After a dismal 12 months for Chinese language tech corporations, the $9bn that Sequoia China raised earlier this month to fund lots of extra start-ups was a show of star energy from the enterprise capital group’s billionaire founder Neil Shen.
Shen’s friends have struggled to boost cash this 12 months, following heightened political danger and Beijing’s crackdown on Huge Tech, which has compelled some international establishments to place their China investments on maintain.
In contrast, Shen has raised funds by managing to experience China’s political currents and align with President Xi Jinping’s “widespread prosperity” coverage objectives, in response to previous associates, rival traders and others near the nation’s tech and funding scene.
“All people is having to take inventory and reassess what it means to spend money on China,” stated David Brown, head of Asia offers at consulting agency PwC, talking in regards to the Chinese language investing surroundings. He added solely the “creme de la creme” of funds with robust native information would survive.
Since launching Sequoia China in 2005 as an arm of Silicon Valley funding large Sequoia Capital, Shen has made a private fortune price $4bn following early investments in TikTok guardian ByteDance and ecommerce giants Alibaba and Meituan.
As the federal government has delivered to a halt a golden age for China’s web corporations — the candy spot upon which Shen has constructed a agency with property beneath administration of round $50bn — it’s unsure how, or if, traders in China can proceed to seek out alternatives that can generate the numerous returns they’ve been used to.
4 months in the past, Shen hinted at a brand new plan throughout a speech to the nation’s prime political consultative physique. He advised the viewers that China should prioritise rising industries like synthetic intelligence, autonomous automobiles and robotics, in addition to inexperienced vitality and pharmaceutical analysis.
The speech demonstrated an “eagerness to realign his funding themes with anticipated coverage trajectories”, stated a chief government of a rival enterprise capital agency.
“Politically right” sectors have emerged in China’s new economic system, in response to enterprise capital traders. These embrace “deep tech” equivalent to AI and robotics, and “laborious tech” like electrical car batteries and semiconductors. These are sectors the place Beijing has outlined plans to lower its reliance on overseas know-how.
“Invisibly there are purple strains which you could’t contact and the trick is navigating what these are,” stated Henry Zhang, president of Hong Kong-based Hermitage Capital. “In case you spend money on one thing the federal government encourages you’ll have a variety of tailwinds. The federal government is pouring cash into these sectors so you might have each coverage and financial help.”
Shen has lengthy nurtured shut political relationships. He’s the only real delegate representing the enterprise capital business within the Chinese language Peoples’ Political Consultative Convention, a key political advisory physique.
He has additionally averted a lot of the latest scrutiny on tech tycoons equivalent to Alibaba’s Jack Ma, regardless of his fund’s connections to California-based Sequoia Capital.
Although run as an independently managed enterprise, Sequoia China passes a few of its carried curiosity again as much as the worldwide group, in response to an individual accustomed to the construction. The China arm has a sprawling portfolio of greater than 900 corporations, greater than 100 of them valued at over $1bn.
“Once we look again in historical past it appears apparent to us that Shen captured this chance, however at the moment there was no clear reply in China, what sectors to deal with, which founders to again,” stated one of many traders in his funds.
However Sequoia China has additionally been extremely uncovered to the crackdown that wiped greater than $2tn off Chinese language shares within the US and paralysed the marketplace for Chinese language corporations itemizing abroad.
In addition to being a shareholder in massive listed corporations like ride-hailing app Didi and vaping group Relx, whose share value has crashed 84 per cent since itemizing, it was additionally one of many largest enterprise backers of on-line schooling corporations, which have been one other main casualty of the regulatory overhaul.
“It was an enormous correction,” in response to the investor. The returns of one in every of its funds had been minimize by as a lot as half following the regulatory motion, the individual stated. A second individual stated that total efficiency was secure throughout Sequoia China’s funds.
Shen’s political affect has not protected him from geopolitical turbulence up to now. The investor introduced each LinkedIn and Airbnb to China round six years in the past in what was then a progressive experiment in US platforms navigating China’s censorship guidelines. Each have since exited the nation.
DJI, a dronemaker that Shen backed earlier than any exterior investor, has been blacklisted within the US over safety issues. Shen has courted controversy with cryptocurrencies, which had been successfully banned in China in 2021. Shen entered a deal to again the world’s largest crypto change Binance in 2017. After the ban, a screenshot of Shen showing to say in a web based message he was “all in” on crypto went viral within the nation.
“Sequoia China has been superb at driving a bull market in tech for a lot of the final 20 years however you gained’t get these multibillion-dollar client web offers anymore,” stated the chief government of a rival Chinese language enterprise capital agency.
Nonetheless, Shen has proven he can persuade overseas traders to pour new funds into Sequoia China, even whereas dealing with a vastly completely different investing surroundings within the coming years.
“The fast ‘unicorn-making, IPO, revenue’ enterprise mannequin is gone,” stated the investor in Sequoia China funds. “The subsequent part shall be extra conventional enterprise capital: disruptive know-how and enterprise fashions, smaller offers and longer time horizons.”