August 14, 2018 / 6:32 AM / 3 months ago

Exclusive: Sequoia China to raise $6 billion in new fund with state-owned partner - sources

HONG KONG (Reuters) - Sequoia Capital China is teaming up with a state-owned venture capital (VC) fund and e-commerce powerhouse JD.com to raise up to 40 billion yuan ($5.81 billion) for a new investment firm to focus on late-stage tech investments, sources said.

FILE PHOTO: Sequoia Capital China Founding and Managing Partner Neil Shen attends the Asian Financial Forum in Hong Kong, China January 15, 2018. REUTERS/Bobby Yip/File Photo

The yuan-denominated fund of Starquest Capital, or Xingjie Capital, underlines growing efforts by Chinese venture capitalists to fatten their wallets as valuations and financing needs rise with firms spending more time remaining private.

Startups in China are up to 40 percent more expensive than their U.S. counterparts and, in some cases, even valued at twice the price, according to recent investor estimates.

Starquest has so far raised about 10 billion yuan from domestic sources such as banks, said one of the sources.

It is in talks with prospective investors to secure the rest, the sources with knowledge of the matter told Reuters on condition of anonymity as the fundraising plans were private.

Sequoia China said it is a shareholder in Starquest but does not participate in the fund’s management. Starquest, the state-owned VC fund - China State-Owned Capital Venture Investment Fund, and JD.com declined to comment.

The VC fund’s controlling shareholder - China Reform Holdings - did not respond to a request for comment.

According to the sources, Starquest will primarily seek private-equity, late-stage investment opportunities in technology, particularly in sectors Beijing considers to be strategically significant such as artificial intelligence.

FOCUS AREAS

China has been pushing for growth in sectors like robotics, semiconductors and autonomous vehicles, while in artificial intelligence, it aims to be a global leader by 2030 here

A mounting trade war with the United States, with tensions running high over market access, intellectual property and technology transfer, has infused a new sense of urgency into Chinese efforts to ramp up development.

Beijing in 2016 launched the 200 billion yuan China State-Owned Capital Venture Investment Fund and tasked China Reform with investing “in strategic emerging industries related to national security and the lifeblood of the national economy”.

The fund, also financed by Postal Savings Bank of China, China Construction Bank and Shenzhen Investment Holding, was the sole investor in Canyon Bridge Capital Partners reut.rs/2MbfGRT, a California-based buyout fund.

Canyon Bridge in 2016 planned to buy Lattice Semiconductor for $1.3 billion, but the deal was blocked by U.S. President Donald Trump over national security concerns.

Among the other backers of Starquest, JD.com, China’s No.2 e-commerce firm, has been investing in tech companies, including online fashion retailer Vipshop Holdings and Indonesian ride-hailing startup Go-Jek.

Sequoia China, founded in 2005 by Neil Shen, one of the best-known venture capitalists, has been diversifying its focus to include pre-IPO funding, while retaining its traditional focus on early-stage investments.

It is close to raising 15 billion yuan in its fifth yuan-denominated China-focused fund, the largest of its kind, while parent Sequoia Capital is raising an $8 billion global fund in its largest-ever fundraising.

Shen serves as chairman of Starquest, the sources said.

Sequoia China, however, said Shen was not involved in the day-to-day management or investments at Starquest.

Reporting by Julie Zhu; Editing by Jennifer Hughes and Himani Sarkar

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