initial public offering in the US. More recently, it also invested into Huifu Payment, a third party payment service provider in China that focuses on small and micro merchants’ payment, which went public on the Hong Kong bourse in June 2018.

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Eight Roads has invested US$40 million of its China dedicated-tech fund thus far.

Over the past 12 months, Eight Roads has launched new venture capital funds amounting to more than US$1 billion globally.

Eight Roads also manages a US$250 million dedicated-China health care fund, which was launched in 2017.

Eight Road’s tech fund has made various investments in autonomous driving and artificial intelligence, both areas in which the Chinese government has stated its ambition to command global leadership. In July this year, it led the US$15 million funding round in big data analytics firm Kyligence. It has also invested in the US$102 million financing round in autonomous driving start-up Pony.ai, together with ClearVue Partners.

This year, the fundraising environment in China has proved challenging due in part to the new asset management rules that tightened capital previously channelled through the banking sector. In July, private equity and venture capital firms completed raising US$2.6 billion in new capital in China across 49 funds, a historic low, according to data from China Venture, which publishes monthly market statistics.

Tsang said Eight Roads’ position of being supported by a single investor means that it has more flexibility in providing follow-on financing and other post-investment support to Chinese entrepreneurs.

This contrasts other venture capital firms, which, apart from the need to raise funds from multiple investors under the current tight liquidity environment, might have the inherent conflicts of having different investors backing different funds, making investing in multiple financing rounds of one portfolio company a more complex decision.

Alibaba owns the South China Morning Post.

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