Neil Shen's former China unit of Sequoia Capital has raised a RMB fund of 18 billion yuan (2.5 billion dollars). This is the largest fundraising by a privately managed VC firm in China in the past year and a significant step for HongShan, which was spun off from one of the world's largest venture capital firms last year for geopolitical reasons.
The new fund, completed in March, is supported by the Hangzhou city government as well as several private and state-owned insurance companies, according to two people familiar with the matter. Despite its size, the Renminbi fund is smaller than the $9 billion fund launched by HongShan in 2022, which has so far struggled to be fully invested.
Chinese start-ups are currently grappling with an economic and real estate crisis, as well as the ongoing impact of a regulatory crackdown that has caused valuations to collapse and thwarted IPO plans. Last year, Silicon Valley-based Sequoia parted ways with its China unit due to pressure from both Washington and Beijing regarding foreign investment flows.
In June, President Joe Biden proposed rules to stop U.S. investments in Chinese technologies with military applications, such as artificial intelligence, quantum computing, and semiconductors.
Several global financial institutions that previously supported Sequoia China remain investors in HongShan's US dollar funds. These include the California Public Employees' Retirement System (Calpers) and the Canada Pension Plan.
Neil Shen, founder of HongShan and one of China's most influential tech investors, has made some of the most lucrative Chinese tech investments, including TikTok parent company ByteDance, drone manufacturer DJI, and e-commerce groups Meituan, Alibaba, and Pinduoduo. This year, HongShan has invested in Zhipu and Moonshot, two leading domestic start-ups aiming to become the Chinese equivalent of OpenAI.
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"A person familiar with the fund's operations said that the new Renminbi fund could pose a challenge to HongShan's US limited partners. HongShan's dollar and Renminbi funds are managed by overlapping teams, but the Renminbi fund can more easily invest in sensitive technologies. 'The RMB fund and the USD fund are very different animals under the same leadership, with the US limited partners now more restricted than before,' said the person. 'The USD fund will naturally close fewer deals and invest more cautiously in sensitive industries. The question is: Where will HongShan focus its energy and efforts?'
HongShan's seventh Renminbi fund is smaller than the 28-billion RMB fund launched in 2021, which was raised during the peak of investor interest in Chinese tech companies. Nevertheless, HongShan is in a strong position to negotiate preferred terms with cash-strapped founders, according to a competing VC firm. 'Everyone is struggling to raise capital,' said the person. 'There aren't many players in the field writing large checks.'
HongShan declined to comment.
