Exclusive | With a new fundraising of $220 million, this Hong Kong VC is still willing to heavily invest in Asia.
Text | Ren Qian
Editor | Chen Zhiyan
After the holiday, a Hong Kong-based fund has brought long-awaited good news to the domestic US dollar VC fundraising market.
On October 9, "Dark Flow Waves" exclusively learned that MindWorks Capital Concept Capital has completed the fundraising for its fourth fund.
This fund, its parallel funds, and the committed co-investment vehicles have raised a total of over 220 million US dollars. LPs include: sovereign wealth funds, university endowment funds, asset management companies, family offices, and many Asian new economy entrepreneurs.
So far, this fund, which originated in Hong Kong in 2013 and invests in Pan-Asia, has a total managed asset size of more than 1.4 billion US dollars.
Against the backdrop of the difficulties faced by the global VC industry, the core reasons why LPs are willing to "pay" for MindWorks at this moment lie in two points: First, its unique position in Hong Kong; Second, its investment strategy of heavily betting on Chinese founders.
"Although some local Chinese venture capital firms are facing challenges in attracting US dollar capital, there are still many investors actively looking for opportunities to invest in the Asian market." Joe Chan, the managing partner of MindWorks, told "Dark Flow Waves" that the cross-border and cross-regional investment strategy previously implemented by the team in the Greater China region and Southeast Asia "has successfully resonated with them."
The two managing partners of MindWorks, David Chang and Joe Chan, are classmates who studied in California, USA. After graduating in 2005, they returned to Hong Kong together to work in the financial industry. As the first batch of users of Facebook, inspired by the entrepreneurial and venture capital atmosphere in Silicon Valley, they jointly founded this institution positioned for early-stage technology investment in 2013. "MindWorks" is meant to be "clear-headed, with the right direction, and then working diligently and attentively to execute."
In their 11 years of investment practice, the most representative case is the story of investing in Lalamove for seven consecutive rounds -
In 2014, after MindWorks raised the first sum of money, it invested in Lalamove, which started in Hong Kong and had a company of no more than 30 people. Since then, multiple rounds of investment have spanned the first three funds of MindWorks, and together with LPs, a total of 100 million US dollars has been injected. According to their estimates, this investment is likely to bring a DPI of more than 10 times for the first fund with a scale of less than 50 million US dollars.
With the changing times, The logic of MindWorks' investment in Lalamove has further deepened from seeking platform opportunities in the era of the mobile Internet to China's supply chain, logistics, and the going global of talents.
Before 2019, the core of MindWorks' investment in going global was still to use China's advantages, such as a strong supply chain, the engineer dividend, and the globally advanced business model, to implement the "copying logic" towards a single market (mainly Southeast Asia). For example, investments in companies such as Glints, Inteluck, and YUP. Since 2020, MindWorks has further decided to expand its investment targets from early-stage companies exploring a single market to those with more global businesses.
"After 2020, the cost and difficulty of globalization are gradually decreasing, and the new generation of Chinese founders regard the regions we once regarded as 'developed countries' as the targets they set their sights on from the very beginning." Joe Chan said.
Before the National Day holiday, "Dark Flow Waves" had a chat with Joe Chan, the managing partner of MindWorks, from which we can see how an overseas US dollar fund based in Hong Kong thinks about future globalized investments.
The following is the conversation:
"Dark Flow": Asian venture capital companies generally have difficulties in fundraising. What do you rely on to be able to obtain funds from relatively long-term LPs such as sovereign wealth funds and university endowment funds?
Joe: First of all, the performance is quite good. In 2023, we calculated a data: The DPI of the first fund exceeds 15, and the MOIC (multiple of invested capital) of the second fund is 10 times.
What is more important for the future is that the product positioning is more in line with the market conditions: Global asset allocation mainly in the Pan-Asia region, mainly focusing on model innovation in emerging markets and technological innovation in mature markets.
