After a dismal 12 months for Chinese language tech corporations, the $9bn that Sequoia China raised earlier this month to fund a whole lot extra start-ups was a show of star energy from the enterprise capital group’s billionaire founder Neil Shen.

Shen’s friends have struggled to lift cash this 12 months, following heightened political danger and Beijing’s crackdown on Massive Tech, which has compelled some international establishments to place their China investments on maintain.

Against this, Shen has raised funds by managing to experience China’s political currents and align with President Xi Jinping’s “frequent prosperity” coverage objectives, in response to previous associates, rival buyers and others near the nation’s tech and funding scene.

“Everyone is having to take inventory and reassess what it means to put money into China,” mentioned David Brown, head of Asia offers at consulting agency PwC, talking in regards to the Chinese language investing setting. He added solely the “creme de la creme” of funds with sturdy native information would survive.

Since launching Sequoia China in 2005 as an arm of Silicon Valley funding large Sequoia Capital, Shen has made a private fortune price $4bn following early investments in TikTok guardian ByteDance and ecommerce giants Alibaba and Meituan.

As the federal government has delivered to a halt a golden age for China’s web corporations — the candy spot upon which Shen has constructed a agency with property beneath administration of round $50bn — it’s unsure how, or if, buyers in China can proceed to search out alternatives that can generate the numerous returns they’ve been used to. 

4 months in the past, Shen hinted at a brand new plan throughout a speech to the nation’s prime political consultative physique. He instructed the viewers that China should prioritise rising industries like synthetic intelligence, autonomous autos and robotics, in addition to inexperienced power and pharmaceutical analysis. 

The speech demonstrated an “eagerness to realign his funding themes with anticipated coverage trajectories”, mentioned a chief government of a rival enterprise capital agency.

“Politically right” sectors have emerged in China’s new economic system, in response to enterprise capital buyers. These embrace “deep tech” akin to AI and robotics, and “onerous tech” like electrical automobile batteries and semiconductors. These are sectors the place Beijing has outlined plans to lower its reliance on overseas know-how.

“Invisibly there are crimson strains you can’t contact and the trick is navigating what these are,” mentioned Henry Zhang, president of Hong Kong-based Hermitage Capital. “If you happen to put money into one thing the federal government encourages you’ll have plenty of tailwinds. The federal government is pouring cash into these sectors so you’ve got each coverage and financial help.”

Shen has lengthy nurtured shut political relationships. He’s the only real delegate representing the enterprise capital business within the Chinese language Peoples’ Political Consultative Convention, a key political advisory physique. 

He has additionally averted a lot of the current scrutiny on tech tycoons akin to Alibaba’s Jack Ma, regardless of his fund’s connections to California-based Sequoia Capital. 

Although run as an independently managed enterprise, Sequoia China passes a few of its carried curiosity again as much as the worldwide group, in response to an individual accustomed to the construction. The China arm has a sprawling portfolio of greater than 900 corporations, greater than 100 of them valued at over $1bn.

“Once we look again in historical past it appears apparent to us that Shen captured this chance, however at the moment there was no clear reply in China, what sectors to deal with, which founders to again,” mentioned one of many buyers in his funds.

However Sequoia China has additionally been extremely uncovered to the crackdown that wiped greater than $2tn off Chinese language shares within the US and paralysed the marketplace for Chinese language corporations itemizing abroad. 

In addition to being a shareholder in massive listed corporations like ride-hailing app Didi and vaping group Relx, whose share value has crashed 84 per cent since itemizing, it was additionally one of many largest enterprise backers of on-line schooling corporations, which have been one other main casualty of the regulatory overhaul.

“It was a giant correction,” in response to the investor. The returns of considered one of its funds have been minimize by as a lot as half following the regulatory motion, the particular person mentioned. A second particular person mentioned that total efficiency was secure throughout Sequoia China’s funds.

Shen’s political affect has not protected him from geopolitical turbulence up to now. The investor introduced each LinkedIn and Airbnb to China round six years in the past in what was then a progressive experiment in US platforms navigating China’s censorship guidelines. Each have since exited the nation. 

DJI, a dronemaker that Shen backed earlier than any exterior investor, has been blacklisted within the US over safety considerations. Shen has courted controversy with cryptocurrencies, which have been successfully banned in China in 2021. Shen entered a deal to again the world’s largest crypto change Binance in 2017. After the ban, a screenshot of Shen showing to say in a web-based message he was “all in” on crypto went viral within the nation.

“Sequoia China has been superb at using a bull market in tech for a lot of the final 20 years however you received’t get these multibillion-dollar client web offers anymore,” mentioned the chief government of a rival Chinese language enterprise capital agency.

Nonetheless, Shen has proven he can persuade overseas buyers to pour new funds into Sequoia China, even whereas dealing with a vastly completely different investing setting within the coming years.

“The short ‘unicorn-making, IPO, revenue’ enterprise mannequin is gone,” mentioned the investor in Sequoia China funds. “The following part might be extra conventional enterprise capital: disruptive know-how and enterprise fashions, smaller offers and longer time horizons.”