HONG KONG (Reuters) - U.S. venture capital giant Sequoia Capital has invested over a third of the cash in its two China funds and expects more deals to happen this year, even though many of its peers remain on the sidelines.
A top dealmaker for Sequoia Capital in China said on Wednesday that the group expects more China deals in 2009 for its growth fund as valuations become more reasonable.
Over a third of the funds — Sequoia Capital China II ($250 million) and Sequoia China Growth I ($500 million), both launched in May 2007 — have been invested, Neil Shen, Sequoia Capital China founding partner, told the Reuters Private Equity and Hedge Funds Summit.
“I think things will be better in the next 12 months and I do believe valuation is getting more and more reasonable so probably the next 12 months should be a very interesting period for us to find growth opportunities,” Shen told the Reuters Summit.
Its first $250 million China fund launched in 2005 was fully invested before Sequoia Capital China launched the other two funds in 2007.
He also noted that Silicon Valley-based Sequoia Capital will focus on consumer-driven sectors in China this year to share in the growth of domestic consumption with Beijing’s policy support.
“We like to invest in the themes around the increasing spending in China. No matter it is an Internet company or an education company, it is all playing that time,” said Shen.
Shen said he made seven deals in 2008 for Sequoia Capital China II, a venture capital fund targeting start-up enterprises, and only two deals last year for Sequoia China Growth I, its growth fund targeting companies that are already profitable.
For its growth fund, Shen said it typically targets deals of around $20 million.
Sequoia, which has over 50 portfolio companies in China, is also likely to benefit from more attractive valuations in 2009.
On Wednesday, Shen said he felt fortunate that some deals were not completed in 2008, mainly as a result of valuation differences between his team and the entrepreneurs involved, but thought the situation had improved.
“Valuations have been down a lot from early last year but people are still waiting to see whether this is a sustained level or this is just a short-term situation,” said Shen.
“I think now we have better chance to have deals to happen,” he added.
On Wall Street, Shen is 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 in 2005.
“For venture capital, we know there are always sort of risk factors associated with any young organization. To some extent, you have to be in nature of being optimistic,” he said.
“You know there will be always some risks and you have to live with that,” he said.
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 few years, depending on the market environment.
“I believe this period of time provides good opportunities because two years ago, you won’t be surprised to see many companies in China that give you 50 percent year-on-year growth,” said Shen.
“But today, you won’t see the same case so it may be easier for you to identify the real winner or competitive players.”
Editing by Simon Jessop