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An investment professional with over 15 years’ experience in the TMT sector, Nicolas du Cray is a China-based partner at Cathay Innovation, a €250m venture capital fund created in association with Cathay Capital Private Equity, which supports digital entrepreneurs across North America, Europe and China. Here he gives his insight on the investment strategy of Cathay Innovation as well as the Chinese venture capital market.
Leaders League. How are you organized internationally?
Nicolas du Cray. Cathay Capital is a cross-border private-equity firm dedicated to supporting international development across North America, China and Europe. It manages a family of funds and strategies helping companies – mainly small and midcap companies – to succeed internationally. Cathay Capital invests in various sectors including retail, industrials, services and healthcare, etc. Cathay Innovation, who I work for, is a venture fund, so it invests in startups which have a technological component.
Thanks to our “One Team” approach, Cathay is very good at making sure that knowledge and expertise is shared among all members of the team spread over three continent. So for instance when we have a specific investment opportunity for Cathay Innovation which requires advice from experts in, say, retail, we can work with the appropriate colleagues on our platform. We have the ability to mobilize our whole ecosystem in common in order to identify the best companies that are relevant to each strategy.
How do you identify target companies?
The most common approach is to work closely with a corporate investor to identify what kind of companies they are most interested in investing in. Then we conduct research to find out the best target companies. Once identified, we try to invest, if the maturity is right and the project looks good. We tend to have a comprehensive view of each industry.
What do your portfolio companies appreciate about the Cathay Innovation Fund?
Our Innovation Fund invests in France, China and the US and helps companies develop beyond their domestic borders. We help connect those three ecosystems. For example, we have invested in a Chinese IoT company and are currently helping them develop their business in Europe. This cross-border expertise is something that companies appreciate very much. The other aspect is that we have a number of corporate investors in our fund and we can help the startups connect and develop partnerships with major corporates.
Can you tell us more about CarTech, the first RMB fund that Cathay launched at the end of last year with Valeo and Yangtze River Industry Fund?
Valeo has been a long term investor in our Innovation Fund, and at Cathay we keep a very close eye on the ongoing changes in the automobile ecosystem. As the Chinese government is promoting the development of the connected car industry, Valeo wanted to work closely with local partners. The right way to do that was to set up an R&D fund with local companies where Valeo would be an investor. The fund was set up with Valeo, Yangtze River Industry Fund and other local Chinese firms to invest in purely local companies engaged in the development of the car of the future. Main investment areas can be technologies around sensors, other new components needed for autonomous cars, mobility in general such as car rental car sharing, car e-commerce and after service market, as well as elements related to the electrification of the vehicle.
What other sectors in China have you identified as being worth investing in?
Apart from cars and mobility, we spend a lot of time looking at the fintech sector, e-commerce and new retail, which is quite hot in China. But the way we see it is that underlying all these sectors is infrastructure, AI and big data, which are enablers of all these vertical industries. Down the road one of the big trends we see is the reengineering of industries, i.e. the digital transformation of traditional sectors using tech such as AI and IoT in order to make industries more efficient.
If we want to replicate the models of China in the West in terms of digital financial services, we need to disrupt several very strong legacy players such as the banks, credit card systems and existing brands.
Many believe there is currently a bubble in the Chinese capital market. What’s your take?
In China the government is pushing everyone to become an entrepreneur, so there is a strong push on to create new businesses. Coupled with the existence of abundant liquidity, this creates a situation where there are plenty of projects and a lot of capital to invest in these projects. We are talking about a huge market which is digitalizing very quickly, where most industries will be able to use technology to improve. We consider that the Chinese market, because of its enormous size and technology friendly characteristics, still represents a very good opportunity, but we have to be very picky about the projects we invest in.
What strikes you as the biggest change in last decade and a half in the Chinese market?
I’ve been in China for 16 years, but I still don’t consider myself a China expert. I am learning every day and with things changing so quickly in China, the more I learn about it, the more I think I need to understand the country even better.
The speed of digitalization has been incredible. The way China has adopted WeChat payment or Alipay, the way digital services are used, the way we are connected all the time with social media… We have seen none of these anywhere else. The speed of change is simply absolutely astonishing.
Don’t you think China is taking things too far with digitalization, especially in mobile payment?
The cashless aspect brings so much convenience, that everybody is supportive of it. The whole payment system enables people to consume better, and one of the objectives of the government is to boost consumption. More goods and services can be sold thanks to mobile payment technology, so digitalization is positive for the economic development of China.
Do you believe these successful Chinese business models can be exported to Europe and the US?
Yes but if we want to replicate the models of China in the West in terms of digital financial services, we need to disrupt several very strong legacy players such as the banks, credit card systems and existing brands. To dislodge with these very big players is a huge challenge, but if you are asking whether we will do mobile payment the same way in Europe as we do in China, I’d say yes, but it will take a few more years. But this is clearly the trend and the internationalization of Chinese brands has just started.
Jeanne Yizhen Yin
This interview was conducted during the China Connect event in Paris on 7-8 March, 2018.