Chinese VC firms rush to raise funds after 3-year drought

China’s venture capital firms are rushing to raise new funds and capitalise on investors’ renewed enthusiasm for the country’s technology sector after three years of record-low fundraising.

Firms are seeking to raise an estimated $35bn for at least 60 new dollar-denominated funds, including about 40 venture capital funds, according to data from private placement and advisory firm Asante Capital.

Investors described backing Chinese AI as a “hedge” against US market bets, given Chinese companies had been competing aggressively on cost and offering cheaper access to models.

HSG, IDG Capital, Matrix Partners China and Future Capital are among the firms marketing new funds or planning to start fundraising soon, according to investors who have been pitched on the funds. ZhenFund and Qiming recently closed funds.

A string of successful technology listings, alongside breakthroughs from Chinese AI companies such as Moonshot AI and DeepSeek, as well as advances in robotics, has helped revive interest.

But experts said the surge in fundraising activity did not signal a return to the heyday of Chinese venture capital when global investors competed to access popular, heavily oversubscribed funds.

“This isn’t a China VC boom yet,” said Ricardo Felix, partner and head of Asia-Pacific at Asante. “Instead, this is a selective reopening of US dollar fundraising for Chinese VC after three years of record-low levels.”

The revival follows a prolonged downturn in Chinese venture capital, driven by a slowing domestic economy, US restrictions on investment in sensitive sectors and a drought in exit opportunities after Chinese regulators tightened controls on new listings.

Several fund managers and limited partners, who provide capital to venture funds, said the current fundraising environment represented a significant improvement from the past three years, when many dollar funds struggled to raise new money.

In 2022, 1,105 China-focused funds raised a total of $150bn, according to investment data platform Preqin. By contrast, 97 funds raised $13.6bn last year.

“The market has been starved of capital for three to four years,” said a fund manager who asked not to be named. “Suddenly, all the fund managers are rushing in. The question is whether there is enough interest from investors to feed so many people.”

HSG, formerly Sequoia China, has told limited partners it plans to launch a fund this year focused on early-stage start-ups. The firm is also preparing to raise a renminbi-denominated fund, although the exact amount is yet to be determined, according to several people familiar with the plans. HSG declined to comment.

Future Capital is raising a new fund that will invest in AI hardware groups and start-ups using AI scientific research, including drug discovery. While the final amount was yet to be determined, it was expected to be just over $200mn, said a person with knowledge of the matter. The firm declined to comment on the figure.

IDG was also planning to launch a renminbi fund, said two people, and was seeking to raise about $2bn for a growth fund this year. The firm did not respond to a request for comment.

Several investors said the renminbi funds were increasingly reliant on local government investment groups, which have deeper pockets and have not been affected by tax rises on distributions for some institutional investors.

Early backers of listed AI model developers MiniMax and Zhipu have benefited from their initial public offerings and raised new funds this year. They include MiniMax backers Yunqi Partners, Future Capital and IDG, and early Zhipu investors Qiming Venture Partners and Luminous Ventures. HSG also backed both companies.

“LPs are becoming more discerning towards Chinese managers,” said Murong Yang, partner at Future Capital. “Increasingly, they see backing a leading LLM [large language model] company — and continuing to invest with conviction before the sector became consensus — as evidence that a manager has the judgment and access to compete in the AI era.”

Felix said the initial public offering market’s revival had given investors some breathing space, even though many funds had yet to liquidate their investments and distribute returns to limited partners.

“It has supported the investment thesis that China technology companies can compete with the US, while valuations remain cheaper,” he said.

The fundraising targets are significantly lower than in the peak years of 2020 and 2021. One limited partner said they were “encouraging managers to be more focused in their investment”.

Many deep-pocketed US investors are sitting out because of Biden-era restrictions on backing sensitive Chinese technology sectors such as semiconductors and quantum computing.

While some US investors continue to commit capital to China-focused funds through structures that exclude restricted sectors, many public pension funds and large endowments that previously supported Chinese VC firms have stepped back.

At the same time, European and Middle Eastern investors have shown greater interest as they seek diversification away from US assets. But Felix said it was uncertain whether they “could fill the demand gap” left by US funds.

Several investors described the current environment as a “buyers’ market”, allowing them to negotiate more favourable terms with fund managers, such as greater rights to co-invest in future funding rounds, which help reduce management fees, and expectations that general partners commit more of their own capital.

Investors also pointed to the rise of smaller specialist funds, which are often run by one or two managers, typically raise less than $100mn and target niche areas such as robotics supply chains or AI agents.

Nebulon Ventures, a new fund targeting $60mn, is led by Yongteng Wen, formerly at Baidu Ventures. He is marketing himself as a new generation of investor, born in the 1990s, with close ties to China’s AI start-up community and positioned to invest in younger founders.

The fundraising revival comes as existing funds are still trying to deploy remaining capital raised from the boom years.

“Over the past four years, these managers have been pretty conservative and now they have a lot of capital to deploy,” said one limited partner. “Capital is competing aggressively for a limited number of high-conviction deals, especially in AI.”

Matrix Partners and Nebulon Ventures did not respond to requests for comment.