Ex-Carlyle China head-led Silicon Harbour closes debut RMB fund at $157m

(Left to right) Silicon Harbour Capital's partner Jenny Jiang, founding partner Sean He, and partner Stone Shi. Source: Silicon Harbour Capital

Silicon Harbour Capital, an investment firm founded by ex-Carlyle Group’s China head, has closed its maiden Chinese yuan fund at nearly 1 billion yuan ($156.8 million), far exceeding the initial fundraising target despite challenges in raising first-time funds amid the pandemic hit.

Shanghai-headquartered Silicon Harbour attracted capital commitments from limited partners (LPs) including Tsinghua Holdings’ fund of funds (FOF) Redbud Capital, and a 50-billion-yuan ($7.8 billion) FOF platform set up by Chinese securities firm Guotai Junan Securities. Its investors also include family offices, enterprises, and entrepreneurs.

The billion-yuan fund is the first for Silicon Harbour after Sean He, who previously served as a global partner at US private equity giant Carlyle Group and alternative investment firm Ares Management Group, departed to launch the venture in February 2019.

“My motivation in raising my own fund is that I do believe that the technology sector should be a main investment focus in the next decade or so,” said He in an interview call with DealStreetAsia on Thursday.

“The most important investment period… is when infrastructure technologies, such as the Internet and mobile Internet, are updated and expanded across markets with wider adoption,” said He. “The rise of companies from Yahoo, Google, and Facebook to Alibaba and Amazon, as well as [the evolvement of] infrastructure technologies from 3G to 5G lead business sectors to a phase where they can adopt new tech to compete with bigger incumbents across traditional sectors.”

As a first-time fund, Silicon Harbour succeeded in its debut fundraising attempt and roped in more capital commitments than its initially targeted size of 500-600 million yuan ($78.4-$94.1 million).

But across the Chinese market, fund managers are facing heightened competition in their efforts to win over risk-averse LPs. Data from Chinese PE-VC industry researcher Zero2IPO Research shows that a total of 1,941 funds were closed in the country in the first half of 2021, representing an increase of 58.2% over the same period last year. These new funds collectively raked in 454.8 billion yuan ($71.3 billion), up only 6.9% year-on-year.

At the same time, the number of newly-raised small-sized funds with capital commitments of less than 50 million yuan ($7.8 million) crossed 800 in China, double that of last year.

It took “a lot of trust” for LPs to make commitments to a blind-pool, first-time fund, said He.

USD fund ‘always on agenda’

While Silicon Harbour is now focused on deals in China, He expressed his concerns over potentially missing out on good investment opportunities that require US dollars funding.

“Some investment targets are domiciled outside of mainland China, in places such as the Cayman Islands or Hong Kong. They have extensive tech knowledge, innovation capabilities, and businesses associated with China’s manufacturing network or the country’s massive consumer market,” said He.

He revealed that it has always been on his agenda to raise a US dollar fund for Silicon Harbour, especially with his decades of experience in managing USD-denominated investments.

Before founding Silicon Harbour, this former China head of Carlyle’s growth capital investment team had departed in 2010 after 10 years’ working with the firm. He then joined Ares Management later that year to lead its growth-stage investments in Asia.

“Because of the COVID-19, a majority of US dollar LPs are reluctant to accept new GPs… They are re-upping in their existing GP partners. I want to have a US dollar fund as well, but the pandemic has made it hard for me to travel [outside of China],” said He. “It was easier to get in touch with potential LPs managing local currency.”

Silicon Harbour has already made 16 investments through the maiden RMB fund since it started investing in 2020. It currently focuses on early- and growth-stage startups across the fields of 5G, artificial intelligence (AI), semiconductor, big data, Internet of Things (IoT), and other tech sectors in China.

The company has invested in startups like Yunxi Technology, a Tencent-backed digital marketing solutions provider that just closed nearly $100 million in a Series D round in October. It has also backed chip design firm Huatech Semiconductor, auto-grade chip manufacturer ChipON, and Xiaoduo Technology, a Tencent-backed startup that develops AI-enabled customer services robots.

For its debut RMB fund, Silicon Harbour is expected to deploy about half of the fund by the end of 2021. With that, it could potentially kick off the fundraising work for its second RMB fund as early as H2 2022.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.