GGV Capital just raised $1.2 billion; here’s where it plans to invest it

Back in February, we told you GGV Capital was raising a more than a billion dollars from its investors.

This morning, the 16-year-old, cross-border venture firm is making it official. The final tally, says GGV, is $1.2 billion, including a $675 million main fund; a $225 million “Plus” fund to back its most promising companies as they mature; a $250 million “Discovery” fund that will focus largely on seed-stage opportunities in China; and a side, $50 million “Entrepreneurs” fund that consists largely of company founders as LPs and that will invest pro rata across the funds.

The firm has a lot of moolah to invest, in other words. To find out where GGV plans to shop, we talked yesterday with managing directors Glenn Solomon and Jeff Richards, who are based in Menlo Park, but who travel to the firm’s Beijing and Shanghai offices frequently.

TC: Aside from the amount you’ve raised, it looks like what’s newest here is your first dedicated seed-stage fund, 80 percent of which you intend to invest in China. You’ve always made bets of all sizes in China; why break this part of your business into a separate fund?

GS: Over the last five years, more than 70 percent of our investments have been Series B or earlier and many of them have been in China. But we thought the opportunity in China to do [seed] deals is really strong for us given our work on the ground and the entrepreneurial community that we’ve built up in China.

TC: Is it fair to say this is largely a marketing tactic so entrepreneurs will be clearer about your intentions in China? 

GS: I was having dinner in Beijing with a CEO who we’ve backed in the past and in whose newest company we invested at the Series B, and when I told him about our plans to raise Discovery, he said, “Had I known you guys were doing seed investing, I would have called you first.”

Don’t underestimate how important [messaging] is. Also, for our limited partners, having a separate vehicle helps them look at our seed investing activity and judge how we’re doing [versus when it’s lumped in with later-stage bets].

TC: How is competition at the seed level in China? Is the scene less developed there? In the U.S., we only hear about the giant fundings.

JR: It is. When you think about when First Round Capital and True Ventures kind of created the seed category seven or eight or nine years ago, that’s sort of where China is now. Here [in the U.S.], there are plenty of specialized firms that we love working with. In China, it’s evolving but still nascent and still rife with opportunities.

For example, one of our sectors is SaaS and cloud, and [those technologies] are much less mature in China than they are here. We’re also focused on IoT and robotics, and both will arguably be much bigger there, with manufacturing and hardware design [largely centered there] and now an uptick in software design, too. We’re focused, too, on mobile and the consumer Internet, and the consumer mobile population in China is the biggest there is.

TC: You’ve made plenty of later-stage bets in China, where many companies are now looking overfunded. Are you concerned about some or even many of these startups that are very young yet have raised hundreds of millions of dollars apiece in recent years?

GS: The same dynamics in the U.S. are also playing out in China. A pretty substantial influx of later-stage capital into the market has fueled a lot of larger rounds and high valuation deals in China, just as happened in the U.S. — with the added feature that in China, larger Internet companies, including Tencent, Alibaba, and, to a lesser extent, Baidu, have also played a role in driving up round size and valuations for internet mobile companies. Competition among them is even more intense than here in the U.S. between Google and Facebook, and that has probably added more fuel to the fire.

If capital shifts out of the late stage market, we’ll see perhaps the temperature go down a bit.

TC: Some people think China is experiencing a bubble akin to our dot-com bubble of the late ’90s, given that retail investors are caught up in things, too.

GS: We don’t view the market that way. One useful framework is thinking about the old and new economy. The old economy — with lots of state-owned enterprises and the like —  many of those companies’ shares trade publicly in China. And in general, they’ve had too much leverage and they haven’t grown as fast as investors’ expectations, so you’ve seen some of those traditional companies traded down. But the new economy, from commerce to social, including connected devices — those continue to trend very positively, and our expectation is that there’s a long way for them to go.

JR: If you look at [mobile] e-commerce, there’s a $550 billion market in China today, up from close to zero 10 years ago. Emarketer is expecting that number to hit $1.5 trillion over the next five to six years. That’s a trillion dollars of new spending that’s going to come into the market, and we believe these new companies will benefit. That’s what’s driving optimism.

Pictured: GGV’s managing partners, including (left to right),  Jeff Richards, Jenny Lee, Hany Nada, Jixun Foo, Glenn Solomon, Hans Tung