Ex-JP Morgan China head joins VC firm for institutional buildout

Brett Krause has switched from a 20-year career in banking to the buy-side, at mainland venture capital manager PurpleSky Capital. He explains why and gives his take on China opportunities.
Ex-JP Morgan China head joins VC firm for institutional buildout

In an intriguing career move, Brett Krause, until recently JP Morgan’s China president, has joined a Shanghai-based venture capital firm to help it develop into a more institutional platform.

As managing partner at PurpleSky Capital, Krause is among a group of individuals he is familiar with. He has known founder Scott Zheng for 20 years, since they attended Columbia Business School together.

Krause said PurpleSky was looking to develop from a small but very successful angel VC manager into something more institutional in nature, in terms of how it communicates with professional investors and adopts international best practice and management standards.

“We have the ambition to grow, and make it a world-class, much larger VC [firm],” he said, without indicating how much it was targeting in terms of AUM.

PurpleSky has 14 staff, of which six are investment professionals, with the rest in back-office roles. It will add young investment professionals and possibly make more senior hires, but the latter is not the objective at present, Krause said.

Track record

Since setting up in 2011, PurpleSky has raised around Rmb750 million ($113 million), and backed a couple of successful ventures in the form of Momo and Inke. 

Momo is a social network mobile app that listed on the US’s Nasdaq in December 2014 at a valuation of $3 billion, while Inke is a mobile streaming video app, which was valued at Rmb3 billion as of June. 

PurpleSky invested in Momo as the sole angel investor in 2011. It invested in Inke at both the angel and series A stage (the latter being the first round of financing after seeding) in 2015, and Krause has been on Inke’s board for some time.

PurpleSky is not fundraising at present, but plans to launch a new strategy next year, which will probably focus on the types of companies the firm has already invested in.

“If we create another unicorn [a start-up valued at $1 billion or more], we want to keep our investment percentage in that company high, because those are the world's best investments,” Krause said. 

The new fund’s focus will remain on angel and early-stage VC investing, and the target companies will be mainly in the mobile internet and technology sectors, he added.

PurpleSky has invested in 50 companies since it was set up. There have been a handful of exits already, but Momo’s listing on the Nasdaq was the highest-profile event to date.

PurpleSky’s limited partners (LPs, or investors) include family offices, high-net-worth individuals and the investment arms of listed companies in China – a typical client base for smaller mainland VC firms. It is keen to attract international LPs, but has not received any commitments yet.

From sell side to buy side

Krause had been with JP Morgan since January 2014 and before that was with Citibank in Asia since 1996, most recently as country officer for Vietnam. He was also previously head of China coverage of transaction banking and multinational corporations for Citi’s securities and fund services business from 2002 to 2008.

Julia Wu, former deputy head of China for global banking at HSBC, is to succeed Krause, having joined JP Morgan in March following his resignation. 

Asked why he’d chosen to move to a small VC firm, Krause said it was an easy decision. He likes PurpleSky’s culture and the reputation it has among entrepreneurs in China. In addition, the firm has “a very impressive track record”, and Krause has known the other partners for a long time and they all get along well.

“I've had the privilege to work for two fantastic organisations in my career [Citi and JP Morgan],” Krause said. “So now being able to join as a partner of a smaller, but very successful firm like PurpleSky is ideal; a dream.”

What’s more, China is very interesting for early-stage venture investing,  he said. “There are so many new technology platforms, people's adoption is very quick, there is a huge opportunity to improve efficiency in China.” 

The size of the market makes it attractive, added Krause. “If you can get things right, [as in] the case of Inke, you can create a business which goes from being start-up to a world leader in a year-and-a-half. You cannot imagine doing anything like that anywhere except China.”

Did Krause think about setting up his own company? No, partly because he thinks doing business in China works best when you have strong local partners. “If I wanted to start my own firm, I would probably start by looking for a great Chinese partner.”

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