New IDG Capital Fund Thinking Big, Thinking Global
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for McGovern’s involvement: much more and he’s seen as too big a player, much less and he might not be seen as committed to its success. (As noted above, IDG typically funds virtually the entire first round of its new venture arms, then opens them up to outside investors in subsequent rounds—which this is, since the IDG Capital fund is essentially a follow-on fund.)
Only the India, Korea, and Vietnam operations will actually get their funding through IDG Capital. Kahn says the San Francisco office, IDG Ventures SF, is in the process of raising its own fund. “They’re almost done, so we just thought it made sense to let them finish it rather than confuse things,” he says. The China arm, IDG Technology Venture Investment Partners, which has some $1.4 billion of IDG Ventures’ total $2.2 billion under management and operates a fund in partnership with Accel Partners, was also left out of the new structure.
Kahn says he does not believe there will be any attempt to rebuild a Boston venture arm to fill the void left by Flybridge’s departure. “The venture market in the U.S. is a fairly mature market at this point,” he says. “There’s probably more consolidation than there is expansion.” IDG Capital, he says, “is really an Asian fund, minus China, at the moment.”
But that won’t be the case for long. Kahn says the “broader plan that Pat has is to expand into a number of other markets that we think are good opportunities. And probably the first one that he’s got in mind is Poland, but there’s a long list after that.” Kahn says that McGovern would probably like to see the Poland operation get underway this year, “but I don’t think that’s definite.”
And despite the central pool of money, McGovern’s philosophy of having local investors on the ground to invest in emerging growth areas remains the same. “That hasn’t changed at all,” Kahn says. “The idea of IDG Capital is just to make it so they can focus on investing. We’re not trying to change anything about the way the funds are set up, or the team, or the focus, or anything like that.”
The fund’s initial investment focus will be on early-stage ventures, but Kahn says he expects to move up the private equity ladder. “The longer-term plan is to move up-market into growth venture, ultimately even later stage,” he says. “It could be pre-IPO and possibly buyouts eventually.” He says that in this regard, IDG Capital will follow the China group’s path. “They’ve been very, very successful with their early-stage ventures, and they’ve moved from that into growth capital, and now they’re doing what they call a capital fund, which is more like buyouts.”