Sequoia Capital’s former China arm struggles to deploy $9 billion cash pile amid weak domestic market and tightening U.S. regulations, as celebrity-backed startups including Kylie Jenner’s vodka seltzer company The company is investing in and accelerating the advancement of global trade.
Amid rising geopolitical tensions, Hongshan, which spun off from one of the world’s biggest venture capital firms last year, is accelerating its deal hunt in Europe and North Asia after facing shrinking options in China. .
The Chinese investment group has a number of high-profile investors, including Jenner’s Sprinter, one of the US reality TV star’s latest ventures, and Destrie, the French women’s fashion brand co-founded by LVMH founder’s wife Geraldine Guyot. The company does business with consumer organizations supported by According to multiple sources, her son Alexandre Arnault.
Hongshan, led by billionaire Neil Shen and widely considered China’s top tech investor, is under fire from some limited partners over the pace of trading in its $9 billion U.S. fund after raising money two years ago. This global push comes in the face of discontent.
Hongshan has both dollar and renminbi funds, managed by overlapping teams, but increasingly needs to pursue separate strategies. The group closed a new 18 billion yuan fund in March, which it is free to use to invest in hot areas of Chinese technology such as robotics and generative artificial intelligence.
“They are rolling out US funds, but very slowly,” one limited partner told the Financial Times.
Hongshan has invested only 10% to 20% of the two late-stage funds, each worth $3.6 billion, according to two people familiar with the matter. This will give you another 4-5 years to invest the remaining amount.
The group is deploying seed and venture funds more quickly, with early-stage funds of $480 million and $1.3 billion, respectively, investing 20 to 35 percent, the people said. added.
The lack of high-growth domestic investment options is further exacerbated by the U.S. government’s move to tighten oversight of U.S. investments in high-end Chinese technology.
President Joe Biden signed an executive order in August banning U.S. investment in Chinese technology with potential military applications, including semiconductors, quantum computers and AI.
Industry sources say Chinese funds have already preemptively cut U.S. LPs out of deals involving high-tech investments, which could help less sensitive consumer-facing companies hit hard by the economic downturn. It is said that there are fewer promising sectors.
Instead, HongShan will use the US dollar funding to double down on already established Chinese startups, such as establishing a position in ByteDance, while increasing its existing stake in Xiaohongshu, a fast-growing startup like Instagram. are purchasing.
Generally, LPs are keen on early deployment. This is because the value of the company will grow and the fund will have more time to recover its investment through an IPO or merger. LPs typically have to pay management fees on capital that has not yet been called.
Other American supporters of Mr. Hongshan are more optimistic about the pace of agreement. “I’ve been an investor in Neil and the team from the beginning, and they’ve been some of the best investments we’ve made,” he said, adding that Beniyama’s ability to drive global deals is a significant benefit for a company of its size and track record. It was a “natural evolution,” he added.
Hongshan is focusing more on North Asia and Europe after facing difficulties in US tech deals. Earlier this year, the company closed on Heigen, a leading AI video company founded in Shenzhen and moved to Los Angeles, citing national security concerns about Chinese venture capital being a significant shareholder, the Financial Times reported. The company was asked to significantly reduce its investment ratio.
In recent months, Hongshan opened an office in London and hired former Goldman Sachs banker Taro Nigeman to be responsible for finding Internet and consumer deals in the UK and Europe.
The move will put the company in more direct competition with former partner Sequoia. Sequoia also has an office in London and focuses on investing in European startups.
Mr. Hongshan said: “Since our founding in 2005, we have built a diversified portfolio spanning Japan, South Korea, Southeast Asia, Australia and Europe, and we are proud that our strategy is successful not only in our China portfolio but also in global markets. I’ve proven it.”
A Chinese investment group is looking for Western consumer brands to support its growth in Asia, building on its successful 2021 investment in Ami Paris, which helped the French designer brand expand in China.
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Earlier this year, Hongshan participated in a $430 million funding round in British online bank Monzo, along with CapitalG, Google’s venture fund GV, and Tencent. The company also invested in Germany-based battery materials startup Green Energy Origin this year.
The company also owns about a 9% stake in fast-fashion company Shein, and is aiming to list in London if it receives approval from Beijing regulators, two people familiar with the matter said.
Benisan also has plans to open a Tokyo office, according to two people familiar with the matter, but one of the people cautioned that it was still in the early stages. Hongshan declined to comment on its Tokyo office plans.
The firm’s move into Japan follows other Chinese funds rapidly building up their presence in the country, including rival PE group Hillhouse and Jack Ma-backed Yunfeng, both of which have expanded in recent months. is building its presence in Japan through real estate transactions.
Hongshan has invested in Japanese construction management software startup ANDPAD, AI contract management startup LegalForce and lithium-ion battery venture AESC, according to people familiar with the matter.
Additional reporting from Beijing by Ryan McMorrow
