It’s not often that you hear many details about the limited partners that feed money into a venture capital fund, and even less so when it’s about Western money being channelled into Chinese VCs, but today comes news of how one of the more interesting funds out of China is shaping up, courtesy of a strategic European investor.
Sinovation Ventures, a Chinese VC co-founded by the ex-head of Google China, Kai-Fu Lee, has raised a new fund of $500 million to invest in AI startups out of the region. Now, the first tranche of investment has been announced for it: $50 million from Spanish bank BBVA.
From what we understand, no investments have yet been made out of Sinovation Fund IV, which was formally made public in an SEC Form D fundraising filing this month. According to a statement from BBVA, the $50 million investment is the first money that has been announced, but it sounds like the larger $500 million total has already been committed:
“The fund has about $500 million to invest in firms at the early stages in areas such as internet consumption, B2B, education but with a special focus on artificial intelligence (AI),” the bank said in a statement provided to TechCrunch.
Sinovation has about $1.7 billion under management, with its two most recent previous funds, totaling $675 million, announced in September 2016. Crunchbase notes that Sinovation has made 164 investments to date, with a focus on startups out of China such as the bike-sharing startup Mobike and education app VIPKID; it’s also investing in startups that are tied into the Chinese tech ecosystem, such as the California-based Wonder Workshop, which makes robots designed to help kids learn to code and counts other Chinese and Asian investors among its backers.
The BBVA investment into Sinovation is notable for a couple of reasons. The first is that it gives some visibility into how one of the bigger funds coming out of Asia to focus on AI is raising its money. While a number of VC firms in the West are tapping into money from Asia and the Middle East to build their funds, this is a sign of how it is also working in the reverse, fueled by a boom of interest globally in AI and a big wave of innovation specifically coming out of China.
“By investing into the Sinovation Fund IV, we are ensuring we can learn from and build connections with some of the most promising AI solutions being built anywhere on the planet,” said BBVA CEO Carlos Torres Vila in a statement. “Just as importantly, we can do it via a high-performing investment platform with a strong return profile.”
The second point here is that for BBVA specifically, the company has made a number of investments and acquisitions in fintech — some notable investments include the acquisition of Simple in the U.S., and hundreds of millions of dollars invested in startups like Atom Bank in the U.K. and Solaris in Germany — but it has also been rethinking the approach it takes to do this.
At one point, BBVA shut down its in-house venture arm and put money instead into an outside firm. Today’s investment in Sinovation is part of that bigger trend, where the BBVA can tap into another VC firm’s expertise to help it figure out how to get involved into the wider spectrum of tech innovations, specifically out of China, and how they might impact fintech and BBVA’s wider interests.
“With AI-empowered-banking tools likely to be a key differentiator for customers in the future, as well as critical to providing colleagues with the information they need to deliver improved customer value, the investment will give BBVA insight and access to the growing Chinese innovation market, especially around AI,” BBVA notes. “From a financial perspective, it will also give BBVA the opportunity to understand and potentially co-invest into Chinese AI technological startups, gaining exposure to the world’s fastest growing tech market while targeting attractive returns on investment.”
Sinovation’s $500 million fund, ironically, may sound like peanuts when you consider another VC operating out of Asia, SoftBank’s Vision Fund, which is hovering at around $100 billion for its fund (which has also disclosed a number of significant LPs such as Apple, Foxconn and Qualcomm, as well as a number of investors out of the Middle East. Through it, SoftBank has become an undeniably outsized player in the VC world, with the firm becoming a regular figure as the leading or sole backer in large growth rounds. (The two have invested in some of the same companies, as well.)
Sinovation fills an interesting niche, however, when you consider Lee’s expertise, the many earlier stage businesses that SoftBank and other big firms have yet to tap and Sinovation’s ears on the ground in China specifically — a significant market both for customers and for those who want to be at the vanguard of what’s being built for users everywhere.