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Sequoia Capital’s former China unit has defied a fundraising freeze that hit rivals, raising 18 billion yuan ($2.5 billion) to fund investments in Chinese technology startups.
HongShan, the Beijing-based group that split off from one of the world’s biggest venture capital firms last year over geopolitical issues, successfully closed its yuan fund in March, according to two people familiar with the matter.
It’s the largest fundraising by a private venture capital firm in China in the past year and a sign of the continuing influence of founder Neil Shen, widely considered the country’s most influential technology investor.
The new fund is backed by the Hangzhou city government and several private and state-run insurers, according to people familiar with the matter. But the size of the fund is smaller than the $9 billion that Hongshan, which has so far struggled to manage, raised in 2022.
Chinese startups have been hit by an economic and real estate crisis, as well as the long-term impact of tougher regulation of tech companies, which has caused valuations to plummet and dashed plans to go public.
Last year, Silicon Valley-based Sequoia spun off its China unit amid pressure from Washington and Beijing over foreign investment flows.
President Joe Biden proposed rules in June to ban U.S. investment in Chinese technology with military applications, including artificial intelligence, quantum computing and semiconductors.
Several international financial institutions that previously backed Sequoia China still invest in Hongshan’s U.S. dollar funds, including California pension fund CalPERS and the Canada Pension Fund.
Shen has been behind investments in some of China’s most profitable tech companies, including TikTok parent ByteDance, drone maker DJI, and e-commerce groups Meituan, Alibaba and Pinduoduo.
This year, HongShan invested in two of the country’s leading startups, Zhipu and Moonshot, which are racing to become China’s answer to OpenAI.
A person familiar with the fund’s operations said the new yuan fund could pose challenges for Hongshan’s U.S. limited partners, a financial institution that invests in venture capital groups.
HongShan’s dollar and yuan funds are managed by overlapping teams, but the yuan fund is better able to invest in sensitive technologies.
“The RMB fund and the USD fund are completely different entities under the same leadership, and the restrictions on U.S. limited partners are tighter than before,” the person said. “The USD fund will naturally do fewer deals and be more cautious about investing in sensitive industries. The question is where HongShan will focus its energy and efforts.”
Hongshan’s seventh yuan-denominated fund is smaller than its most recent 28 billion yuan fund raised in 2021 at the peak of investor interest in Chinese tech companies.But it puts Hongshan in a better position to negotiate preferential terms with cash-strapped founders, one rival venture capital firm said.
“Everyone is struggling to raise capital,” they say. “There aren’t many players in this space who can raise big amounts of money.”
Hongshan declined to comment.
This story has been updated to remove inaccurate information about HongShan’s AI investments.
