Hong Kong VC Raises $220M, Still Betting Big on Asia | Entering the Game

"Entering the Game" is a recurring column from Waves. It grew out of our observation that once-reliable operating models are facing new challenges, and the industry rules inherited from West to East have been dismantled. People are urgently seeking new maps and new orders for innovation and capital. "Entering the game" is the most precious posture one can adopt. "Entering the Game" was born amid transformation.** To summarize this column's subject in one sentence: we hope to find new players and new strategies better adapted to a changing environment. This is the ninth article in the series.

By Qian Ren

Edited by Zhiyan Chen

After the holiday break, a Hong Kong-based fund brought rare good news to China's USD VC fundraising market. On October 9, Waves exclusively learned that MindWorks Capital had completed the raise for its fourth fund. The fund, together with its parallel fund and committed co-investment vehicles, raised over $220 million. Its LPs include sovereign wealth funds, university endowments, asset managers, family offices, and several Asian new-economy entrepreneurs.

To date, the fund — founded in Hong Kong in 2013 and investing across pan-Asia — has total assets under management exceeding $1.4 billion.

Against a backdrop where the global VC industry faces headwinds, the core reasons LPs are willing to "buy in" to MindWorks at this moment come down to two things: first, its unique positioning in Hong Kong; second, its strategy of heavily betting on Chinese founders.

"While some China-based venture capital firms face challenges attracting USD capital, there remain many investors actively looking for opportunities to deploy into Asian markets," Joe Chan, managing partner at MindWorks, told Waves. The team's cross-border, cross-regional investment strategy across Greater China and Southeast Asia "has successfully resonated with them."

MindWorks' two managing partners, David Chang and Joe Chan, were classmates in California. After graduating in 2005, they returned to Hong Kong together to work in finance. As early Facebook users, inspired by Silicon Valley's entrepreneurial and venture capital energy, they founded MindWorks in 2013 as an early-stage tech investment firm. "MindWorks" conveys the idea of "having a clear head, the right direction, and then working diligently and thoughtfully to execute."

In their 11 years of investing, their most representative case is the story of seven consecutive rounds in Lalamove — in 2014, after raising its first fund, MindWorks invested in the Hong Kong-born company when it had fewer than 30 people total. Subsequent rounds spanned MindWorks' first three funds, with LPs co-investing to inject a total of $100 million. By their calculations, this investment will likely generate over 10x DPI for Fund I, which was sized at under $50 million.

As times have changed, MindWorks' logic for investing in Lalamove has also evolved — from seeking platform opportunities in the mobile internet era to going deeper into Chinese supply chain, logistics, and talent going global.

Before 2019, the core of MindWorks' outbound investment strategy was still leveraging China's advantages — robust supply chains, engineer talent dividends, and globally advanced business models — to enter single markets (primarily Southeast Asia) through a "replication logic." Examples include investments in Glints, Inteluck, and YUP. Starting in 2020, MindWorks further decided to expand its investment targets from early-stage companies exploring single markets toward those with more globalized operations from day one.

"After 2020, the cost and difficulty of globalization have gradually decreased. A new generation of Chinese founders is targeting regions we once considered 'developed' from day one," Joe Chan said.

Before the National Day holiday, Waves spoke with Joe Chan, managing partner at MindWorks, about how a USD fund based in Hong Kong thinks about future globalized investing.

The following is a transcript of the conversation:

Waves: Asian venture capital firms are broadly struggling to raise funds. What allowed you to secure capital from relatively long-term LPs like sovereign wealth funds and university endowments?

Joe: First, our track record is decent. In 2023 we compiled some figures: Fund I DPI exceeded 15, and Fund II MOIC was 10x.

More importantly for the future, our product positioning aligns with market conditions: globalized asset allocation focused on pan-Asia, with emphasis on model innovation in emerging markets and technology innovation in mature markets.

Waves: What changes are you seeing in the investment preferences of LPs still willing to bet on Asia?

Joe: Their bar is rising and their style is becoming more conservative. To successfully raise capital now, your past performance has to be persuasive — especially when it comes to DPI from earlier funds.

Waves: For a VC focused on pre-Series B investing today, how do you ensure your ability to exit?

Joe: Unit economics has become an important metric for whether we invest in a project at the early stage. In the past, companies would raise financing, burn cash to scale, and figure out monetization later. Now we require that while overall cash flow doesn't need to be positive, unit economics at least should be. With positive unit economics, you have a clearer target for when you can become profitable — for example, when you've sold 1,000 units, the revenue from selling the product can cover headquarters costs. That gives us more certainty as investors.

Waves: Given your backgrounds and family circumstances, you could have simply been angel investors when you founded MindWorks in 2013. From a pure returns and management complexity standpoint, that might have been an easier path. Why institutionalize?

Joe: We thought more from the perspective of entrepreneurs, especially companies going global. Putting up HK$1 million as an angel is relatively easy, but many excellent entrepreneurs, after validating a business model in one market and expanding to others, need millions or even tens of millions of dollars. Individual capital can't sustain that. It's precisely because of this that many companies fall into the Series A/B "valley of death." From the start, we wanted to fill that void.

Waves: Many USD funds have gone deep into Southeast Asia seeking early-stage opportunities, but most have returned empty-handed. MindWorks has invested in multiple Southeast Asia-focused companies including Glints and Finture, with solid returns. What's your secret?

