US venture capital giant Sequoia to spin off China business

The venture capital giant Sequoia Capital is splitting its China business into a separate entity amid rising tensions between Washington and Beijing.

The renowned Silicon Valley firm, which made bets on fast-growing tech companies such as TikTok parent ByteDance and Alibaba, said on Tuesday it will run its Chinese business as a “completely independent” entity from its US operation.

The Chinese arm will give up the Sequoia name and instead be called HongShan, a romanisation of its Chinese name.

The VC firm will also separate its Indian and south-east Asian business into a third entity, it said, adding that the changes will take place by March next year.

“There’s much less in common now” between the different Sequoia entities, Neil Shen, the billionaire founder of Sequoia China, told the Financial Times. He said conversations about splitting the businesses “have been evolving over the last two to three years”.

The split marks an end to one of the most successful US-China investing alliances. It has reaped rewards for the American mother ship and seeded generations of Chinese tech companies since Shen launched Sequoia China in 2005 as an arm of Sequoia Capital. 

But Beijing’s campaign to rein in its largest tech companies has tamed many of the internet groups Sequoia China funded and profited from.

At present, Sequoia China is run independently to the US business but shares some of its profits with the global group. That will no longer be the case after the separation, according to the person close to the matter.

“It has become increasingly complex to run a decentralised global investment business,” the group told investors.

“We will move to completely independent partnerships and become distinct firms with separate brands no later than March 31 2024.”

Sequoia Capital China raised $9bn across several funds last year, from investors including California’s Calpers, the biggest US public pension fund, as well as Massachusetts Pension Reserves Investment Trust and Canada’s CDPQ and CPP Investments, according to the data provider PitchBook. 

The funds were raised from investors independently of the US team. Half of the capital came from US investors, while the rest came from global pension funds and other institutional investors, according to a person involved.

The split will not affect the way the funds are invested, a person close to the matter said.

Shen said in a speech to China’s top political consultative body last year that Beijing had to prioritise industries such as artificial intelligence, robotics and green energy.

Some venture capital executives viewed that as a sign he was willing to align his investment themes with Beijing’s “common prosperity” agenda.

Among the previous reverses for the firm, internet groups which Sequoia had backed including Alibaba and Meituan were hit with large antitrust fines, while ride-hailing group Didi was forced to delist from the New York Stock Exchange. China has also installed an official to oversee ByteDance’s main Chinese entity.

The largest blow for Sequoia China came with Beijing’s clampdown on online education companies in 2021, when officials overnight moved to make illegal the business models of many up-and-coming start-ups. The rules have dented the firm’s large investments in groups such as Zuoyebang and VIPKID.