On October 22, Chinese sportswear company Li-Ning entered new territory, announcing a joint venture with venture capital firm HongShan (formerly Sequoia China) to expand beyond mainland China.
The structure of the joint venture is straightforward: Li-Ning holds a 55% stake, while HongShan owns the remaining 45%. The collaboration aims to bring Li-Ning into international markets, guided by HongShan’s extensive overseas expertise and connections.
In China, such partnerships between venture capitalists and major corporations are uncommon. Typically, VCs secure returns through minority stakes rather than large capital commitments, which many lack. Collaborations with big brands are usually achieved through limited partnership (LP) investments—like when Tiantu Capital’s first dollar fund attracted Nestle as a cornerstone investor, or when L’Oreal invested in Cathay Innovation. These structures position VCs as strategic scouts, helping global companies navigate China’s market and identify investment opportunities aligned with their growth strategies.
China’s investment landscape has evolved. As global dollar LPs pivot away from China, local brands increasingly look abroad. Meanwhile, minority stake deals are dwindling as M&A transactions gain traction. For financial investors, aligning with established industry players is becoming more appealing.
HongShan is no stranger to partnerships with major brands. In 2020, Starbucks China partnered with HongShan to explore next-generation dining and retail technology, aiming to accelerate Starbucks’ digital transformation. HongShan’s success during China’s internet boom made it a natural ally for Starbucks in this digital shift.
For Li-Ning, the appeal of working with HongShan extends beyond its experience in joint ventures. HongShan’s deep portfolio in overseas consumer brands—including Shein, Amer Sports, Aukey, Aventon, and Miracle Miles—offers Li-Ning valuable insights. Beyond investment, HongShan’s offices in Singapore and London serve as springboards for companies aiming to expand internationally.
Since 2020, Li-Ning has pursued acquisitions to bolster its global presence, acquiring brands such as Hong Kong’s Bossini, Italian luxury label Amedeo Testoni, and British heritage footwear brand Clarks. These acquisitions signal Li-Ning’s ambition to diversify both geographically and beyond its sportswear niche.
However, not all of Li-Ning’s acquisitions have been smooth. In 2002, it acquired Italian legacy brand Kappa and initially managed it well. Yet, after nine years of aggressive expansion, Kappa faced a wave of store closures, and Li-Ning’s stock plummeted by 60%, conceding the sportswear crown to rival Anta. This time, Li-Ning’s partnership with HongShan—a firm with global reach and insight—adds an extra layer of assurance.
The structure of this joint venture with a publicly listed company is typically more common in private equity than in venture capital, as PE firms often have the management expertise and buyout experience required. However, in China, where large-scale M&A deals remain relatively rare, PE firms with this expertise are limited. For VCs, joint ventures may require a different approach to yield rewards.
In July 2023, pharmaceutical giant Pfizer partnered with Flagship Pioneering Ventures, a firm known for incubating projects before investment. Both companies committed an initial USD 50 million to explore ten new projects, with potential milestone payments of up to USD 700 million if any succeed. This structured collaboration model combines elements of equity investment, intermediary support, and partial buyout control—highlighting a pivot in today’s private markets for VCs.
According to ITjuzi, primary market equity deals reached RMB 224.1 billion (USD 31.4 billion) in Q3 2024, a significant recovery from Q2’s low of RMB 145 billion (USD 20.3 billion), fueling hopes of a VC revival. A closer look at Q3 data reveals that this rise was driven by a few large transactions, including RMB 60 billion (USD 8.4 billion) for Xindameng, RMB 23 billion (USD 3.2 billion) for Huawei’s Yinwang Intelligent Technology, and substantial rounds for companies like Luhua and Nio. Excluding these major deals, only RMB 19.1 billion (USD 2.7 billion) went to over 900 other companies.
In today’s market, capital increasingly flows toward high-certainty investments—focusing on larger amounts, established players, and more comprehensive support. The market is shifting, and both VCs and PEs are adapting rapidly. In 2022, Oriza Hua’s managing partner Chen Datong predicted a wave of M&A in China by 2023. Genbridge Capital, known for its consumer investments, even formed a buyout team last year. The landscape is evolving, and HongShan is actively seeking new solutions.
This article was written by Xu Muxin and was originally published by 36Kr.
