The star money: Behind Chinese celebrities' multimillion-dollar VC funds

The star money: Behind Chinese celebrities' multimillion-dollar VC funds
PHOTO: Sina Weibo

On a rainy Sunday afternoon in February, nearly 500 Chinese fans filled a lecture hall in Singapore's Nanyang Technological University, waiting to see Chinese pop singer Hu Haiquan.

But 41-year-old Hu, a member of popular soft rock duo Yu Quan and a household name in China, wasn't going to talk about his new album's release. Instead, he was set to give a speech on how he established his own venture capital business Haiquan Fund.

"The past three years have been very tough, yet a quite exciting experience," said Hu in his opening remarks. "I've been switching back and forth between two roles - a singer and an investor."

Fame and resource superiority

Since 2013, Haiquan Fund has already invested in nearly 50 startups - as either an angel or a VC - and it manages between 1.2 billion and 1.3 billion RMB (between S$250 million and S$270 million). In 2014, Hu was ranked by Fortune as one of China's "40 Under 40" business leaders.

By the end of 2016, 83 per cent of companies that the fund invested in had completed additional rounds of funding. Those include projector maker Jiangsu Inovel Display Technology and entertainment company Beijing Wishart Culture Media, which are both now listed on China's National Equities Exchange and Quotations - also known as the New Third Board.

Meanwhile, mechanical parking systems manufacturer Dayang Parking, in which the fund invested in February 2016, is currently valued around 1.04 billion RMB and is lining up for an IPO.

"Fame and resource superiority that celebrities have could be turned into bargaining power," Hu said in an email interview to CNBC. "We are able to invest with cheaper prices."

In addition to capital, fans are important assets that celebrities can bring to the negotiation table: Loyal followers are likely to become avid buyers of the products and services that their idols endorse.

"Having been in China's entertainment industry for so many years, I'm experienced and influential in marketing and branding. I'm helping startups with my expertise, and this is a very valuable add-on service," Hu said.

VC FOMO

Hu is not the only celebrity-turned investor in China. Instead, investing in startups is becoming a sensation among Chinese movie stars and singers, and VC gold rush has become the new source of FOMO (fear of missing out).

In 2014, three Chinese movie stars - Ren Quan, Huang Xiaoming and Li Bingbing - launched Star VC, a venture capital firm focused on internet startups. Companies they have invested in include Weibo-backed short-video app Miaopai, K-Pop inspired e-commerce site Hstyle, and home theatre projector maker JmGo.

The high-profile investment firm attracted even more movie stars to join in as partners in 2015, including Huang Bo and Zhang Ziyi.

In 2015, Chinese actress and model "Angelababy" Yang Ying founded AB Capital and invested 100 million RMB in cross-border e-commerce platform Ymatou as well as Chinese juice brand HeyJuice.

Pop star Lu Han has also been making investment waves. Lu, 26, announced earlier this month that he would partner with VC firm Crystal Stream to form Qinghan Fund, focusing on companies that target the lifestyle of Chinese born after the 1990s.

And there is a reason for this trend to happen in China today, according to an analyst from a top Chinese private equity firm.

"For the past two years, Chinese actors' compensation has been ever-rising due to the rapid growth of China's entertainment industry. They have so much cash on hand and need to invest," Zheng told CNBC, requesting not to share his full name for professional reasons.

A backstage surprise

During his speech, Hu told the crowd about Ninebot - what he said was his proudest investment so far.

In 2013, while preparing backstage for a performance during a Beijing music festival, Hu came across a self-balancing scooter parked in a corner. It was not an iconic Segway, but a Chinese brand named Ninebot. Out of curiosity, he gave the scooter a try and ended up loving it so much that he immediately contacted the the company's CEO after the festival.

After a few meetings, Hu became one of the earliest angel investors for Ninebot, which later received a combined $80 million in funding from Chinese smartphone maker Xiaomi and investment firm Sequoia Capital. The company went on to acquire US rival Segway in April, 2015.

Singing while riding a Ninebot scooter on stage during concerts and sending new products to 100 celebrity friends are just two examples of how Hu turned his fame into news headlines and sales.

"It's a successful case of how a Chinese startup grew, bought its biggest competitor and became the number one in the industry," Hu told CNBC. "And I played a major role and contributed my influences in every phase of the company's growth."

Skepticism and regulation

Despite eye-catching news headlines that celebrity investors generate, skeptics have been concerned about their judgement and qualification: Can movie stars and singers be as knowledgeable and keen-sighted as professional investors?

"The main purpose of getting celebrities themselves involved is to win the bid. They have professional teams behind them, providing analysis and advice," said Zheng. "Frankly speaking, most VC projects are at such early stages that even professional investors can't tell whether or not they will fail."

"Successful VC investments also require a hunch as well as luck - to the extent, there's not so much difference between celebrities and professional investors," he added.

But the government is watching closely and has imposed stricter regulation.

In 2016, the Asset Management Association of China (AMAC) initiated a registration system for all private equity fund managers, requiring senior executives to pass China's national qualification exam for PE fund practitioners.

The exam, considered difficult to pass, might make some celebrities get cold feet, but not for Hu, who said he passed the exam in April 2016, after many nights of studying until 3 a.m.

Still, he said that achievement is not enough.

"I'm still an investor famous for my songs," Hu told the lecture hall crowd. "And hopefully one day I could become an investor famous for my investments."

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