Sequoia scales up for China growth deals
Sequoia Capital China’s recent $3.68 billion fundraising effort has significantly expanded its scope to participate in later-stage deals. The three funds include a growth vehicle of $2.8 billion, a 55% increase on the previous vintage.
It sits alongside seed and venture funds of $180 million and $700 million, respectively, according to a source familiar with the situation. The three-fund approach was introduced the last time Sequoia went to market in 2018, with the seed vehicle joining the existing venture and growth strategies. It raised $150 million for seed investments, $550 million for venture, and $1.8 billion for growth.
The Sequoia China franchise, which was established by Neil Shen in 2005, has pursued venture and growth strategies for more than a decade. The latest funds are the eighth and sixth for each strategy. While the venture funds have seen a relatively measured step up in size – Funds VI and VII were both in the region of $550 million – the growth strategy has swelled substantially in recent vintages. Fund IV, which closed in 2016, had a corpus of $899.5 million.
Funding rounds for Chinese technology start-ups of $300 million and above peaked in 2018, with $42.9 billion raised across approximately 30 deals, according to AVCJ Research. This compares to $35.8 billion across 27 rounds in 2016 and 2017 combined. About a dozen deals of at least $1 billion accounted for 80% of the total invested in 2018.
General investor discomfort with high cash-burn business models are partly responsible for a subsequent decline. Just over $18 billion was deployed in 17 deals of $300 million and above last year. The number of $1 billon-plus transactions fell to six. Eight rounds have raised a combined $4 billion in 2020 to date, including one $1 billion round.
Sequoia is an investor in several of the companies that have closed rounds of $300 million-plus in the past 18 months, including car trading platform Chehaoduo, apartment rental business Ziroom, live streaming app Kuaishou, and big data solutions provider MiningLamp Technology. The firm is also an investor in the likes of Ant Financial, ByteDance Technology, Didi Chuxing, and DJI, as well as in a few biotech companies that have raised sizeable rounds.
In 2018, Sequoia raised an $8 billion global growth fund that participates in late-stage deals. It is known to be active in China.
The China-based Hurun Research Institute reported last year that China is home to more technology unicorns than any other country, with 206 to America’s 203. The two countries account for more than 80% of unicorns globally. Ant Financial, ByteDance and Didi headed the list with valuations of $150 billion, $75 billion, and $55 billion, respectively.
Sequoia’s China fundraise happened concurrently with that of the firm’s India affiliate. A total of $1.35 billion was raised for deployment in India and Southeast Asia, comprising a $525 million venture capital fund and an $825 million growth vehicle. Sequoia India raised $890 million in the previous cycle.
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