CHINA’S PRIVATE EQUITY KING
Happy Friday, Term Sheet readers.
Let’s talk China.
In a wide-ranging interview, my colleague Shawn Tully spoke with private equity veteran Weijian Shan about China’s current economic predicament and the country’s long-term health.
As an on-the-ground dealmaker in his role as chief of PAG, Asia’s largest private equity firm; as a U.S.-trained, PhD economist; and as a figure whose personal story followed his nation’s rise, from the brutal oppression that exiled him into forced labor during the Cultural Revolution to the economic miracle that enabled him to bring billions of dollars in gains to his investors.
Some interesting insights from their conversation:
• China’s era of epic growth is ending: “I wouldn’t be surprised if GDP falls to 6% in 2019,” Shan says, a rate below last year’s already disappointing 6.6%, one of the lowest readings since 1990. The first of two immediate problems, he says, is a severe contraction in credit. His view is that the private sector isn’t getting the bank financing it needs for new plants, medical facilities and stores––a phenomenon that’s now slowing the economy. The second deadweight is the trade dispute with the U.S. “The direct impact on business is small,” he says. “But the impact on business confidence is large. The dispute is hitting confidence among Chinese producers, and discouraging them from investing.”
• The shift from manufacturing to consumption will slow expansion: A nation driven by heavy investment in manufacturing is a lot more dynamic than an economy dominated by consumer spending, says Shan. “Private consumption produces lower growth than than manufacturing investment,” he notes. He explains that a growing industrial base creates a “multiplier effect.” Each trillion yuan in invested in a new factories contributes far more than that in economic growth by creating new jobs and still more factories to supply components and power. “Conversely,” says Shan, “consumption spending doesn’t provide a multiplier. It doesn’t provide the impetus for growth that investment in manufacturing does.”
• A real estate bubble is not likely: Some concerns about China center on the rapid escalation in prices for housing and other real estate, and the possibly disastrous aftershocks if prices fall sharply. Shan sees those fears as overblown: He doesn’t see a replay of the U.S. financial crisis of 2008 to 2010, or the Asian collapse in the 1997 and 1998. “Both [those crises] were caused by a collapse in real estate, but the key is that the real estate collapse wrecked the banking system, causing a credit crunch that led to deep recessions,” says Shan. The difference, he continues, is that Chinese federal laws and banking guidelines have limited leverage in the real estate market, limiting the danger to the banks.
• Consumer products are the key to China’s future: “We see the best opportunities in health care, pharmaceuticals, specialty finance, and food and beverage,” he says. “We’re talking about 1.4 billion consumers who are consuming more and saving less every year.” The Tencent Music story, he says, epitomizes what he calls China’s shift from the world’s factory to the world’s market. Fully opening that market, says Shan, would both benefit the Chinese consumer, and reinvigorate the now-endangered trading partnerships that so enriched its past and are so crucial to its future.
WEEKEND READING: I got some good stuff for you this weekend.
— Banks Woo Billionaire Heirs With Insider Peek at Silicon Valley: Young billionaires-to-be get an exclusive look at emerging tech and access to industry insiders.
— Twitter CEO Jack Dorsey: The Rolling Stone Interview: Sometimes 280 characters just aren’t enough. The social media mogul takes on his critics — and tries to explain who he really is. (Also, a really bizarre anecdote about how Mark Zuckerberg served him dinner that consisted of a goat he killed with a laser gun/stun gun/knife.)
— Katzenberg and Whitman: Hollywood’s New Odd Couple: The movie mogul (Disney, DreamWorks Animation) and tech executive (eBay, Hewlett Packard) are aiming for short-form glory with the well-funded Quibi.
— ESPN’s Ex-President Wants to Build the Netflix of Sports: After an abrupt departure, John Skipper is trying to beat his former employer at its own game.
• Vistex Inc, a Chicago-based software company, raised up to $105 million in funding, from Accel-KKR.
• AInnovation, a China-based AI solutions provider, raised about $60 million in funding. CICC ALPHA led the round, and was joined by investors including Sinovation Ventures and Chengwei Capital.
• Kustomer, a New York City-based modern CRM platform for customer experience, service and support, raised $35 million in Series C funding. Battery Ventures led the round.
• Jyve, a San Francisco-based platform for in-store flexible and skilled labor, raised $35 million in funding. Investors include SignalFire, Crosscut Ventures, Ridge Ventures and New Enterprise Associates.
• Finxact, a Jacksonville, Fla.-based SaaS core banking company, raised $30 million in funding. Investors include American Bankers Association, Accenture Ventures, SunTrust Bank, Live Oak Ventures, First Data, Woodforest National Bank, and T.N. Incorporation.
