As a number of US venture groups are getting their feet wet investing in China, Orchid Asia, one of the first groups to target the region, has raised its third fund. The firm, which maintains offices in Shanghai, Hong Kong and San Francisco, has raised over $180 million (€149 million) in limited partner commitments.
Investor interest in the fund was propelled in part by the group’s track record. Orchid has notched previous homeruns through investments in Chinese discount travel reservation company Ctrip.com International, a deal that yielded a 20x return multiple, and Chinese online auction company Eachnet, whose sale to eBay resulted in a 5x return on equity.
The new fund did not, however, reach its stated target, which Securities and Exchange Commission documents filed in late 2004 identify as $200 million.
The firm’s realisations are centred around the internet, but Orchid’s focus does go beyond the web. Other Orchid portfolio companies include specialised gas startup Shanghai Chinllenge Gases Corp., Lafarge’s Asian plasterboard affiliate Lafarge Gypsum Asia and Phillipines-based alcoholic beverage distributor Ginebra San Miguel.
Gabriel Li, a managing director at Orchid Asia noted that the firm places more emphasis in partnering itself with “experienced operating executives” as opposed to simply pursuing “cheap assets”. He explained the strategy in a statement, saying, “Based on our investment experience in China, the major reason why an investment does poorly has much to do with management”.
The firm did not disclose any of the investors in the new fund, but did indicate that it was a mix of institutional investors and high-net worth families, with support coming from Europe, Asia, the US and the Middle East.
Orchid has been investing in China for over 10 years, according to the firm’s Web site. The group’s predecessor fund was raised in 1998 and had amassed at least $66 million in commitments, based on filings made with the SEC.
Gabriel Li has been with Orchid since 1997, although in 2000 he linked up with The Carlyle Group to serve as a managing director on its Hong Kong-based venture fund. He returned to Orchid in 2003. Joining Li on Orchid’s investment committee is Peter Joost, a founder of Orchid who had previously worked under Richard Rainwater at the Bass Family’s investment group.
The firm has suffered one notable defection since raising its second fund, losing Eric Li, who went on to launch his own firm Chengwei Ventures.
Calls to orchid were not returned by press time.