GSR Ventures Raises Fourth China Fund at $350M

GSR Ventures has raised its fourth venture fund focused on investing in early stage Chinese companies. It took just six weeks of effort, was completed in a single close, and more than 80% of the commitments came from very happy existing investors.

The big surprise to those LPs? Given the frothiness of the Chinese market, that GSR didn’t ask for more. The last fund was $350 million and so is this one. “We are very boring. We have the same strategy, the same team and expect the same nice results,” said GSR’s managing director Richard Lim in an interview last week.

“Nice results” is typical Chinese modesty. GSR has had two IPOs in 2011, and several others are in registration. It includes Qunar, the online travel site that just got a $306 million investment from Baidu, and the first venture investment in, the Chinese daily deal giant. Lashou has already turned down an acquisition worth hundreds of millions from Groupon and was valued at more than $1 billion at its last funding round. GSR invested in the company last June at a low single-digit-million pre-money price. Gary Bridge, founder of fund-of-fund Horsley Bridge Partners, called GSR’s returns, “comparable to the best early-stage venture firms in the world.”

Lim says the reason GSR’s funding reality hasn’t changed is that they focus so heavily on very early stage companies and most of the over-heated valuations and influx of foreign cash has come at later stages.¬†And with some of the last year’s soaring Chinese IPOs now taking hits of 50% or more, Lim expects the volatility in later stage deals to continue.

Meanwhile, early stage valuations are still in the single digit millions, he says. 90% of the companies he sees have no revenues and will take a minimum of five years to go public even in a hot market. Then it’s another four years of a lockup before he can exit. In a massive contrast to the US venture market, Lim stubbornly refuses to pay up for an early stage deal just because later stage valuations are on a rollercoaster. “What do I care about a big first day IPO pop? I’m in this company another three years,” he says.

And, he adds, that attitude hasn’t hurt GSR’s deal flow so far. The only exception was the mobile app space, where valuations soared for six months, peaked thirty days ago and has reset dramatically since then, he says. Meanwhile in other sectors in which GSR invests, like greentech, prices aren’t moving at all. “In greentech you need four quarters of earnings if you want to go public or you don’t get out at all,” Lim says.

We plan to have Lim as part of a group of investors talking about the nuances of the up-and-down Chinese Internet investing scene at our Disrupt Beijing Conference in October. More details on that event coming soon.