US-based venture capital firm BlueRun Ventures (BRV) aims to close its second Asia strategy with $500 million, almost three times the size of BRV Lotus Fund I, reflecting the swift growth of its target sector.
To this end, the consumer technology-focused manager is fast expanding its team. Having doubled its headcount to 40 now from 18 at the start of last year, it expects to have 50 staff by the end of 2016.
“We’ve already identified the candidates [to hire],” general partner Kwan Yoon told AsianInvestor.* “We like to invest in people one cycle ahead, so that we are always in a good position to develop and execute the next strategy.”
BRV – which focuses on assets in China, Japan and Korea – has set a hard cap of $750 million for BRV Lotus Fund II and is already well on the way there. It held its first close in December 2015 at $250 million, some five months after fundraising began, and expects to final-close by July.
Lotus Fund II has so far made three investments – two in Korea and one in China – and one of the companies in question is due to IPO in July. There around 30 other deals in the pipeline, noted Yoon, which tend to originate in Korea and can have expansion potential in China and Japan.
The firm closed BRV Lotus Fund I at $175 million in November 2013, which has so far generated an internal rate of return of 68% and has started distributing capital.
Headquartered in Menlo Park, California, BRV has a background in consumer tech; it was originally seeded by Finnish mobile phone maker Nokia, which remains an investor. Originally called Nokia Venture Partners, it re-branded to BlueRun Ventures in 2005 and also has offices in Beijing, Seoul, Shanghai and Tokyo, with Hong Kong as the regional headquarters.
Interestingly, BRV chose to change its investment approach for Lotus Fund II, putting a bigger focus on more mature, growth investments than it did for Fund I.
“I’m a firm believer in changing fund strategy,” said Yoon, despite many investors preferring asset managers to stick to a consistent strategy and track record. With 17 years of focus on consumer technology, he explained, “we have been adjusting our strategy every fund cycle, as our target sectors change and our sector expertise becomes more mature every year”.
As part of this approach, before raising Lotus Fund II, BRV carved out China early-stage venture from its growth-investing platform into a separate fund in March 2015 focused on healthcare and consumer technology. This $200 million strategy is called BRV Aster and is run separately.
That made sense because early-stage investing in China requires a different skill set, risk profile and investment execution tactics from growth investing, noted Yoon.
“We continue to cooperate so that my growth platform has first look at the promising winners from BRV Aster, on top of the deals that we cultivate bottom-up,” he said. “This means we no longer take technology risk or business model risk.”
BRV then re-assessed which core sectors to focus on. It decided to concentrates on Korea and started to develop pipeline deals in areas such as healthcare, electric cars, smart farming and consumer technology. The firm also added Japan for the first time as part of its strategy, having identified strong investment opportunities there that had a solid expansion angle in China and Korea.
With a greater focus on maturer assets have come bigger ticket sizes. In the first fund BRV invested a maximum of $10 million per deal, but now that has risen to between $10 million and $50 million.
“We weren’t in a position to write bigger cheques before, due to limited fund size,” said Yoon. “This time we want to have more flexibility in terms of cheque size and a bit more powder to invest.”
* An extended Q&A with Kwan Yoon appears in the latest (May) issue of AsianInvestor magazine.