KTB Network, a Seoul-based venture capital manager, is targeting international investors for the first time as it seeks $200 million for its third China strategy by the end of 2016. It would be the firm’s biggest fund and take its assets under management past $500 million.

Having started capital raising in June, KTB is already well over its minimum target of W100 billion ($90 million), said Sean Lee, Shanghai-based senior adviser at the firm. It will back 15% of the total raised with its own capital, he told AsianInvestor, and the strategy will focus on growth to late-stage investments in the bio/medical, entertainment and consumer sectors.

Client base expansion

China Fund III is being raised in Korean won, but KTB plans to structure it to accommodate US dollar investors. The manager’s limited partners – that is, investors – have traditionally been concentrated in Korea, noted Lee, but KTB is now reaching out to global LPs. “Initial responses have so far been very positive,” he said.

KTB Network has an established track record, having raised $365 million in the past 10 years (see table below) and holds an estimated $150 million in dry powder, according to data provider Preqin.

KTB Network fundraising 
Fund name Vintage   Fund type Year of final close   Class size (m)
KTBN 7 Venture Capital Fund  2014 Venture (general) 2014 68,200 KRW
KTB China Platform Fund 2013 Venture (general) 2013 115,000 KRW
IBK-KTB Contents IP Fund   2013 Venture (general) 2013 20,000 KRW
KTB-Korus Fund  2012 Venture (general) 2012 8,000 KRW
Kaibo Yinke Investment Enterprise  2011 Venture (general) 2011 500 CNY
KoFC-KTBN Pioneer Champ
2011-5 Venture Capital Fund
2011 Venture (general) 2011 45,000 KRW
KoFC-KTBN Pioneer Champ
2010-5 Venture Capital Fund
2010 Venture (general) 2010 20,000 KRW
KTB/NHN China Ventures I  2010 Venture (general) 2010 30,000 KRW
KTF-DoCoMo Mobile Investment  2009 Venture (general) 2007 10 USD
KTB-MVC IT Investment
Partnership No. 1 
2002 Venture (general) - 8,00 KRW
S

Source: Preqin

KTB China Fund II, which closed in 2013 at W115 billion ($104 million), has distributed 70% of its invested amount, and valuations suggest an internal rate of return of 20-30%, said Lee. The firm’s first China fund closed in 2010 at W30 billion.

KTB’s China team in Shanghai has a 10-year track record with an average IRR of 20%-plus across the five funds it manages, noted Lee. 

Backing unicorns

In respect of deals done, KTB China has exited six ‘unicorn’ investments to date (companies valued at $1 billion or more): video site Youku Tudou, advertising agency Focus Media, tutoring services group Xueerxi (part of TAL Education Group), life sciences company China Cord Blood, cinema group SMI Holdings and appliance retailer Gome Electrical.

Lee pointed to KTB’s “Korea-China synergy” as an advantage that has helped it access China deals that were normally difficult to get into. This is because it has gained a reputation for being able to add value post-investment by connecting companies to key market players from Korea, he said.

For instance, KTB, the sole series A investor in 2009 in the TAL Education deal, had experience in Korea of tutoring businesses, noted Lee. Post-investment, KTB closely advised TAL and introduced an online education site in Korea for potential collaboration.

KTB is not the only Korean VC manager to be targeting Chinese investments; another player to be taking a similar approach is BlueRun Ventures which has also been raising a fund this year.

VC fundraising environment

Overall, however, 2016 has been a slow year so far for VC fundraising in Asia, with just 19 funds closed for a total of $3.1 billion as of end-August, according to Preqin. That compares to a total of $11.9 billion raised last year and $10.5 billion in 2014.

The value of VC deals completed is proving more robust, however, standing at $42 billion as of end-August, compared to around $52 billion for the whole of last year. Greater China accounted for $36 billion of the $42 billion.

As of end-August, Greater China accounted for a little over half of the PE and VC funds being raised in Asia by assets ($9.7 billion of $18 billion) and about a third of the regional total by number of funds (51 of 162).