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(Bloomberg) -- China’s 5Y Capital is on track to surpass its target of raising $700 million for a closely watched venture fund, in a sign that investors are regaining confidence in the world’s biggest internet arena.
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The oversubscribed US-dollar fund has a hard cap of $800 million and is set to close early next year, according to people familiar with the matter, who asked not to be named discussing private information. Known for early bets on Chinese tech leaders like Xiaomi Corp. and Kuaishou Technology, Shanghai-based 5Y had previously put off a plan for another growth fund targeting later-stage startups, one of the people added.
A 5Y spokesperson did not respond to a request for comment.
The firm’s fundraising has been closely monitored by the investment community as a litmus test of confidence in China’s private sector. Its successful closing is likely to be hailed as a win for China’s embattled startup scene. The country’s severe Covid lockdowns, along with a regulatory crackdown on the tech sector, hurt confidence — while a trade war with Washington has made it a less appealing destination for international finance.
China has seen about $44 billion in venture deals so far this year, according to PitchBook data, down 65% from the full year in 2018. Deals involving US-based venture firms fell 95% in that period to just $2.2 billion.
The Biden administration has imposed limits on US investments in some Chinese semiconductor, quantum computing and artificial intelligence firms, pushing local startups and venture investors to look for alternative funding sources like the Middle East. Given the difficulty, venture powerhouses including Sequoia and GGV have split their Chinese and US operations to operate independently from each other.
Read more: Sequoia China Rebranding Is High Stakes Leadership Test
Last year, Sequoia China, now known as HongShan, raised $9 billion across four new funds, and Qiming Venture Partners, another leading Chinese venture firm, secured about $3.2 billion for investments in tech and health-care firms. But the deal flow has noticeably slowed down this year, after investors became wary about China’s post-Covid growth trajectory and mounting tensions between the world’s two superpowers.