GGV Capital, an investor behind some of China’s most successful tech startups including ByteDance and Didi Chuxing, said Thursday it had closed a $2.5 billion funding round—the largest in its 20-year history.
The US- and China-based venture capital firm’s latest capital raise comes amid an uptick in inflows to VCs from domestic and international limited partners (LPs) looking to profit from China’s tech growth. On Tuesday, Qiming Venture Partners, a Beijing-based VC firm that has invested in food delivery app Meituan and smartphone maker Xiaomi, said it had closed a new RMB 2.9 billion (around $448 million) financing round, following a $1.2 billion capital raise in September.
The two deals are part of a trend: foreign investors are increasingly injecting funds into China’s growing tech sector, as the global economy slows. Investors and analysts have said that foreign LPs are optimistic about China’s tech startups following last year’s initial public offering (IPO) boom. China, meanwhile, is gradually opening its finance market, increasing its appeal to international investors, they said.
Two big fundraising deals
GGV said it had raised in this financing round $1.46 billion for its GGV Capital VIII fund, $366 million for the GGV Capital VIII Plus fund, $610 million for its Discovery III fund, and $80 million for its Entrepreneur VIII fund. The firm said it will focus on investment in sectors such as new retail, cloud-based enterprise services, and social media.
The firm said it also expects to soon close a separate financing round of RMB 3.4 billion, increasing its total assets under management to around $9.2 billion.
The company did not disclose the names of its backers in this round. It has previously raised US dollar funds from North America-based pension funds, family asset management firms, and universities. A GGV representative declined to comment.
Qiming’s latest financing round was backed by two government-led guidance funds in Shanghai and Beijing, as well as several domestic insurance companies, TechNode has learned. The firm’s $1.2 billion financing round closed in September was mainly backed by American university endowments and pension funds.
“Top domestic and international LPs are optimistic about our investment strategy to invest in China’s innovative and developing science and technology, even during the challenging global Covid-19 epidemic as well as changing global environments,” (our translation) Duane Kuang, Qiming’s founding managing partner, said in a company statement on Tuesday.
US dollar funds become more active
In 2020, Chinese US dollar funds raised 12% more money than the previous year, even though total capital flowing into the market dropped nearly 39%, according to data from PE Data, which tracks China’s VC activities.
“US dollar funds into Chinese VC firms increased in 2020 both because the Chinese government had loosened its regulations of foreign investment and because overseas LPs are a lot more confident about the Chinese market,” (our translation) Liu Xiaoqing, research director at Itjuzi, a Chinese VC activity database, told TechNode.
American LPs are finding Chinese tech firms increasingly attractive and the market is rapidly developing after some Chinese tech firms went public in 2020 and offered investors high returns, she added. Some of the largest Chinese tech IPOs last year included electric vehicle maker Xpeng and Li Auto, as well as gaming giant Netease’s dual listing in Hong Kong.
VC-backed Chinese video-sharing app Kuaishou is preparing for what is expected to be the world’s largest public listing since the pandemic. The company is seeking to raise around $5 billion on the Hong Kong stock exchange, implying a market capitalization of as much as $60.9 billion. The firm was valued at $18 billion in a funding round in January 2018, meaning early investors are expected to net returns of nearly 233%.
A clearer picture
US investor interest in Chinese tech firms was hampered last year by two Trump-era policies, but signs from the Biden administration, which has thus far indicated an aversion to avoid over-broad and arbitrary restrictions on Chinese tech firms, are stoking optimism.
In May, the US Labor Department advised US federal pension funds—important backers of Chinese USD VC firms—against investing in Chinese companies. In November, former US President Donald Trump signed an executive order which banned starting Jan. 28 American investment in companies that are deemed related to the Chinese military. Smartphone maker Xiaomi, China’s three biggest telecommunications operators, and Chinese chipmaker SMIC are on the blacklist.
However, in a sign that it is easing Trump’s “tough-on-China” tech policies, the newly inaugurated Biden government said on Wednesday it is delaying the investment ban on certain Chinese firms to May 27.
China’s economy expanded 2.3% in 2020 according to government data (in Chinese) released last week, as economies in the rest of the world grapple with the stranglehold on business brought by the coronavirus pandemic.
China brought in $163 billion in foreign investment in 2020, surpassing the US as the world’s hottest destination of foreign direct investment, according to a report by the United Nations Conference on Trade and Development released on Sunday. In 2019, the US took $251 billion in foreign inflows and China got $140 billion.
“LPs are planning for the longer term,” said Liu of Itjuzi. “They are not only confident about China’s economy in 2021. They are at least confident about China in the next 10 years.”