"Dark Flow": At present, how have the investment preferences of investors who are still willing to bet on Asia changed?
Joe: Their requirements are also getting higher, and their styles tend to be more conservative. To successfully raise funds at this time, the past investment performance must be persuasive, especially in terms of the DPI of the previous funds.
"Dark Flow": Nowadays, for a VC that focuses on investing before the B round, how to ensure its exit ability?
Joe: The unit economic model is now an important indicator for us to determine whether to invest in a project in the early stage. In the past, enterprises raised funds and burned money to expand their scale, and they could slowly adjust the business model to make profits after growing. Now we will require that the enterprise's cash flow is not necessarily positive, but at least the unit economic model is positive. Because with the unit economic model, there can be a clearer goal to know when it can be profitable. For example, when 1,000 products are sold, the money earned from selling the products can cover the cost of the headquarters, so the certainty of our investment will also be higher.
"Dark Flow": Judging from the backgrounds and family circumstances of your two managing partners, when you founded MindWorks in 2013, you could have completely become angel investors by yourselves. From the perspective of pure returns and management difficulty, that might be a simpler path. Why is it necessary to institutionalize?
Joe: We consider more from the needs of entrepreneurs, especially those of going global companies. It is relatively easy to be an angel investor and come up with 1 million Hong Kong dollars, but many excellent entrepreneurs need millions or even tens of millions of US dollars after verifying the business model in a certain market and expanding to other markets. Personal investment cannot be sustained. Because of this, many companies fall into the "valley of death" of the A/B rounds. From the beginning, we wanted to fill this black hole.
"Dark Flow": In the past, many US dollar funds have deeply cultivated Southeast Asia to seek early opportunities, but most of them have failed. MindWorks has invested in several companies with Southeast Asia as the main market, including Glints and Finture, and has also achieved good performance returns. What is your secret?
Joe: Southeast Asia is indeed relatively difficult to invest in. It is essentially not a unified large market, but rather a dozen different countries. The total population of Southeast Asia is 1/3 of that of China, and the per capita GDP is also 1/3 of that of China. When the market space is not sufficient to support the emergence of super unicorns, investors' footsteps will naturally not stay for long.
We believe that the market size of Southeast Asia is not large compared to China, especially for going global companies. They usually can only start from one country and expand to other countries after successfully verifying the model. We usually focus on opportunities in super-large industries, such as Fintech, e-commerce, recruitment, real estate, etc. These industries have a large enough market size, and the competition is often not as fierce as in China. Good-performing players usually enjoy a larger market share than the top players in the Chinese market. Such opportunities are not particularly many in Southeast Asia. Therefore, we often select companies with the potential to be leaders in these super-large industries and make heavy bets.
"Dark Flow": More specifically, where do you think the opportunities in Southeast Asia are in the future?
Joe: If we only focus on one country in Southeast Asia, we think it is Indonesia. Indonesia has a population of 280 million, ranking fourth in the world. Among them, the middle class is increasing rapidly, but the supporting service products are very scarce.
A typical example is the financial service market in Indonesia. The financial service market in Indonesia is highly polarized. Traditional banks basically only serve high-net-worth individuals. Therefore, only about 2% of Indonesians have credit cards issued by banks. The rest can only seek high-interest cash loans and Payday Loans from a large number of small loan companies. The actual annual interest rate of such products is often more than 100%, which is unimaginable in the Chinese market. Therefore, we see the huge market of 40 - 50 million middle-class people in Indonesia.
Not long ago, we led the investment in YUP, the credit payment platform under Finture, a Singaporean digital bank and credit payment service provider. This company mainly issues credit cards to Indonesian wage-earning consumers. Currently, YUP has served over one million users, with a cumulative transaction volume of over ten million. It is expected to achieve a transaction scale of over 1 billion US dollars in 2024.
"Dark Flow": The mainstream of domestic institutions' investment in going global is the "copying logic" of various business models and the spillover of infrastructure dividends. Has MindWorks' investment logic changed over the years?
