Unlock the Editor’s Digest at no cost
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Chinese language enterprise capital big HongShan, which introduced its cut up from Sequoia Capital this 12 months, is establishing a world footprint as a slowdown within the home financial system pushes it abroad.
Neil Shen, the group’s founding companion, who led Sequoia’s China enterprise for 18 years till it was pressured to separate underneath political strain in June, is looking for enterprise alternatives and investments worldwide to learn HongShan’s Chinese language portfolio firms, in keeping with seven individuals acquainted with his plans.
The transfer comes amid a slowdown in China’s financial system that has damped sentiment for tech firms, whereas additionally forming a part of an formidable new period for HongShan as an unbiased group.
“They’ve $9bn to deploy,” stated an individual who has held conferences with Shen in current weeks. “You can’t try this in China proper now. And you can not simply depend on south-east Asia. They must be considering globally, about Japan, Europe, and many others.”
In accordance with three individuals who have spoken to Shen in current weeks, the worldwide enlargement might see him spend money on international firms concentrating on the Chinese language market or these based by abroad Chinese language entrepreneurs.
Shen reached out to HongShan’s restricted companions to temporary them on his plans forward of a gathering subsequent month with its key buyers in Shanghai, in keeping with three individuals with data of the discussions.
HongShan stated: “We stay centered on partnering with Chinese language founders and in help of their globalisation journeys.”
One HongShan investor stated, “Shen has been fairly open” about his world plans, including: “the obvious space is throughout Asia. He’s made no try to cover the ball on his ambition to do one thing related within the US and Europe . . . I wouldn’t be shocked if he opens an workplace within the Bay Space. I don’t know if there are plans to open an workplace, however he needs to take a position right here.”
HongShan stated: “We have now no plan to open an workplace within the US or in Europe.”
Nonetheless, HongShan did open a Singapore workplace earlier this 12 months which already has two staff, in keeping with three individuals with direct data of the transfer. HongShan has utilized for a capital markets providers licence within the monetary hub, however it’s nonetheless pending approval, they added.
An individual near HongShan stated the workplace was “set as much as fulfil Singapore’s authorized requirement that want us to register an organization in order to function legitimately in Singapore”.
HongShan is scouting out funding alternatives in Europe’s electrical automobile and battery market the place there are synergies with its Chinese language portfolio firms, in keeping with a number of individuals briefed on the plans.
Shen led a visit of Chinese language EV founders round Europe this summer time, in keeping with two individuals with data of the transfer. “We’re open to assessment and think about alternatives within the EV and clear vitality market, however at the start, this needs to be tied in with the globalisation effort of our portfolio firms,” stated one particular person near HongShan.
Its former father or mother firm, Sequoia Capital, has an workplace in London centered on European start-up investments.
HongShan, Sequoia Capital and Peak XV — the India and south-east Asia fund which additionally cut up from the Silicon Valley big — do not need non-compete provisions that might prohibit competitors between the entities following the separation, in keeping with an individual with data of the scenario. The deadline for the cut up is March 2024.
Sequoia Capital’s divorce was triggered by rising tensions between Washington and Beijing, which had made it more and more tough for the Silicon Valley-headquartered agency to spend money on industries reminiscent of semiconductors and synthetic intelligence in China. The cut up ended revenue sharing agreements between the 2 companies.
The transfer is a part of a wave of world funds hiving off their China companies as Washington and Beijing step up regulatory scrutiny of cross-border funding and information flows. San Francisco-based GGV Capital additionally cut up its US and Asia companies final month.
In August, the Biden administration additional focused the enterprise capital business by saying a ban on some US funding in China’s quantum computing, superior chips and synthetic intelligence sectors, in an effort to cease the Chinese language army from accessing American know-how and capital.
Whereas many sovereign wealth funds, American college endowments, and pension funds have paused Chinese language investments, Shen has courted outstanding US restricted companions. In accordance with PitchBook information, HongShan counts the California and Massachusetts pension funds amongst its buyers.
Two longstanding US backers of Shen stated they didn’t foresee that Biden’s restrictions on US funding into Chinese language know-how would stop them from persevering with to spend money on HongShan.
HongShan is organising a visit for its restricted companions subsequent month to Shanghai — about half of its funding comes from the US — which for a lot of would be the first journey to China because it ended zero-Covid restrictions final 12 months, in keeping with three individuals with data of the transfer.
“Neil is basically pushing his firms to develop into abroad markets,” stated one particular person near Shen. “HongShan continues to be calling itself a Chinese language agency, however the story now could be about taking China globally.”
Further reporting by Kaye Wiggins in Hong Kong