![]() government over its decades of activity in China. Despite its proactive move to decouple, Sequoia still faces scrutiny from the U.S. The scaleback is most notable in prolific investors like Sequoia Capital China, which recently changed its name to HongShan after splitting off its China operation. investor participation dropped to 18.2% in 2022 after hovering above 30% for half a decade. The number of deals nearly halved to 595, and the share of deals with U.S. The year 2022 saw just $14.5 billion invested in Chinese companies by U.S.-headquartered VCs, compared to $45.4 billion the year before, according to a report from research firm PitchBook. The country’s USD investors continue to deploy capital in industries that aren’t in the crosshairs of U.S.-China competition, but overall, their activity has dwindled significantly due to the changing regulatory and geopolitical currents, coupled with a slowing economy. Local investors are now shunning Chinese “links”, of which definition is ever evolving and broadening, at all costs. investors from funding Chinese founders in their backyard. Zhipu AI, one of China’s most ambitious challengers to OpenAI, for instance, raised financing in RMB instead of USD.Įven having the Chinese branches of famed American VCs listed on the cap table might deter U.S. At the same time, domestic RMB funds play an increasing role in funding critical tech sectors. ![]() They slow down capital deployment even amidst a global AI fervor that has given rise to a parallel AI universe in China. investments in three strategically critical sectors in China - artificial intelligence, quantum computing and semiconductors.Īs USD funds in China await further clarity on the scope of the ban, they are practicing more discretion than ever before. In August, President Joe Biden signed an executive order barring U.S. money into China amid an escalating tech war between the two superpowers. In the meantime, Washington has stepped up restrictions on the flow of U.S. are no longer assured of an exit channel. With China tightening its grip on overseas IPOs, investors who once relied on taking Chinese firms public in the U.S. VCs fear that their portfolio companies might encounter a fate akin to that of Ant Group, whose colossal initial public offering was called off, and Didi, which weathered an extensive data security probe that eventually led to its delisting from New York. In recent years, Beijing’s sweeping tech crackdowns have introduced a new sense of uncertainty to investors. This two-decade-long mutually beneficial relationship, however, now hangs in the balance as changes at home and abroad diminish the pool of investment opportunities for outside financiers. Since their entry into China in the late 1990s, American venture capital firms, led by powerhouses like Sequoia Capital, IDG Capital and GGV, have played a major role in funding high-risk, high-reward startups in the country’s consumer internet sector. Driven by a confluence of factors, from China’s crackdown on the tech industry to escalating U.S.-China tensions, some of these investors are now turning their gaze to opportunities abroad, tracing the footsteps of a new generation of Chinese-founded startups that are expanding overseas. This dealmaking strategy of American funds in China has become less effective in the face of shifting global and domestic landscapes. They would seek out the equivalents of Facebook, Amazon and Uber on the other side of the Pacific Ocean and hope they become winners in the country’s largely untapped internet market. USD-denominated funds in China have long been drawing inspiration from Silicon Valley startups, using them as benchmarks for investment targets back home. While these trips were routine before the pandemic, they have now taken on a fresh purpose of discovering deals beyond China. funds in the country have been flocking to the Bay Area. ![]() With China reopening its borders this spring following three years of COVID-19 restrictions, managers of U.S. On a weekday afternoon at Red Rock Coffee, the café known for spotting venture capitalists in Silicon Valley, one is likely to overhear a few conversations in Mandarin.
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