The first secondary transaction of GSR Ventures.

Written by | Chen Zhiyan

Early in the morning of February 24, Coller Capital and GSR Ventures officially announced the completion of a GP-led private secondary market transaction with a scale of 229 million RMB. This is also the first time that GSR Ventures has realized the exit of LPs through an S transaction in the publicly available information so far.

The so-called GP-led S transaction is different from the common situation of S transactions where LPs actively choose and GPs sell assets. Instead, it is a transaction initiated by the GP, transferring one or more assets or fund shares to a new fund, and continuing to be managed by the existing GP.

According to the information on changes in partners of Tianyancha, the completion time of this transaction was in mid-January, and the subject was a single fund established by GSR Ventures in 2015. As the "new LPs", Coller Capital, the sole lead investor, and Taihu Ace (under Wuxi State-owned Assets Guolian), the co-investor, subscribed 81.5% and 13.8% respectively, while the "old LPs" including Guochuang Yuanhe, Litong Industry, Gopher Asset, Shengjing.com, Xiaocun Capital, Herun Pilotage, etc. have achieved an exit after a full 9 years.

How much profit did this ten-year fund make? According to the respective subscribed amounts of the "old LPs", the original scale of the fund is around 200 million, the total scale of this transaction is officially announced as 229 million, and the specific transaction price has not been disclosed. In addition, this fund also invested in ofo. According to previous media reports, the share of GSR Ventures in ofo should have been exited and converted into DPI in 2017.

In response to this transaction, Zhu Xiaohu said externally: "The Chinese private secondary market is becoming increasingly active, and S funds have increasingly become one of the important exit strategies for private equity funds, which also puts higher requirements on the transaction capabilities of GPs and the quality and sustainability of underlying assets. GSR Ventures will continue to strive to create diversified exit opportunities and continue to bring excellent returns to investors."

According to "Dark Flow Waves", unlike the common practice of establishing a continuation fund for an S transaction to "put in" the originally invested enterprises, the "reorganization model" of the old LPs exiting and the new LPs entering is adopted in this transaction. All the original LPs have achieved an exit, while Coller Capital and Taihu Ace have re-established investment management rules with GSR Ventures.

Usually, a continuation fund will involve multiple transaction subjects such as the existing fund LPs, the existing fund GP, the continuation fund GP, the new investors of the continuation fund, the target company corresponding to the underlying assets, the founders of the target company and other existing investor shareholders, as well as the lawyers, auditors, and financial advisors of all parties involved in this transaction. However, the "reorganization model" in this transaction simplifies the aspects involved in the transaction to the greatest extent, and the structure of the original invested enterprises will not be affected.

Coller Capital, headquartered in London, is one of the earliest investment institutions in the world engaged in the S fund business. This transaction is led by the RMB private secondary market fund "Coller Capital Private Secondary Market RMB Fund Phase I" under Coller Capital. This fund was first closed in April 2023, and the first transaction was completed with Legend Capital with a total amount of approximately 315 million yuan. That transaction was called "the first classic GP-led transaction in the RMB S fund market" by Yang Zhan, the investment director of Coller Capital.

The press releases of both parties mentioned that this transaction "covers 8 high-quality and high-growth assets in the Chinese consumer and technology industries". "Dark Flow Waves" found through information search that the establishment time of the 8 involved enterprises is between 2014 and 2017, and most of them are companies in the TMT era, and GSR Ventures entered as an early investor.

Rao Zhi, the founding partner of Focus S Transactions' Phenomenon Capital, told "Dark Flow Waves" that this transaction enables the old LPs to obtain liquidity and the new LPs to hold high-quality assets at a reasonable valuation, which is a "win-win result".

"The core of S transactions is to exchange time for space. There are three kinds of money to be made: the money from discounts, the money from growth, and the money from the capital market. Among them, the money from price discounts is the basis of all returns." Rao Zhi told "Dark Flow Waves".

Due to the changes in the investment hotspots in the primary market, there has been a tendency of many "demonizing" evaluations of venture capital in the TMT era in the past two or three years. "Although there are problems in the TMT era, it is definitely not worthless. It is necessary to conduct a comprehensive re-evaluation of the assets of this stage." Rao Zhi believes that although the 8 assets in this transaction are from the TMT era, many of them have the characteristics of data assets, and these still have long-term value.

When business and investment have fully entered the era of hard technology and AI, how to understand the future value of the assets of the previous era?

Yang Zhan previously mentioned in an interview how Coller Capital understands "good assets" - "Good assets are those that can survive relatively calmly even in a less ideal market environment." He gave an example, "A small noodle restaurant is worth 100 million when the valuation is high, 50 million or 10 million when the valuation is low. But no matter how much the valuation is, it will not affect the cash flow of the noodle restaurant itself. To some extent, this is a sustainable and high-quality asset."

Regarding this S transaction, Yang Zhan's statement is: "Coller Capital's complete investment platform in the Chinese market and its deep professional knowledge in handling complex GP-led transactions are the keys to our successful initiation and completion of this transaction at an attractive valuation."