Return to search

LPs tell Celsius: Focus on China’

Celsius Capital is formalizing the first closing of its $150 million fund, confirms Carlos Bhola, who recently split with firm co-founder Bill Burnham (as first reported by PE Week, Jan. 17, 2006).

“I can confirm the fund’s first close, but that’s all I can tell you for now,” says Bhola, who adds that Celsius, based in Shanghai, will have its second and final close when it reaches its target of $150 million. Bhola declined to predict when that might be.

Burnham, most recently a managing director at Mobius Venture Capital and a former e-commerce analyst, was working with Bhola, who had been running his own private investment and advisory concern, 2BHoldings, since shortly after founding the VoIP company Vonage in 2002. The duo had planned to invest in China and the United State, with Burnham focusing on U.S. deals and Bhola, who had backed several China-based companies through 2BHoldings, would focus on China-based investments.

But earlier this month, Burnham told PE Week that he and Bhola had mutually agreed to go their separate ways when it was decided that Celsius, which hopes to capitalize on “innovation arbitrage” between the United States and China, would focus the fund exclusively on China, instead of cross-border investing.

Last week, Bhola confirmed the decision to focus mainly on China. He said the feedback from LPs was that since Celsius was a first-time fund, the LPs were concerned whether the firm’s investments were going to be evenly split across the United States and China,

“They worried we might be spreading ourselves too thin,” Bhola says.

LPs also paid particular attention to Bhola’s experience in China, including 2B’s investment in EachNet, a Shanghai-based company that is China’s largest online auctioneer. EBay bought a third of EachNet for $30 million in cash in 2002 and then paid $150 million in 2003 to acquire the company outright. EachNet’s venture investors, mostly Asian, had funded the company with about $27 million. (Orchid Capital was also an investor in EachNet; see story, page 1)

Bhola and his cadre of private investors at 2B had also backed SmartPay Jieyin, a Shanghai-based electronic payment company similar to PayPal. SmartPay raised more than $8 million in two rounds from 2BHoldings, Accel Partners, RRE Ventures and the Lunar Group, a Chinese fund.

“LPs told us to focus on China,” Bhola says. “They said, It’s simpler to comprehend. There’s less overall risk.'”

Burnham, according to Bhola, “very nicely suggested that it would make sense for us to maintain our focus. He said, Look, the writing is on the wall; and after a long discussion, he excused himself. There was nothing negative about [the decision]. As he’ll tell you himself, he has a lot of that expertise, but he lacks knowledge of China. Here, he’s a relative novice.”

Burnham, who remains an advisor to Celsius and maintains a blog at billburnham.blogs.com, said, “The more I thought about it, it didn’t really make sense for me to be part of a China-focused fund.”

Bhola says that Celsius, which is investing narrowly in mobile software and services, has already made its first investment in a mobile software startup called Aircom Technologies, which is based in Beijing. The Series A deal took place in November. Bhola declined to disclose the size of the round, but he says that the $250 million IDG-Accel China Growth Fund, established last summer, was a co-investor.

Early last year, Celsius also made a follow-on investment in San Francisco-based CallTower, an enterprise-focused VoIP startup that has raised $6.2 million in two rounds from 2BHoldings and Sunflower Capital Partners.

Celsius plans to spend up to $20 million on its portfolio companies for 25% to 30% ownership in each and, according to Bhola, its “innovative arbitrage” plans include capitalizing on existing technologies, and making them uniquely Chinese.

“China is in the advanced stages of replication right now,” he says. “But people are unraveling business models from the U.S. and Japan and Korea and Europe, and what they are adding to those applications is truly unique.”

In addition to Bhola, the Celsius team includes Partner Woo Kim, who co-founded 2BHoldings and sits on the board of CallTower; Principal Jay Haverty, another former principal of 2BHoldings; Partner Tony Lo, a former Mobius associate; and Entrepreneurs-in-Residence Peter Stern and Bo Shao. Stern co-founded Datek Online, while Shao founded EachNet and formerly served as the board chair of eBay China.