10 August 2022, by Larissa Ku
Gly Capital Management, which is majorly owned by a Chinese automaker, tapped external investors for the first time in raising USD 163m for global investments in smart cities and smart cars
Fundraising is never easy for a captive GP, with some investors refusing even to consider commitments. And then current market conditions are challenging for any manager, not least those with a technology mandate and a China connection.
Nevertheless, Gly Capital Management, a Hong Kong-based manager majority-owned by Zhejiang Geely Group, a leading Chinese independent automaker, closed its debut vehicle on USD 163m in late July after 18 months in the market. The original target was USD 300m.
Gly was established in 2017, but it wasn’t until 2021 that the firm decided to tap external sources of funding. The New Mobility Fund was launched early in the year, with anchor LP commitments from Geely and Korean conglomerate SK Group. Each agreed to contribute 18% of the overall corpus. There were two incremental closes in 2021 and a third in March.
“We just wanted to make sure that we have the right structure, governance, licenses, and people. In addition, it also took us quite some time to cultivate the relationships with our anchor investors,” said Hrvoje Krkalo (pictured, left), co-CEO of Gly. “In fact, our portfolio companies [backed after the first close] helped with the second, third and final closing.”
In addition to the anchor LPs, the fund won support from financial institutions, industrial conglomerates, family offices, and high net worth individuals (HNWIs). Most of the capital came from investors in Hong Kong, South Korea, Singapore, Japan, the US, and Europe.
Total assets under management (AUM) have risen from zero at the beginning of last year to USD 700m, including co-investment by LPs, according to Krkalo. Gly gives LPs plenty of notice about the types of companies that will be presented as co-investment opportunities and allows plenty of time for due diligence and interviews with key individuals on the ground.
Gly is primarily interested in mid-to-late-stage investments in companies focused on smart cars, electrification, and smart cities. It will leverage Geely’s industry access, insights, and networks to source and review deals.
“We seek to invest in assets that are redefining the global transportation industry. With our solid shareholder support, we combine deep industry know-how and unique ecosystem insight to identify the investment opportunities that underpin profitability and the best-in-class investable assets,” said Anny Lin (pictured, right), who shares the CEO role with Krkalo.
“All the Fund I portfolio companies are pioneers in electrification and mobility infrastructure simultaneously aiding and benefiting from the decarbonization of transportation.”
Despite a slowdown in growth-stage investment and significant valuation correction across the technology sector globally, Gly claims the fund’s initial performance has been strong. It expects to generate sufficient liquidity to return 100% of the principal within 12 months of the first drawdown in the case of certain LPs.
“Even though the macro environment is not good, people still have great confidence in decarbonizing technologies and adoption of electrification in mobility going out to 2030 and beyond,” said Krkalo.
“On the other hand, we see companies delaying their listings and there will be an increasing stock of good quality companies available in the growth stage for us to pick from. With our operational insights and network, we can help them commercialise.”
By the same logic, Gly prefers to back companies with mature technologies that can be run through full technical due diligence and validated by Geely or SK. “We will know how it fits into our supply chain and also its potential for other supply chains,” Krkalo added.
One example is a UK-based chemical company that provides drop-in solutions to battery manufacturers – its products are simply added to the battery fluid for an immediate efficiency gain. There is no narrative of technological disruption, but Gly recognised the company’s practical merits in a broader industry context.
“Before we get to more advanced battery technologies, there will be a period where consumers, car companies and battery manufacturers look for efficiencies within the existing framework,” said KrKalo, adding that such a technology can be hard for financial investors to validate. Gly de-risked the investment by turning to Geely’s research unit and engineers.
The firm sees itself as neither financial investor nor pure corporate venture capital unit. The management team holds a minority stake in the GP and compensation is weighted towards investment performance to ensure an alignment of interest with LPs.
Gly is not the only venture capital firm with ties to a Chinese automaker: Nio Capital was established by the founder of the domestic electric vehicle (EV) manufacturer Nio but claims to operate independently of the company; Rockets Capital was established by senior management from EV maker Xpeng but the company’s only exposure is as an LP.
However, when identifying points of differentiation, Lin observes that Gly is more global in outlook than its peers. “The team is not originally from Geely, but from international financial markets. Our anchor LPs are from China and Korea. Our portfolio companies come from various regions, including China, the UK, the US, Israel, and Germany,” she said.
Other Fund I portfolio companies include: EV brand Polestar (Sweden), which is now listed; automotive computing platform developer EcarX (China); EV charging solution provider Freewire (US); 4D imaging radar-on-chip specialist Vayyar (Israel); urban air mobility player Volocopter (Germany); online automotive marketplace Carwow; and battery materials maker Nexeon (both UK).