US-based publisher International Data Group (IDG), which manages $6.8bn in corporate venturing assets on behalf of its parent as well as third-party limited partners, has used its China-based corporate venturing unit to back two California-domiciled companies.
IDG Capital is understood to have invested less than $50m in Razer, which makes computer game peripherals, such as keyboards and mice, and $10m in software application provider BlueSprig that launched its first products in October.
Although both deals are series A rounds for the portfolio companies, the money for Razer came from the $750m China Capital Fund II targeting later-stage businesses that closed in April and BlueSprig’s investment was from the IDG-Accel China Growth Fund II targeting earlier-stage entrepreneurs. IDG Capital has also raised a $550m IDG-Accel China Growth Fund III earlier this year as part of its joint venture with US-based venture capital firm Accel but the BlueSprig deal came from the previous vintage, a deal source said.
When the first IDG-Accel China Growth Fund closed at $250m (later $300m) in 2005 at the start of the joint venture with Accel (and just after the VC firm’s $12.5m investment in social network Facebook now worth an estimated $5bn) it aimed to invest in "fast-growing enterprises in information technology, healthcare, consumer technologies, and other emerging technologies in the People’s Republic of China".
The two deals represent the first time IDG Capital has invested in America-domiciled companies. Previously, IDG Capital invested in China-based companies and left US deals to its California-based affiliate, IDG Ventures San Francisco. However, Hugo Shong, managing partner of Beijing-based IDG Capital Partners corporate venturing unit, said: "Both IDG-Accel Growth Fund and IDG-Accel Capital Fund are China-focused funds and though both Razer and BlueSprig have their headquarters outside the country their software and manufacturing and marketing teams are bigger in China."
Both Razer and BlueSprig, which was founded in May by serial entrepreneurs Jason Johnson and Hugo Dong, have strong links to China. Dong is based in Chengdu, China, to run its development office while Razer has strategic partnerships with some of IDG’s former portfolio companies, such as media group Tencent.
Min-Liang Tan, co-founder and chief executive of Razer alongside the other co-founder and president Robert Krakoff, said: "Given our global reach, we wanted an institutional partner who didn’t just provide funding but could also help us scale. IDG-Accel is a global fund and their relationships in the US and China will definitely be complementary for our worldwide businesses."
Shong said the partnership with Accel had "done well" and been complementary to IDG Capital, which had been set up in 1992 and was the first venturing firm in China. However, while he said depreciation of the US dollar and strong cash balances in Chinese corporations and its government would encourage further investment by them overseas, the domestic market was more attractive.
Shong said: "China has the world’s biggest number of internet users at more than 600 million people and large numbers of mobile phone users and we are now in the mobile internet age, which is creating very excting opportunities, especially for China. The mobile internet will be the prevailing technology that will drive economic development in the next five to 10 years. The Chinese entrepreneurial community is very sophisticated, not just those that have studied abroad, so we will invest more there than outside of China."
In an interview with news provider Forbes, Jim Breyer, partner at Accel who led its Facebook investment, agreed with China’s potential. He said while the US would be home to the top 1% of entrepreneurs, over the next decade "you will see at least half of the top 10 or 20 Internet companies come from China. China remains a phenomenal mobile internet consumer market."