Joe: Since its establishment, MindWorks has been conducting cross-border and cross-regional early-stage investments in the Greater China region and Southeast Asia. In 2015, we saw the first active going global of new economy entrepreneurs in a real sense: such as news aggregation tools like UC News and News Dog; WeChat going to Thailand and Lazada with a huge investment from Alibaba. Currently, there are still opportunities for the global spillover of the Chinese business model in the logistics and financial fields in many markets, and we will continue to look for replicable opportunities in these two fields.
But adjustments are certainly also taking place. If the core of investment in going global before 2019 was the large-scale migration of China's emerging business models to backward areas, what we valued was the strong supply chain in China, the engineer dividend, and the globally advanced business model to replicate in Southeast Asia and make money by using China's advantages. Then after 2020, because the cost and difficulty of globalization are gradually decreasing, the new generation of Chinese founders regard the regions we once regarded as "developed countries" as the targets they set their sights on from the very beginning. Therefore, MindWorks' strategy is also adjusting: The fourth fund will, on the basis of focusing on Pan-Asia, radiate more to other global markets and investments.
"Dark Flow": Can your investment in YUP under Finture be regarded as the practice of the latest strategy?
Joe: Indeed. Finture is not a "Chinese going global company", but from Day One, it has been a purely local Southeast Asian technology company. More than 80% of the company's nearly 300-person team are local members in Southeast Asia, and the founding team has been working and living in Southeast Asia for a long time.
We are willing to believe in the ability of Chinese founders to expand their global businesses. For example, Lalamove. When we invested in 2014, their entire team in Hong Kong had only about 20 people. At that time, MindWorks had just been established. After analyzing the trend and business model of logistics, we made the investment decision and continued to invest for seven rounds. Not only our main fund, but also our LPs followed the investment, with a cumulative investment of 100 million US dollars. Now Lalamove has carried out business in more than ten countries in the world.
There is also XTransfer, a company that helps Chinese merchants open global accounts. Now the company has moved to Hong Kong. We have invested in two rounds. XTransfer has gone from serving only Chinese merchants before to serving global merchants 24 hours a day.
"Dark Flow": In the past two years, apart from AI investment, betting on Chinese founders has almost become the only story for domestic US dollar funds in front of LPs. Is this a challenge for you?
Joe: It is a challenge, but it is also our opportunity. Being headquartered in Hong Kong is a unique aspect of MindWorks. Our geographical advantages in Hong Kong and the Greater Bay Area allow us to better help enterprises expand to the global market based on this region. The geographical, talent, and capital advantages of Hong Kong and the Greater Bay Area make this region very attractive to entrepreneurs.
We attach great importance to the close connection between Hong Kong and the Greater Bay Area. With our headquarters in Hong Kong and multiple regional offices in Beijing, Shanghai, and Jakarta, we hope to support more and more domestic entrepreneurs and bring successful business models to Hong Kong and to the world.
"Dark Flow": How do you view the AI investment trend in the past two years?
Joe: The threshold of the large language model is not something that our early-stage funds can step into because it requires an initial investment of 3 - 5 billion US dollars, and it has almost become a game for giants from the very beginning.
We are more inclined to use AI to create a new business model and find opportunities for AI applications.
"Dark Flow": What do you think about the future development of venture capital in the Pan-Asia region?
Joe: We are optimistic about the future development of venture capital in the Pan-Asia region. Although the current market is constrained by insufficient liquidity and changes in LP risk preferences, resulting in a reduction in the investment scale, in the long term, the prospects of this region are still very broad. First of all, it has a huge population base, a rapidly increasing per capita income, and a very bright economic growth rate. These factors together provide an ideal soil for nurturing the next batch of super-large enterprises. We believe that with the adjustment of the economic structure and the improvement of the market environment, the Pan-Asia region will continue to be a hot spot for global innovation and entrepreneurship.