The venture capital firm DCM Capital has emerged as a major player in early-stage investments in internet and IT companies in China. Established in 1996, DCM manages over $3 billion in global assets and launched its first China-focused fund in 2000. A core strategy that has fueled its success is the turbo investment fund that provides capital to high-potential startups in early financing rounds. DCM’s turbo investments demonstrate how VCs can identify and invest in promising startups before growth and profitability are proven, generating outsized returns. This strategy requires deep industry expertise to evaluate startups based on team, technology, and market opportunity rather than financial track record.
DCM turbo fund targets early-stage internet and IT startups in China
DCM’s turbo fund launched in 2017 with $175 million to focus exclusively on Series A and B investments in China. Unlike DCM’s main early-stage funds that also target seed and Series C, the turbo fund doubled down on the firm’s sweet spot – being the first institutional investor in a technology startup. The fund’s first close was $175 million, indicating strong LP interest in DCM’s strategy.
DCM’s track record in early-stage internet and IT investments predated the turbo fund. Since entering China in 2000, DCM has invested in over 80 startups at angel through Series B stages. Half of its deals have been Series A, the earliest institutional round. DCM has had a string of unicorns from its China portfolio, including Kuaishou, Pinduoduo, and Luckin Coffee.
The launch of DCM’s turbo fund formalized its expertise in Series A deals and leveraged its brand to source the most promising startups. Founded by seasoned investors Dixon Doll and David Chao, DCM Capital combines Silicon Valley roots and cultural experience in China. This gives it an edge in cross-border deals and hands-on value-add for portfolio companies.
Noteworthy turbo investments reflect DCM’s strategy
DCM’s turbo investments demonstrate the firm’s strategy of identifying standout teams and being the first institutional money in highly scalable models. Pre-revenue startups require intuition honed over years, yet can deliver outsized returns.
For example, DCM led a $30 million Series A in 2018 for Horizon Robotics, a Chinese startup developing AI chips for autonomous vehicles. At the time Horizon only had R&D prototypes, but DCM saw its potential to be a leader in AI semiconductors for a huge market. Just one year later, Horizon raised a $600 million Series B led by SK China.
DCM also led Pinduoduo’s $8 million Series A in 2015, when the social e-commerce app had almost no revenues. Thanks to explosive user growth, Pinduoduo had a blockbuster $1.6 billion US IPO just 3 years later. DCM’s early bet gave it prime position to invest further at higher valuations.
The firm’s $10 million Series A for Luckin Coffee in 2017 also demonstrates conviction in an unproven model. Led by a Silicon Valley/China team, Luckin pioneered a tech-driven new retail coffee concept that appealed to investors and consumers alike. Just a year after launch, Luckin raised $200 million at a $1 billion valuation.
DCM turbo fund fills critical gap for startups navigating growth
Many promising startups fail to scale up due to lack of capital, especially outside major hubs like Beijing and Shanghai. DCM’s turbo fund addresses this need for tech companies starting to gain traction but not yet able to attract later-stage investors focused on profitability.
The turbo fund’s targeting of internet and IT also aligns with industries primed for outsized returns. Software and internet startups require much less upfront capital than hardware to achieve scale. With light assets and the ability to expand virally online, they also have more flexibility in business models. Investing early allows firms like DCM to get in before valuations rise steeply.
DCM’s turbo investments have filled critical needs for leading startups during rapid periods of growth. Its expertise and capital helped young companies like Luckin Coffee and Horizon Robotics accelerate expansion instead of facing roadblocks. And the fund’s domain expertise separates it from opportunistic capital just chasing the latest trend.
Success of DCM’s turbo fund provides blueprint for early-stage investing
DCM Capital’s turbo fund demonstrates best practices for investing in highly scalable startups despite lack of financial track record. Its results validate an investment thesis centered on team, product, market potential, and capital efficiency over profits.
The concentrated fund strategy also ensures adequate capital for follow-on rounds. DCM has doubled down on breakout portfolio companies like Luckin Coffee and Pinduoduo as valuation soared into the billions. Such unicorns return the entire fund many times over.
For other VCs hoping to replicate DCM’s success, key takeaways include deep industry expertise, cultural insights, and founder-friendly value-added services. Though investing pre-revenue requires instinct over spreadsheet analysis, seasoned judgement and strategic focus pay off handsomely.
DCM Capital has achieved standout returns from early-stage investments in Chinese internet startups through its turbo fund strategy focused on Series A and B. Investing in high-potential teams before business models are proven requires sector experience, cultural savvy, and conviction in long-term trends. When executed effectively, early capital in innovative companies like Pinduoduo and Luckin Coffee can become the stuff of venture capital legend.