From zero to billions in six years: private equity takes hold in Chengdu
Six years ago, fewer than a dozen big venture capital firms were based in Chengdu, said Wu Zhong, general manager of Yinke Venture Capital. And most of the ones that were there, operated without a functioning office or staff. Whenever an industry seminar came to the city, organisers called contacts on their list but no one was ever in town.
Organisers don’t have that problem now, as venture capitalists arrive in a steady stream, renting prime office space and executive residences.
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Yinke Venture Capital has witnessed the breakneck growth of Chengdu’s private equity industry.
Founded in 2009 by the Chengdu government and China Development Bank with 1.5 billion yuan (HK$1.74 billion) in capital, the fund of funds has teamed up with national players to foster promising companies in emerging industries. By March, its funds were managing a combined 6 billion yuan in assets.
We are bullish on Chengdu’s economy, and there are enough promising start-ups
But unlike some fund of funds backed at the local government level, Yinke doesn’t require its funds to invest a certain proportion in home-grown firms, Wu said. While Yinke had such requirements for its general partners during the early years, they found this “non-market-oriented” approach didn’t work, he said.
“If the project is really good, general partners certainly will invest. If not, how can you demand them to invest?” Wu said.
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But the fund of funds does require their investments to actively engage in local fairs and funds should be locally incorporated, with local offices and resident staff.
“We are bullish on Chengdu’s economy, and there are enough promising start-ups. The question is whether they can effectively spot them. This is why we require them to operate locally,” Wu said.
Chengdu Detong-YInke Capital Fund, launched with Shanghai-based Detong Capital, outperformed other eight other parallel yuan-denominated funds under Detong’s management, with annualised growth of more than 50 per cent since it was founded in 2010.
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General manager Li Nong said his fund would like to remain rooted in Chengdu as his team was bullish about the opportunities, citing the defence, high-end manufacturing and agri-tech sectors.
“I’m committed to spotting ‘original’ unicorn companies. If the company is in Beijing and Shanghai, it will immediately be pursued by numerous funds. But here we get the opportunity,” he said.
As one of the earliest venture capitalists to arrive in the city, Li has seen the industry grow from infancy. He said the city had better potential to become a private equity centre before could turn into true financial centre. “Private equity is special because despite its small scale, it’s extremely active and can stimulate the whole system,” Li said.
