Thread by @lillianmli

1) Let’s talk about the three things I found interesting and weird about the Chinese VC ecosystem

- Corporate Venture Capital regimes supreme
- Much shorter fund time horizons
- LPs are mostly government

1) Corporate VCs (CVC) are the corporate venture arm of established firms. In the west they often get a bad name since they’ve had a history of blocking sales of startup to their competitors or applying a corporate mindset to venture.

2) Google venture seems to be the exception to the rule, but often western founders typically want a CVC to follow in a round. When they are leading its a bad signal.

The opposite is true (at least by rule of thumb) in China. Startups think of CVCs as credible

3) They are perceived to bring actual value add (Alibaba and Tencent give their own platforms’ traffic or other forms of partnerships to the startups). Startups are more happy to partner with them than typical VCs. Though maybe there is a murkier side

4) There are reports that CVC (esp tech ones) will present an ultimatum to startups of taking their money or they will 1) clone their offering or 2) invest in their competitor or 3) both.

CVCs also are perceived to be more reliable to stick around for longer because

5) Fund horizons in China are generally less than 7 years (typically 5 years from my convos), and as a result this influences the returns they are able to get. Most of them do not last more than 1 fund.
The shortened time horizon also mean VCs push startups to grow fast

6) Often leading to unsavoury hyper growth conditions in these places such as a working 996 culture or even worse.

I’m surprised at the lack of patience for VC funds given that the backers are typically government (esp local governments who want to stimulate growth)

7) Analyst estimate that up to 75% of VC funds come from government. I also have read reports that HNWI make up a lot of the rest of the capital.

Why the LP base type will want a shorter fund horizon could be a few things

8) The top administrators in local government get cycled through at a 2-3 year pace. For quicker promotion and to minimise local corruption. But this also means they have a quicker need to see results from their investments. And VC funds with more than 7 years can’t cut it

9) HNWI’s net worth is often quite tied to the up and down of the macro environment. When there’s a hint of a recession they might get eager to draw down funds, and having their capital locked away for a decade is not the way to do that

10) Collectively the VC ecosystem makeup means a general trend towards investing in explosive consumer ideas (hence why B2B gets over looked) that often follow the trend of what the tech giants wants since they have more powerful CVC arms

asia.nikkei.com/Spotlight/Caix…

I’ll be doing threads like this for the rest of Jan, follow me to get these spam on your TL