Google office in Beijing

Google Capital, a growth-stage vehicle backed by U.S. Internet giant Google Inc., has made its first investment in China.

The firm, along with Chinese venture firm Lightspeed China Partners, co-led a Series C round totaling $38 million into a Suzhou-based business called InnoLight Technology Corp., a manufacturer of high-speed optical transceivers that are used by computer servers.

Google joins some of China’s largest Internet businesses, including Baidu Inc.BIDU +5.43%, Alibaba Group Holding and Tencent Holding TCEHY +0.42%, as a strategic investor in Chinese startups.

Until now, Google Capital GOOGL +0.22%’s investments have been centered on the U.S., with existing portfolio companies including online survey startup SurveyMonkey Inc. and financial-services business Lending Club Corp. Today it also announced a follow-on funding round for personal finance tools company Credit Karma Inc.

However, global investors are now vying for exposure to Chinese technology startups in the wake of e-commerce company Alibaba’s $25 billion initial public offering in the U.S.

Competition for Chinese technology companies is even heating up among domestic strategic investors including Baidu, Alibaba and Tencent as they seek to acquire shares in smaller companies to supplement their own businesses.

Chinese e-commerce giant recently took part in a Series D round alongside Macquarie Capital into Chinese food delivery company Daojia. Other participating investors included Morningside Ventures and CDH Venture.

InnoLight’s transceivers enable servers to communicate with each other, by converting electrical signals created by one server into optical signals. These optical signals are then transported along fiber-optic cables to another server, then converted back into electrical signals.

“InnoLight’s technology is uniquely suited for next-generation data center environments,” said Gene Frantz, a general partner at Google Capital, in a news release.

For InnoLight, it makes sense for the Chinese company to join with Google instead of a Chinese strategic investor, given that the U.S. giant operates one of the largest data facilities in the world. InnoLight also derives more than half of its revenue from the U.S. market.

“Operational expertise and deep insight into core computer center technology” are some of the benefits that InnoLight will gain from joining with Google, rather than a similar company in China, where data centers still lag behind those in the U.S., said James Mi, a managing director of Lightspeed China Partners, in an interview.

InnoLight’s customers include cloud operators and communications equipment manufacturers both in the U.S. and in China. The company and investors wouldn’t provide customers’ names due to non-disclosure agreements.

The new funding will be used to increase InnoLight’s production capacity, which includes acquiring additional capacity, purchasing equipment and hiring additional people, as well as research and development.

Prior to the Series C round, the company had raised roughly $20 million through its Series A and Series B rounds, said InnoLight co-founder Osa Mok. Other investors in the company include Suzhou Ventures and Acorn Ventures.

The investors as a group own roughly two-thirds of the company, with management and employees owning the remaining shares, Mr. Mok said. The company was founded in 2008 by Mr. Mok, Hsing Kung, who also acts as chairman, and Sheng Liu, the chief executive.

Google Capital, formed last year, has disclosed about ten growth-stage investments and is distinct from Google Ventures, the company’s early-stage investment vehicle.


Source: Wall Street Journal