Joe: Southeast Asia is genuinely difficult to invest in. It's not essentially a unified large market, but rather more than ten different countries. Southeast Asia's total population is one-third of China's, and its per capita GDP is one-third of China's. When the market size isn't sufficient to support super-unicorns, investors naturally won't stay long.

We believe Southeast Asia's market size, compared to China's, isn't large — especially for companies going global, they typically can only start from one country, validate the model, then expand to others. We usually focus on opportunities in mega-industries — fintech, e-commerce, recruitment, real estate — where the market size is large enough and competition is often less fierce than in China, so top performers typically enjoy larger market share than leading players in China. Such opportunities aren't particularly abundant in Southeast Asia, so we tend to identify companies with potential to become category leaders within these mega-industries and bet heavily.

Waves: More specifically, where do you see future opportunity in Southeast Asia?

Joe: If Southeast Asia is only about playing in one country, we believe it's Indonesia. Indonesia has 280 million people, ranking fourth globally. Its middle class is growing rapidly, but supporting services and products remain extremely scarce.

A typical example is Indonesia's financial services market, which is severely polarized. Traditional banks essentially serve only high-net-worth individuals, so only about 2% of Indonesians hold credit cards issued by banks. The rest must turn to numerous micro-lenders for high-interest cash loans and payday loans, where effective annual interest rates often exceed 100% — unimaginable in China. So we see a massive market in Indonesia's 40-50 million middle-class population.

Recently, we led a round in YUP, a credit payment platform under Finture, a Singapore-based digital banking and credit payment services provider. The company primarily issues credit cards to Indonesian working-class consumers. Currently, YUP serves over one million users, with cumulative transaction volume exceeding ten million transactions, and is projected to reach over $1 billion in transaction scale in 2024.

Waves: The mainstream approach among domestic institutions investing in outbound opportunities has been a "replication logic" of various business models and infrastructure advantages spilling over. Has MindWorks' investment logic changed over the years?

Joe: Since its founding, MindWorks has conducted cross-border, cross-regional early-stage investments across Greater China and Southeast Asia. In 2015, we saw what was truly the first wave of proactive outbound expansion by new-economy entrepreneurs: news aggregator tools like UC News and NewsDog; WeChat going to Thailand; Lazada, into which Alibaba poured enormous resources. Currently, there remain opportunities for Chinese business models to globally expand in logistics and financial services across many markets — these are two areas where we'll continue seeking replicable opportunities.

But adjustments are certainly happening. If we say that before 2019, the core of outbound investing was the great migration of China's emerging business models to less developed lands, where we valued China's robust supply chains, engineer talent dividends, and globally advanced business models being replicated in Southeast Asia to profit from Chinese advantages — then after 2020, because the cost and difficulty of globalization have gradually decreased, a new generation of Chinese founders is targeting regions we once considered "developed" from day one. So MindWorks' strategy is also adjusting: Fund IV will build on its pan-Asia focus to further radiate into other global markets and deployment targets.

Waves: Could your investment in Finture's YUP be seen as a practice of this latest strategy?

Joe: Indeed. Finture is not a "Chinese company going global" — from Day One it has been a pure Southeast Asian local tech company. Over 80% of its nearly 300-person team are Southeast Asian locals, and the founding team has long worked and lived in Southeast Asia.

We are willing to believe in Chinese founders' ability to expand globally. Take Lalamove, for example. When we invested in 2014, their entire Hong Kong team was just over 20 people. MindWorks had also just been founded. After analyzing logistics trends and the business model, we made the investment decision and subsequently invested across seven rounds. Not just our own main fund — our LPs also co-invested, putting in a total of $100 million. Today's Lalamove operates in more than a dozen countries worldwide.

Another example is XTransfer, a company helping Chinese merchants open global accounts. Now the company has moved to Hong Kong. We've invested across two rounds. XTransfer went from serving only Chinese merchants to now serving global merchants 24/7.

Waves: In the past two years, besides AI investing, betting on Chinese founders has become virtually the only story domestic USD funds can tell LPs. Is this a challenge for you?

Joe: It's a challenge, but equally it's our opportunity. Being headquartered in Hong Kong is a very unique position for MindWorks. Our locational advantage in Hong Kong and the Greater Bay Area allows us to better help companies use this region as a base for global expansion. The geographical, talent, and capital advantages of Hong Kong and the Greater Bay Area make this region very attractive for entrepreneurs.

We deeply value Hong Kong's close ties with the Greater Bay Area. With our headquarters in Hong Kong and regional offices in Beijing, Shanghai, and Jakarta, we hope to support an increasing number of domestic entrepreneurs, bringing successful business models into Hong Kong and out to the world.

Waves: How do you view the AI investment frenzy of the past two years?

Joe: The barrier to entry for large language models isn't something early-stage funds like us can cross — it takes $300-500 million just to get started, making it almost a giants' game from the very beginning. We prefer to use AI to create new business models and find AI application opportunities.

Waves: What's your outlook on the future development of venture capital in pan-Asia?

Joe: We're optimistic about the future of venture capital in pan-Asia. While the current market is constrained by insufficient liquidity and shifts in LP risk appetite, leading to reduced investment scale, the long-term prospects for this region remain very broad. First, it has a massive population base, rapidly growing per capita income, and impressive economic growth. These factors together provide ideal soil for nurturing the next batch of mega-companies. We believe that as economic structures adjust and market conditions improve, pan-Asia will continue to be a global hotspot for innovation and entrepreneurship.

Image source: IC Photo

Layout: Nan Yao