(Adds sources' comments, partner background and Carlyle lawsuit)
By George Chen
HONG KONG, Feb 2 (Reuters) - Zhang Fan, one of the founding partners of the Chinese arm of Silicon Valley-based Sequoia Capital, said on Monday he had resigned due to personal reasons.
Sequoia Capital, one of the most influential venture capital firms in the world, has faced challenges lately in China after aggressive investment expansions in the past few years.
Shen Nanpeng, also known as Neil Shen, who set up Sequoia Capital China with Zhang in 2005, remains founding partner of the firm, but is now embroiled in a lawsuit launched by U.S. firm Carlyle Group [CYL.UL], according to legal documents seen by Reuters.
Carlyle is seeking $206 million in damages from Shen, alleging he illegally thwarted Carlyle's planned deal in a Chinese medical research firm, according to the lawsuit filed with a Hong Kong court in December.
Lawsuits between private capital investors are rare in Asia.
Zhang resigned from the firm late last year and planned to pursue new opportunities, he told Reuters when reached by telephone.
Two industry sources close to Zhang said he may launch his own investment fund with a focus on China deals, but Zhang said it was too early to decide on a specific plan for the future.
Beijing-based Asia Media Co, one of Sequoia Capital's early deals in China that was led by Zhang, was forced to delist from the Tokyo Stock Exchange in September after its founder and former top boss resigned, saying he had misallocated capital from the company.
The delisting attracted a lot of media attention at the time in both Japan and China, as the digital TV guide service provider was the first Chinese firm to list in Tokyo.
Sequoia Capital China confirmed Zhang's departure but declined to comment on Shen's case.
Shen and Zhang are often described by Chinese media as the country's best-known venture capitalists, having helped Sequoia Capital to raise a combined $1 billion for three U.S. dollar-denominated China funds and 1 billion yuan for a local currency yuan-denominated investment fund.
On Wall Street, Shen is also well known for two Nasdaq-listed Chinese firms -- Ctrip.com (CTRP.O) and Home Inns & Hotels Management Inc HMIN.O. Both were founded by Shen before he set up Sequoia Capital China with Zhang.
"Before Shen and Zhang, very few people in China knew what Sequoia Capital was," said one industry source.
"They were really early birds. When they came to China to set up the fund, very few people could even understand how venture capital worked," he added.
Prior to Sequoia Capital, Zhang worked at DFJ ePlanet Ventures, where he served on the boards of Baidu Inc (BIDU.O) and KongZhong Corp KONG.O and also led the investment in Focus Media Holding Ltd FMCN.O.
Some of its portfolio firms are already listed, for example, Renhe Commercial Holdings Co Ltd (1387.HK), a Chinese developer, while some other technology related portfolio firms expect to list in the next fews years, depending on the market environment.
Editing by Ken Wills