Qiming Venture Partners Founding Managing Partner Gary Rieschel. (Note: This is part of series of articles about China’s business and economic outlook in 2024. ) Gary Rieschel moved to Shanghai in 2005 following a successful venture investment career that included setting up early Softbank funds in China.
The venture firm he then co-founded, Qiming Ventures, has thrived in good and bad times in China. Today, Qiming has about the equivalent of about $7 billion of investments in more than 300 portfolio companies, employs more than 100 staff, and regularly lands partners on the Forbes Midas List. Rieschel, then age 60, moved his personal base back home to Seattle in 2016 but remains involved as founding managing partner.
What’s ahead for venture capital investment in China? More than you’d imagine from only listening to Washington, D. C. politicians and pundits, Rieschel said in an interview this week.
The industry has transitioned from an early reliance on U. S. dollar funding sources to local renminbi ones over the years.
Nowadays, it also has the capital and manpower to generate breakthrough technology investments on its own, he said. “If you look at it broadly, we’re in the middle to later stages of a huge transition in venture capital” in China, Rieschel said. “In 2005 when we launched Qiming and before that when I was at SoftBank, there was no renminbi funding for startups in China.
Today, over 90% of the funding available for startups in China is renminbi. That is one of the transitions a lot of the geopolitical folks in D. C.
don’t understand. They think constraining dollars will starve Chinese startups for capital. That’s simply not the case anymore.
China has fully localized the venture capital model. ” Though the main sources of venture funding in China differ from the U. S.
, much of it is nevertheless directed by smart investors. “The renminbi money is primarily from high net worth individuals who’ve had a great deal of experience in starting companies and running large businesses. It’s not institutional money in the sense of Harvard, Yale, Princeton, large endowments and foundations, and not at a scale — yet — of the money available in the U.
S, but it’s pretty sophisticated money,” he said. Another change compared with Qiming’s pioneering days is in the type of businesses VCs are looking for. “You’re in a major secular transition from the heavy consumer orientation – e-commerce and social media of the 2005 to 2016 time frame — to a much more hardcore tech kind of investing, which is more complicated, riskier, and takes longer to realize.
But that’s well underway,” Rieschel said. “You’re still seeing healthcare grow pretty dramatically. The sophistication of what China is developing within its borders in healthcare continues to grow a pace such that China is not terribly disadvantaged in terms of its technical capability today compared to the rest of world,” Rieschel said.
That includes gene therapy and cancer treatments. To be sure, that doesn’t hold in every sector. “In some sectors like semiconductors, you do have a couple generation — maybe a several generation gap, but that’s not a broad-based gap.
It’s a gap specific to particular sectors and not across the board,” he said. “Entrepreneurs are still starting businesses. I would say in the last couple of years, the ambiguity on the geopolitical side and tension and the ambiguity on China’s own domestic direction has caused many of entrepreneurs to be far more conservative on large capital projects” and hiring, he said.
Yet Qiming will do over 30 investments this year – down 40-50% from the pre-Covid days but sustainable, he said. Large firms with capital such as Hongshan – previously known as Sequoia China – “are still deploying it, but not anywhere near the pace” of their peak, Rieschel believes. Besides healthcare, investors are on the hunt for companies tied to breakthrough technologies.
“In venture capital, you’re looking for things that have large movements over a long period of time. Technology trends, as we’re seeing now in AI, have a lot of activity followed by the chasm of despair when you realize how hard it is to actually do some of this, followed by ‘Where did all these billion-dollar companies come from?’” he said. Consumers – an earlier VC focus – “will be a significant target for the foreseeable future in China.
What I would say is different is the online version of that – the virtual storefront, the super apps, that type of thing — isn’t really the focus now. What you’re seeing now is more of online to offline transition where emerging physical store brands become far more prominent in China. They may have started online, but they’re moving offline and you’re also seeing a lot more physical storefront products brands launched in China,” Rieschel said.
That – along with tough competition in China – may lead more Chinese e-commerce companies to seek overseas partners, he said. Among that group, China’s Shein . “Chinese entrepreneurs are now looking at the overseas market much earlier in their life cycle than they did,” Rieschel observed.
They can learn from the limited success of China’s big-name e-commerce firms like Alibaba weren’t able to match their domestic success overseas, he noted. Shoppers get an opportunity to shop on the opening day of fast fashion e-commerce giant Shein, which “Alibaba had fairly mediocre results outside of China compared to the amount of effort and investment,” Rieschel said. “Tencent was quite successful because games are a lot easier to distribute and set up infrastructure for overseas than what Alibaba was doing.
” Overall, Rieschel said: “The consumer’s not dead. It’s just no longer taking two-thirds of the venture capital money being raised the way it was for a decade. ” See related posts: @rflannerychina.
From: forbes
URL: https://www.forbes.com/sites/russellflannery/2023/12/21/china-outlook-2024–dc-is-wrong–transformed-vcs-will-fund-tech-breakthroughs-qimings-gary-rieschel-says/
