Chinese start-ups with global ambitions still make attractive investment targets, according to the founder of Shanghai-based venture capital firm 01VC, which is gearing up to invest between US$2 million and US$3 million in each of up to 10 companies in the next two years.
Despite challenges ranging from an economic slowdown to a protracted property slump, China’s economy still grew 5.2 per cent last year, while accounting for 30 per cent of global manufacturing, making its companies well-positioned for global expansion, Ian Goh, founding partner at 01VC, said in an interview.
“The trend of Chinese companies going abroad is becoming more and more apparent in recent years,” he said. “Onshoring, where Chinese companies build their factories in places like Vietnam or Mexico, bringing their automation technology and selling their products in those countries, is creating a great opportunity for investors like us.”
Focusing on robotics, consumer electronics, and business-to-business products and platforms, the VC firm is looking to invest in around 10 companies over the next two years out of a US$65 million fund that it closed at the end of 2023, he said, adding that 01VC’s average ticket size is US$2 million to US$3 million.
The low valuations of Chinese companies, coupled with a shift towards caution among global investors, are creating a “buyer’s market” for fund managers, Goh said.
“Globally, venture capital has raised too much money over the last few years,” he said. “But now, there is no more capital investing for the sake of growth, ignoring fundamentals, and this creates a great opportunity for us to buy and invest.”
Traditionally a backer of early stage, pre-revenue companies, 01VC increasingly finds itself investing in companies that are generating solid cash flow, as valuations in China have fallen to one to two times sales, from five to eight times previously. The firm now invests in rounds ranging from pre-A to Series B, Goh said.
“This is the environment that we’re living in,” he said. “You have to be brave to be a contrarian, and we’re being a contrarian because we are still deploying money.”
01VC manages four US-dollar funds and one yuan-denominated fund, totalling US$300 million in assets under management, Goh said, adding that the firm is in the planning stages of another yuan fund.
The dollar funds are primarily backed by institutional investors, including family offices, funds of funds and foundations in Asia and the US, he said.
A notable company in 01VC’s portfolio is Hong Kong-based logistics company Lalamove, which announced plans last March to list on the city’s stock exchange. This followed its confidential filing in the US two years earlier to raise at least US$1 billion through a public share sale.
Tymo, a start-up specialising in beauty electronics and fashion retail, and Hezhong Enterprise Cloud, a firm focused on cloud computing and database solutions, are among 01VC’s most recent investments, according to Crunchbase.
