Neil Shen goes it alone in China after Sequoia split

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87 shares, 148 points

As Beijing was bearing down on its technology industry, banning lucrative business models and freezing new foreign listings, Neil Shen stepped up to a podium in the Chinese capital with a message to fellow entrepreneurs: align your companies with the country’s direction.

Sequoia China’s billionaire founder implied his venture capital group was already in tune: 80 per cent of the companies it has invested in recently were in “artificial intelligence, advanced manufacturing and other hard tech fields”, he told the conference. 

Two years after Shen’s speech, the break-up of one of the world’s most successful investing empires had become inevitable. The Silicon Valley-based group this week said it was splitting off its China arm into an independent entity.

The partnership between Shen and Sequoia had its roots in a simple idea — marrying American money with Chinese entrepreneurs.

It made both sides unimaginably rich but rising tensions between the two powers have gradually changed how this match was viewed in both Washington and Beijing. 

Chinese leaders are less eager to see American investors reaping rewards from their fledgling companies. They want start-ups to prioritise building up the country’s technological base. Meanwhile, the prospect of China catching up is rattling politicians in Washington. 

“The degree of paranoia in Washington about Chinese technology is extraordinary,” said one US-based investor briefed on details of the Sequoia split.

Shen has been central to Sequoia’s success in China since he helped bring the Silicon Valley group to the country in 2005. Other US managers tried as well, but with nowhere near the same outcome.

A natural maths whizz, Shen graduated from a top university in Shanghai before continuing on to Yale for a master’s degree. He started his career on Wall Street, and returned home as China’s economy was starting to boom. Soon he was at Deutsche Bank, helping companies raise money in Hong Kong. 

At the close of the millennium Shen, with a childhood friend, created Ctrip, one of China’s first travel booking sites and now worth $24bn. Shen left executive positions at the company in 2005, around the time that Sequoia picked him and partner Zhang Fan to lead the US group’s plunge into China. 

A handful of years later Zhang exited, leaving Shen in charge of Sequoia’s operation in China. With Sequoia’s brand and backing he raised more money, mostly from US institutional investors, and built an incomparable record — from Alibaba to ecommerce groups and Pinduoduo, to delivery group Meituan and TikTok parent ByteDance.

Now 55, Shen is going it alone. His 300-person China team will adopt their Chinese name, HongShan, and continue funnelling dollars raised from around the world into the country’s most promising start-ups. Historically more than 90 per cent of their returns have come from consumer and healthcare fields, but in recent years they have invested more widely, according to a person familiar with the matter.

Chinese entrepreneurs say losing the Sequoia brand will have little impact domestically. “For most mainland Chinese entrepreneurs, they do not speak English at all,” pointed out the founder of one major tech company. “So they will still know HongShan as HongShan: just the two Chinese characters.”

The founder said: “The magical part of Neil Shen is he is very good at multitasking, so he has many portfolios, and [it] amazes me that he can look after each of them.”

Even with $56bn under management and more than 1,000 portfolio companies, several founders said Shen remained deeply involved. “Every time he comes to Shanghai he has many meetings with the CEOs,” said Michael Yu, founder of Innovent Biologics, a $7bn biotech company listed in Hong Kong. 

“I update him on what’s going on. And at the same time he shares with me what he has been seeing in the last two to three months. He probably spends 16 to 18 hours a day on business.” 

Despite his rhetoric at that sensitive moment in Beijing, people close to Shen say he is more of a bridge builder with the outside world than almost anyone else in Chinese tech. He is “curious about the world as a whole: interested in tech, culture, politics”, said one former colleague, and is “incredibly well networked in major capitals”. 

In recent months Shen has started another venture, introducing American corporate titans such as former Starbucks leader Howard Shultz and hedge fund manager Ray Dalio to Chinese audiences in long, probing interviews broadcast on ByteDance-owned Douyin.

Shen’s global network and record have made him one of the few China-focused managers still able to land billion-dollar funds as increasingly thorny geopolitics keeps most western investors away. Total funding for China venture and private equity collapsed 80 per cent last year, according to research provider Preqin. But Sequoia China raised nearly $9bn, the largest fundraising in his team’s history, hoovering up one-third of total funding for China. 

Still, Fraser Howie, an independent expert on Chinese finance, estimates that the economic liberalisation and boom of foreign money into China since Shen set up Sequoia’s China arm has fundamentally reversed. 

“He will be courting capital as a Chinese VC firm, using a Pinyin name as opposed to a US brand name,” Howie said. “His reputation speaks for itself but it will become harder and harder.” 

Shen, however, retains the loyalty of legions of Chinese founders. Zhang Lei, founder of clean energy group Envision, said that within China Shen’s star power far exceeded Sequoia’s. 

“Capital is a commodity,” Zhang said, noting Shen’s greater contribution came from the insights, network and entrepreneurial drive he added to new ventures.

“Money supply is everywhere from the Middle East, from Asia, from Europe, from the US,” Zhang added. “So, as long as Neil is there, and he is committed to running this fund . . . that’s what matters most.”

Nian Liu contributed reporting from Beijing

Source: Financial Times

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