• Fernish, a furniture-as-a-service startup, raised $30 million in funding. RET Ventures led the round, and was joined by investors including Techstars Investments.
• Zafin, a Canada-based developer of financial services software, raised $17.2 million in Series B funding. Investors include Accenture, Vistara Capital Partners and Beedie Capital.
• Vangst, a Los Angeles-based human capital resource platform to the legal cannabis industry, raised $10 million in Series A funding. Casa Verde Capital led the round, and was joined by investors including Lerer Hippeau.
• FoodMaven, a Colorado Springs, Colo.-based food distributor, raised $10 million in funding. Investors include Tao Capital Partners and members of the Walton family.
• Teach on Mars, a France-based mobile-native learning technology provider, raised 7 million euros ($7.9 million) in funding. Investors include Omnes and Région Sud Investissement (advised by Turenne Capital).
• Albo, a Mexico-based fintech company, raised $7.4 million in Series A funding. Mountain Nazca led the round, and was joined by investors including Omidyar Network and Greyhound Capital.
• ThingTech, an Atlanta-based industrial internet of things platform-as-a-service provider, raised $4 million in Series A funding. BIP Capital led the round, and was joined by investors including Engage Ventures.
• Trust & Will, a San Diego-based startup that guides users through the process of creating legal guardians, wills and trusts, raised $2 million in funding. Investors include Revolution’s Rise of the Rest and TechStars.
• Allvision, a Pittsburgh-based geospatial analytics company, raised $3.2 million in seed funding. Investors include Lavrock Ventures, The Robotics Hub, IDEA Fund Partners and Sands Capital Ventures.
• RealBlocks, a New York-based technology platform powered by the blockchain that allows for fundraising and investing in real estate, announces that it has closed a $3.1M seed round led by Science, Inc. and was joined by investors including Morgan Creek Digital, Zelkova Ventures, Ulu Ventures, and Cross Culture Ventures.
• PartySlate, an operator of a digital platform for event planning professionals, raised $3 million in seed funding. Investors include Revolution’s Rise of the Rest Seed Fund, Hyde Park Venture Partners, Halogen Ventures, and InvestHer Ventures.
• Switchfly, a San Francisco-based travel ecommerce platform, raised funding of an undisclosed amount. Investors include Golub Capital and L Capital LLC.
HEALTH AND LIFE SCIENCES DEALS
• BridgeBio Pharma, a Palo Alto, Calif.based clinical-stage biopharmaceutical company focused on genetic diseases, raised $299.2 million in funding. KKR and Viking Global Investors led the round, and were joined by investors including Perceptive Advisors, AIG, Aisling Capital, Cormorant Capital, Hercules Capital and Sequoia Capital.
PRIVATE EQUITY DEALS
• Harvey Performance Company, which is backed by Summit Partners, acquired Micro 100, a Meridian, Idaho-based provider of turning tools. Financial terms weren’t disclosed.
• The InterMed Group, which is backed by Granite Bridge Partners, acquired Horizon CSA, a North Carolina-based provider of biomedical and clinical engineering equipment service and management solutions for acute care hospitals and other healthcare providers. Financial terms weren’t disclosed.
• HaystackID, a portfolio company of Knox Capital, acquired eTERA Consulting, an eDiscovery managed services company. Financial terms weren’t disclosed.
• The Carlyle Group (NASDAQ: CG) agreed to make a significant minority investment in Grupo Madero, a Brazil-based casual dining and fast-casual restaurant chain. Financial terms weren’t disclosed.
• Panduit Corp acquired Atlona, a provider of AV distribution solutions for residences, classrooms, conference rooms. Financial terms weren’t disclosed.
• Microsoft acquired Citus Data, a San Francisco-based company that focused on making PostgreSQL databases faster and more scalable. Financial terms weren’t disclosed. Citus Data had raised approximately $13.2 million in venture funding. Investors include Khosla Ventures, DCVC, Vaizra Investments, SV Angel, and Y Combinator.
FIRMS + FUNDS
• Owl Ventures, a San Francisco-based venture capital firm, raised $315 million for its third fund.
• March Capital Partners, a Santa Monica, Calif.-based venture capital firm, raised $300 million for its second fund.
• Trive Capital promoted Madeleine Esther and Tanner Cope to associate vice president.
• Rory Stirling joined Connect Ventures as a partner.
• Accordion promoted Gary Appelbaum and Srin Subra to managing director; Brandon Beal, Rajan Raval and Larry Steenvoorden to senior director; and Sarah Bailey and Ayla Queiroga to directors.