New venture funds continue to chase a China opportunity in spite of the ongoing U.S.-China tech cold war.
Sequoia Capital has raised $3.4 billion to invest in the U.S. and China, with the bulk of that amount — approximately $2.4 billion of that amount reserved for Chinese venture and growth deals.
And Sequoia is not the only one going after China deals. South Korean conglomerate SK Group has launched an $850 million fund with China’s private equity firm Hillhouse Capital to invest in Chinese startups that can create synergy with its telecom company’s businesses.
This is a lot of dry powder, in venture capital lingo, to invest in the emerging companies of China. A third generation of Chinese upstarts stand to benefit, after China’s BAT (Baidu, Alibaba and Tencent) and TMD (Tiktok, Meituan and Didi) already have been established.
Hillhouse already has played a part in advanced China’s tech titans, having funded messaging giant Tencent, search and AI company Baidu and e-commerce player JD.com. Sequoia has been behind many of China’s latest and biggest startup hits such as super app Meituan, and has the performance to show for it. Sequoia China managing partner Neil Shen is ranked as the top-performing venture capitalist in the world by Forbes, two years in a row.
With other venture firms starting to turn to India and Southeast Asia for the next home runs, Sequoia and Hillhouse could be in a good place to benefit. With less competition to invest in deals, they may score with lower valuations to invest. Sequoia has been active in the China market since 2005, and this new effort marks its long-term commitment. The new capital represents $1.8 billion for the fifth China growth fund and about $550 million for its seventh venture fund.
Over time, expect more new business models to originate from China such as the social commerce concept created by China’s New York-listed Pinduoduo.
China continues to innovate around digital technologies but also increasingly more tech-intensive areas. This has become more important for China’s development with the pressures by the U.S. to restrain Chinese companies from using the U.S. as a supply source. China needs to become more self-reliant to continue upgrading its technology.
This new capital will be put to work to advance China’s long-term ambitions to own chunks of the tech economy by 2030. Politics will be an aside to this forward march.