As Beijing squeezed its tech industry, banned lucrative business models and shut down new foreign listings, Neil Shen took to a stage in the Chinese capital with a message to fellow entrepreneurs: Align your businesses with the country’s direction.
The billionaire founder of Sequoia China suggested his venture capital group was already in the know: 80 percent of the companies it recently invested in were in “artificial intelligence, advanced manufacturing and other hard tech areas,” he told the conference.
Two years after Shen’s speech, the breakup of one of the world’s most successful investment empires had become inevitable. The Silicon Valley-based group said this week it would spin off its China arm into an independent entity.
The partnership between Shen and Sequoia was rooted in a simple idea: marrying American money to Chinese entrepreneurs.
It made both sides unimaginably wealthy, but rising tensions between the two powers have gradually changed the view of this contest in both Washington and Beijing.
Chinese leaders are less enthusiastic about seeing US investors reap the rewards of their fledgling companies. They want startups to prioritize building the nation’s technology base. Meanwhile, the prospect of China catching up is startling politicians in Washington.
“The degree of paranoia in Washington about Chinese technology is extraordinary,” said a US-based investor who provided 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 American managers also tried, but with nowhere near the same result.
A natural, Shen graduated from a top university in Shanghai before going on to Yale for a master’s degree. He started his career on Wall Street and returned home when China’s economy started to boom. Soon he was at Deutsche Bank, helping companies raise money in Hong Kong.
At the end of the millennium, Shen co-founded Ctrip with a childhood friend, one of China’s first travel booking sites and now worth $24 billion. Shen left executive positions at the company in 2005, around the time Sequoia selected him and partner Zhang Fan to lead the US group’s dive into China.
A few years later, Zhang left, 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 e-commerce groups JD.com and Pinduoduo, to delivery group Meituan and TikTok parent ByteDance.
Now 55, Shen goes it alone. Its 300-person China team will take their Chinese name, HongShan, and continue to funnel dollars raised from around the world to the country’s most promising start-ups. Historically, more than 90 percent of their revenues have come from consumer and healthcare sectors, but in recent years they have invested more, according to a person familiar with the matter.
Chinese entrepreneurs say the loss of the Sequoia brand will have little impact domestically. “For most mainland Chinese entrepreneurs, they don’t speak English at all,” noted the founder of a major technology company. “So they will still know HongShan as HongShan: just the two Chinese characters.”
The founder said, “The magic thing about Neil Shen is that he is very good at multitasking, so he has a lot of portfolios, and I’m surprised he can take care of every single one of them.”
Even with $56 billion under management and more than 1,000 portfolio companies, several founders said Shen remained highly engaged. “Every time he comes to Shanghai, he has a lot of meetings with the CEOs,” said Michael Yu, founder of Innovent Biologics, a $7 billion Hong Kong-listed biotech company.
“I’ll let him know what’s going on. And at the same time he shares with me what he has seen in the past 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 in Chinese technology. He is “curious about the world as a whole: interested in technology, culture, politics,” said a former colleague, and has “incredibly good networks in major capitals.”
In recent months, Shen has embarked on another venture, introducing American corporate giants such as former Starbucks leader Howard Shultz and hedge fund manager Ray Dalio to the Chinese public in lengthy, incisive interviews aired on ByteDance-owned Douyin.
Shen’s global network and track record have made him one of the few China-focused executives still capable of raking in billions of dollars as increasingly thorny geopolitics keep most Western investors away. According to research firm Preqin, total financing for Chinese ventures and private equity collapsed by 80 percent last year. But Sequoia China raised nearly $9 billion, the largest fundraising in its team’s history, accounting for a third of total funding for China.
Still, Fraser Howie, an independent expert on Chinese finance, estimates that economic liberalization and the explosion of foreign money to China since Shen founded Sequoia’s China branch have fundamentally reversed.
“He will seek capital like a Chinese VC firm, using a pinyin name as opposed to an American brand name,” Howie said. “His reputation speaks for itself, but it will become increasingly difficult.”
However, Shen retains the loyalty of legions of Chinese founders. Zhang Lei, founder of the clean energy group Envision, said Shen’s star power in China far surpassed Sequoia’s.
“Capital is a commodity,” said Zhang, noting that Shen’s greater contribution came from the insights, network and entrepreneurial spirit he brought to new ventures.
“The money supply is coming 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 is the most important.”
Nian Liu contributed reporting from Beijing
