China-headquartered, corporate-backed startup accelerator InnoSpring is looking to raise a third fund, Xiao Wang, general manager of its US branch InnoSpring Silicon Valley, told Global Corporate Venturing.
“We started a $2m fund three years ago and a $5m fund last year,” Wang said. “The next one will be in the double digits; I can’t say how much it is because we technically have received offers from investors but we have not really started raising yet from a legal standpoint.”
InnoSpring essentially operates as a Sino-American fund that helps startups developing consumer, financial and healthcare mobile technologies bridge the divide between the two regions. InnoSpring SV acts as its US offshoot, working with US-based entrepreneurs and funding startups from each region and mentoring them as they expand. It is also opening an office in Germany to expand the programme to Europe.
Wang said: “From 2012 all the way to today, we have supported about 150 startups, and we own and operate a co-working space in Santa Clara, right in the heart of Silicon Valley, where we are helping companies to start, from incorporation to handling their finances, accounting and HR, all the way to helping them fundraise.
“Our fund, in terms of capital, is relatively small. We look to invest in the first or second round, at seed or early stage. Usually, the total round is $700,000 to $1m, and we ourselves usually put in $100,000 to $250,000. Right now we focus almost exclusively on software technology, so we have about 50% consumer technology companies [in our portfolio] and the other 50% would be software-as-a-service and other lightweight enterprise applications.”
Auto part supplier Wanxiang invested $10m in InnoSpring in August this year, and existing backers include conglomerate Legend Holdings, property and construction group Shui On, telecommunications and internet company SoftBank, and IDG Capital Partners, the local investment affiliate of media and data firm International Data Group.
“We actually work with more than 15 corporates, and they are mostly corporations with the capacity to help startups expand to a particular market,” Wang said, citing mobile security technology developer TrustGo, an early portfolio company that was acquired by InnoSpring partner Baidu, as an example of a successful collaboration that helped a startup rapidly expand its reach.
“Other than Baidu, which we work with a lot, there are [e-commerce companies] Alibaba and JD.com,” Wang explained. “Recently we had one company that builds a smart hardware product that can be sold to consumers all over the world, and we partnered with JD.com because they are the largest online distributor of physical goods (in China), like Amazon.com (in the US), and they help us to sell to the Chinese consumer market.
“We also work with Suning, the largest offline distributor of consumer appliances in China, because one of the companies we invested in needed an offline partner to distribute into the Chinese market. So, we have a lot of corporate partners like that. I think Shui On is a different partner because they are more about providing financial backing to us, because they support the idea of innovation in general, but we collaborate with a lot of enterprises.
“The idea of Innospring is to become an open platform where we can forge a connection with big companies and make that available and accessible to small startups.”
Although it was initially formed with the goal of assisting startups on both sides of the divide, Wang explained that the rapid growth of the Chinese market coupled with cultural differences has meant InnoSpring has done more work with US-based companies moving into China than vice versa, though it will aim to rectify that imbalance in future. China-based companies often find the going more difficult in the US than their US counterparts do when entering China.
“They have decent success, but most of them do fail because of cultural differences,” Wang said, adding: “I think the US and China are very different markets. Chinese companies do not tend to have technological advantages so for them to expand to the US is very different.
“Chinese companies are generally good at business models and when they expand out of China it is much easier to select a market that has similarities to the China market, and that is why most Chinese startups I see choose to expand to Europe, India, Southeast Asia or maybe Africa, and they will choose those markets because of their similarities to China [in that] they are emerging markets. They will expand there first, and maybe the US market is last on their list.
“I would say maybe in the next five to 10 years there will be more and more companies from China expanding to the US in terms of business, but right now we see a lot more traction for US companies trying to find a China angle, and that is where we tend to focus. That is why we have a lot of Chinese enterprises we are partnering with, and maybe in future we will look more aggressively to find US partners and help companies from other countries expand to the US.”