Fund focus: Shunwei raises $1b, eyes growth deals

The GP reached the milestone while barely breaking a sweat. Buoyed by strong demand from existing LPs, Shunwei spent just a few months in the market with Shunwei China Internet Fund III and Shunwei China Internet Opportunity Fund II, which between them comprise the firm's third US dollar-denominated fund. Regulatory filings indicate that each vehicle was seeking $500 million.

The fundraising effort is nearly twice the size that of the second fund: Shunwei China Internet Fund II and Shunwei China Opportunity Fund closed in mid-2014 at $315 million and $210 million, respectively. Opportunity funds, which have become increasingly popular among VC firms, provide additional capital to portfolio companies that have evolved from early-stage into growth investments.

"Based on what we have accumulated over the last few years in terms of industry resources and knowledge, we have the capability to invest in early- and growth-stage companies," says Tuck Lye Koh, co-founder and CEO of Shunwei. "The new opportunity fund will not only make follow-on investments in existing portfolio companies, but also invest in new companies that are raising expansion rounds."

Set up in 2011 by Lei Jun, founder of Chinese smart-phone maker Xiaomi, Shunwei has backed over 100 companies since its inception, covering every segment in the internet and technology sector. Fund III, which is about to make its first commitment, will have a more concentrated focus, with mobile internet, intelligent hardware and rural internet of particular interest.

"Internet penetration rate is relatively high in major Chinese cities but it's still low in small towns and villages," Koh says, explaining the rural internet theme. "We will see more consumer internet activity arising from the rural areas over the next few years."

In addition to the US dollar funds, Shunwei raised RMB1 billion ($160 million) for its first renminbi fund earlier this year, which should facilitate exits on the domestic public markets. However, Koh says most VC investments will still come from US dollar vehicles.

"The entire renminbi ecosystem will take years to achieve the similar level of maturity as on the US dollar funds side. The size of renminbi funds is generally quite small now. If start-ups want to raise large private rounds, they will have difficulty in the domestic market," Koh explains. "On the exit front, I anticipate that Chinese regulators will relax the current rules to make it easier for foreign-invested companies to list onshore."

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