Dollar funds driving China VC charge

After years of stagnancy, a new round of fundraising among US dollar-denominated funds is taking shape in China, aiming to tap into the structural opportunities generated by emerging technologies and consumption recovery, said experts.

At least six of China's well-established venture capital firms are raising more than $2 billion of new US dollar-denominated funds, through which overseas investors can tap into Chinese enterprises specializing in new technologies and discretionary consumption, Bloomberg reported on Friday.

LightSpeed China Partners, known for its investment in local commerce platform Meituan and online discounter PDD Holdings, is reportedly raising at least $400 million for a technology-focused fund. Monolith Management, which backs MoonShot AI, is looking to start a second fund of at least $265 million. Other prominent VCs part of this fundraising wave include BA Capital, Ince Capital and Source Code Capital. Artificial intelligence and consumption are the two major sectors that the new financing will be directed toward, Bloomberg said.

This is in contrast to the financing contraction that dollar-denominated funds have confronted in China over the past few years. As market consultancy Zero2IPO Group discovered, financing of dollar-denominated funds has been declining steadily since 2021. While taking up nearly 14 percent of total market fundraising in 2021, dollar-denominated funds only accounted for 1.3 percent of all the financing during the first quarter this year.

Foreign investors' reevaluation of China assets, prompted by the rising competitiveness of Chinese AI companies amid the worldwide wave of AI advances and upgrading AI technologies, is one major reason for the resurgence of dollar-denominated funds. Market confidence will be elevated, ushering in new round of "historic opportunities", said Zero2IPO experts.

The Bloomberg story pointed out that jewelry maker Laopu Gold Co and Pop Mart — maker of the wildly popular Labubu collectibles — are attracting global financiers' attention.

The resurgence is also being spurred on by regulatory support. According to the action plan released in February to stabilize foreign investment in 2025, foreign investors are encouraged to conduct equity investment in China. Foreign investment companies are allowed to make equity investment with loans obtained onshore.

Rising market activity in Hong Kong has also helped to boost the resurgence of new rounds of fundraising.

Med-Fine Capital, a Shanghai-based VC firm focusing on early-stage healthcare and life sciences investments, announced in June that it has completed fundraising of a new US dollar fund. Apart from confidence in the country's increasing competitiveness in innovative drugs, the company explained in a public circular that recovery of the Hong Kong capital market has served as another reason for the VC's recent fundraising drive, which is expected to bring in long-term and satisfactory returns.

According to professional services provider EY, about 40 companies completed their initial public offerings on the Hong Kong bourse in the first half. Their total financing was tops among all the world's exchanges to come in at around $14 billion, which was nearly 24 percent of all IPO proceeds raised globally during the same period.

At least 212 VCs and private equity firms have invested in these debuts in Hong Kong so far this year, up from 133 during the same period of 2024, said market information provider Zerone.