Private equity giant Hillhouse Capital Group recently announced the launch of its seed funding project, with plans to invest in some 100 projects within the next three years.
This latest strategic move comes after the company set up independent venture fund GL Ventures in 2020.
The seed funding arm, Aseed+, will function separately, focusing on industries such as manufacturing, new energy, new materials, biotechnology, and carbon neutralization. Aseed+ aims to be a co-creator for startups, providing support in the form of incubation, acceleration, and market validation, on top of investment.
Attitudes towards early-stage financing in 2022
Venture capital seems to be concentrated in early-stage financing this year. According to statistics from JingData, in Q1 and Q2 2022 the number of seed angel investment rounds accounted for 30.6% of the primary market.
The changing macro environment is one contributing factor. Since it is generally common for projects in the middle and late stages to encounter growth issues, VCs prefer to invest in projects in the early stage.
Another factor is the changing face of technology. Most tech startups these days deal with artificial intelligence, new energy, and other relatively recent developments in technology, so it makes sense that most of these companies are in the early stages.
Finally—also due to the nature of tech startups—there is a greater influx of founders who are already well-established within their respective fields.
This sentiment is shared by VC firm Source Code Capital. “More zero-to-one technology innovation companies are starting to emerge,” the firm said in a statement when it launched its seed fund arm Yisu.
With these factors, seed investment is definitely an area to watch in China’s primary market this year.
The general direction for Aseed+
One of the most common topics of discussion in investment is whether funding is more effective in early-stage or late-stage companies. While there’s no clear-cut answer, Hillhouse has been gradually moving towards early-stage investing.
Some of the projects under its wing are BeiGene, Horizon Robotics, Agile Robots, Neumora Therapeutics, and Little Freddie. While many of these businesses have become unicorns in their respective industries, they encountered struggles when they first started out.
One example is Horizon Robotics, which specializes in AI. When founder Yu Kai started the business, many investors could not understand the technicalities and felt his goals were unachievable. However, Hillhouse turned things around when it came on board as one of Horizon’s earliest investors, even though it had been more focused on mid- to late-stage investments at the time.
Moving forward, the Aseed+ arm will focus more on science and technology startups. According to data provided by Hillhouse, the company has provided seed investment for 20 enterprises in 2022 so far, of which 83.6% are technology companies.
It is worth noting that the umbrella of science and technology also includes industries that seem traditional but are highly technical. One such instance is Chinese manufacturing company Kingwills New Materials, set up by founder Chen Boyi in 2021. The unique flash-spun materials developed and produced by Kingwills are widely used in medical packaging, industrial protection, and construction materials. Hillhouse invested in the company in its first round of external financing.
For now, Aseed+ is focused on investing in startups so long as their founders have a niche specialization and the ability to implement strategies.
“We want to find early-stage entrepreneurs who have a deep understanding and insight into their segments,” said Hillhouse’s founding partner Li Liang. “They should have experience in their industry and want to set new benchmarks in technology and engineering.”
He cited Tian Ruijun, a professor at the Southern University of Science and Technology, as an example. Tian meets the above requirement of having in-depth industry knowledge, having accumulated years of research in proteomics. He wanted to focus on the clinical application of research to help resolve patients’ issues. With Hillhouse’s help in 2022, Tian founded BayOmics, a cutting-edge biotechnology startup. The company has since managed to see considerable growth in several areas, such as recruitment, industrial resource integration, and strategic cooperation with well-known domestic and foreign pharmaceutical enterprises.
Hillhouse and its support measures for Aseed+
The Aseed+ arm intends to provide better support to the early-stage companies it invests in. “We hope to use this funding arm to provide professional and systematic services to early-stage entrepreneurs,” said Zhang Lei, the founder of Hillhouse.
Aseed+ listed five areas of support:
- Innovation platforms: Aseed+ will work with its partners to set up pilot test platforms, experimental spaces and facilities, innovation centers, and seed concept verification platforms in Beijing, Shanghai, Suzhou, and the Guangdong-Hong Kong-Macao Greater Bay Area.
- Pre-investment support: Aseed+ aims to help early-stage companies gain access to research and facility resources as early as the creative incubation stage, without investment as a prerequisite.
- Industry consultants: Aseed+ will collaborate with research and industry partners to establish advisory committees, which will provide strategic guidance and consultations to startups at the seed-funding stage.
- Industrial resources: Aseed+ will aid in linking up early-stage companies with resources in the industry.
- Financing services: Aseed+ will offer business financing services, from basis points design improvement to investment and financing promotion platform construction to communicating and negotiating with investment institutions.
In addition, Hillhouse has set up a specialized talent service team to help businesses with organizational diagnosis, equity incentive training, and executive training and provide university recruitment, executive recruitment, and other services as required.
Aseed+ is led by Li, who joined Hillhouse in 2005. Li has extensive experience investing in science and technology projects, as well as manufacturing, dual-carbon (carbon neutralization and carbon peaking), and other industries.
When building the Aseed+ team, Hillhouse picked established members who have a scientific research background or have hands-on industry experience. The team aims to add value by providing much-needed insights to startups.
With such extensive support in place, Aseed+ is well-positioned to give a boost to the startup ecosystem.
This article was adapted based on a feature originally written by Xu Muxin in 36Kr. KrASIA is authorized to translate, adapt, and publish its contents.