Sequoia targets USD 7.1bn for latest China vintage

The venture capital firm is looking to raise USD 400m for its third seed fund, with the hard cap set at USD 480m. The target and hard cap for its ninth venture fund are USD 900m and USD 1.1bn, respectively. China Growth VII and new addition China Expansion I both have targets of USD 2.9bn and hard caps of USD 3.6bn.

AVCJ learned of Sequoia’s fundraising plans from two sources close to the situation. One of the sources added that the firm was looking to diversify its LP base, which has historically been US-heavy and populated by endowments and foundations. Sequoia China declined to comment.

Should all the hard caps be reached, the fundraise would amount to USD 8.8bn. The last time it came to market in 2020, Sequoia collected USD 3.68bn: USD 180m for seed, USD 700m for venture, and USD 2.8bn for growth. This compares to USD 2.5bn across the three strategies in the previous cycle.

The most significant increases in recent vintages have been in the growth space as Sequoia enhanced its capacity to back portfolio companies through later-stage rounds. In the 2016 vintage, it raised USD 899.5m. This became USD 1.8bn in 2018 and USD 2.8bn in 2020. 

The Sequoia China franchise was established by Neil Shen in 2005. He remains founding and managing partner of the business.

In recent months, Sequoia and some of its global peers have been criticised by local VCs for paying up to secure footholds in early rounds so they are well-positioned to write larger cheques later on as companies appreciate in size and value. It is part of a wider trend that has seen numerous deep-pocketed tech investors look to capture more alpha by deploying capital earlier.

Sequoia has made a more fundamental shift – billed as a movement towards permanent capital – in its US and European businesses.

Last year, the firm revealed that LPs would no longer invest directly into traditional closed-end funds. Rather, they will commit capital to an open-ended liquid portfolio of positions in select companies that the firm has backed through IPO. It will become the sole LP in future closed-end venture sub-funds, with the proceeds of these investments flowing back into the open-ended portfolio.

The idea is that there will be no more forced exits for expiry of fund life reasons and public shares can be held long after IPO. Conversion to the new structure is said to have been completed in February, with the outstanding net asset value (NAV) coming to around USD 65bn.

Commitments to China-focused venture capital funds fell from USD 10.7bn in 2020 to USD 8.5bn in 2021, according to AVC Research. There was a significant drop-off in the second half of the year in the wake of a series of regulatory actions targeting the technology sector.

It matches a pattern in China fundraising more generally. A total of USD 27.6bn was secured in 2021, up from USD 18.9bn in 2020, but nearly four-fifths of commitments were made in the first six months of the year. Various LPs are said to be reviewing their China exposure, and in some cases, holding off on commitments until the regulatory and geopolitical picture becomes clearer.

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• Topics
• Greater China
• Fundraising
• Venture
• Technology
• GPs
• China
• Sequoia Capital
• TMT