HongShan plots global expansion after split with Sequoia Capital

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Chinese venture capital giant HongShan, which announced its split from Sequoia Capital this year, is establishing a global footprint as a slowdown in the domestic economy pushes it overseas.

Neil Shen, the group’s founding partner, who led Sequoia’s China business for 18 years until it was forced to separate under political pressure in June, is seeking business opportunities and investments worldwide to benefit HongShan’s Chinese portfolio companies, according to seven people familiar with his plans.

The move comes amid a slowdown in China’s economy that has damped sentiment for tech companies, while also forming part of an ambitious new era for HongShan as an independent group.

“They have $9bn to deploy,” said a person who has held meetings with Shen in recent weeks. “You cannot do that in China right now. And you cannot just rely on south-east Asia. They have to be thinking globally, about Japan, Europe, etc.”

According to three people who have spoken to Shen in recent weeks, the global expansion could see him invest in foreign companies targeting the Chinese market or those founded by overseas Chinese entrepreneurs.

Shen reached out to HongShan’s limited partners to brief them on his plans ahead of a meeting next month with its key investors in Shanghai, according to three people with knowledge of the discussions.

HongShan said: “We remain focused on partnering with Chinese founders and in support of their globalisation journeys.”

One HongShan investor said, “Shen has been pretty open” about his global plans, adding: “the most obvious area is across Asia. He’s made no attempt to hide the ball on his ambition to do something similar in the US and Europe . . . I wouldn’t be surprised if he opens an office in the Bay Area. I don’t know if there are plans to open an office, but he wants to invest here.”

HongShan said: “We have no plan to open an office in the US or in Europe.”

However, HongShan did open a Singapore office earlier this year which already has two employees, according to three people with direct knowledge of the move. HongShan has applied for a capital markets services licence in the financial hub, but it is still pending approval, they added.

A person close to HongShan said the office was “set up to fulfil Singapore’s legal requirement that need us to register a company so as to operate legitimately in Singapore”.

HongShan is scouting out investment opportunities in Europe’s electrical vehicle and battery market where there are synergies with its Chinese portfolio companies, according to multiple people briefed on the plans.

Shen led a trip of Chinese EV founders around Europe this summer, according to two people with knowledge of the move. “We are open to review and consider opportunities in the EV and clean energy market, but first and foremost, this has to be tied in with the globalisation effort of our portfolio companies,” said one person close to HongShan.

Its former parent company, Sequoia Capital, has an office in London focused on European start-up investments.

HongShan, Sequoia Capital and Peak XV — the India and south-east Asia fund which also split from the Silicon Valley giant — do not have non-compete provisions that would prohibit competition between the entities following the separation, according to a person with knowledge of the situation. The deadline for the split is March 2024.

Sequoia Capital’s divorce was triggered by rising tensions between Washington and Beijing, which had made it increasingly difficult for the Silicon Valley-headquartered firm to invest in industries such as semiconductors and artificial intelligence in China. The split ended profit sharing agreements between the two businesses.

The move is part of a wave of global funds hiving off their China businesses as Washington and Beijing step up regulatory scrutiny of cross-border investment and data flows. San Francisco-based GGV Capital also split its US and Asia businesses last month.

In August, the Biden administration further targeted the venture capital industry by announcing a ban on some US investment in China’s quantum computing, advanced chips and artificial intelligence sectors, in an effort to stop the Chinese military from accessing American technology and capital.

While many sovereign wealth funds, American university endowments, and pension funds have paused Chinese investments, Shen has courted prominent US limited partners. According to PitchBook data, HongShan counts the California and Massachusetts pension funds among its investors.

Two longstanding US backers of Shen said they did not foresee that Biden’s restrictions on US investment into Chinese technology would prevent them from continuing to invest in HongShan.

HongShan is organising a trip for its limited partners next month to Shanghai — about half of its investment comes from the US — which for many will be the first trip to China since it ended zero-Covid restrictions last year, according to three people with knowledge of the move.

“Neil is really pushing his companies to expand into overseas markets,” said one person close to Shen. “HongShan is still calling itself a Chinese firm, but the story now is about taking China globally.”

Additional reporting by Kaye Wiggins in Hong Kong