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Shanghai's 5Y Capital, a significant player in venture funding, is nearing its ambitious goal of securing $700 million for a new venture fund.
This achievement signals a resurgence of investor interest in the global internet sector. The fund, which operates in U.S. dollars, is expected to exceed its target, with a ceiling of $800 million. It is anticipated to finalize in the early months of the next year. This information comes from sources who requested anonymity due to the private nature of the discussions.
5Y Capital, headquartered in Shanghai, is recognized for its strategic early investments in prominent Chinese technology companies such as Xiaomi Corp. and Kuaishou Technology. Despite previous plans to launch a growth fund focused on more mature startups, these plans were delayed.
Investor Sentiment and Global Impact
China's venture deal activity has witnessed a significant decline. Data from PitchBook shows that venture deals in China have reached approximately $44 billion this year, a sharp 65% drop from 2018. American venture firms have notably reduced their involvement in Chinese deals by 95% during this period, totaling just $2.2 billion.
The reduced American investment is partly due to the Biden administration's restrictions on U.S. investments in specific Chinese industries, including semiconductors, quantum computing, and artificial intelligence. These restrictions have prompted Chinese startups and investors to seek alternative funding sources, such as those in the Middle East. Major venture firms like Sequoia and GGV have responded by separating their Chinese and U.S. operations to function independently.
In comparison, other leading Chinese venture firms have raised significant funds recently. Sequoia China (now HongShan) secured $9 billion across four funds last year, while Qiming Venture Partners gathered about $3.2 billion for tech and healthcare investments. However, the overall pace of deals has slowed this year due to concerns about China's growth prospects and rising geopolitical tensions.
Background of 5Y Capital
Originally named Morningside Venture Capital, 5Y Capital emerged from the Morningside Group, founded by Hong Kong real estate tycoon Ronnie Chan. The firm rebranded itself in 2020, inspired by the Wu Yuan Road in Shanghai, where it began over a decade ago. It has supported various companies, including Xiaomi, Agora Inc., SenseTime Group Inc., and automaker XPeng Inc. One of its notable successes is an early investment in Kuaishou, a rival to TikTok, where it maintains a 16% stake.
Last year, 5Y Capital raised $1.7 billion across two US-dollar funds and reported managing about $5 billion in total assets.
