Sequoia closes in on two China funds

Sequoia Capital is nearing the final close on two funds for China, including a targeted $225 million early stage fund and $450 million for a growth-stage fund.

The early stage fund has raised $220 million and expects to pay nearly $50 million in salaries and fees to its officers, directors and affiliates, according to a regulatory filing. The growth fund has raised $430 million and expects nearly $97 million of its fund to go to fees.

Sequoia’s ability to get raise its China funds bucks the industry trend. With a few notable exceptions—such as Kleiner Perkins Caufield & Byers’ $360 million China fund, which closed in April—fund-raising for China-focused funds has been slow this year. For the first three months of the year, China-focused venture funds raised just $356 million, down 61% from the same quarter a year ago, when venture firms raised $904 million, according to the market research firm Zero2IPO.

Sequoia began fund-raising for its China growth fund as early as last August, a source told VCJ. It has brought on at least three investors so far: Kevin Pan, who was an investment banker with China International Capital Corp. Ltd., Glen Sun, who formerly made IT-related growth investments in China for General Atlantic, and Shauna Xie, who was previously a management consultant with the Monitor Group.

Although the Chinese growth fund is new for Sequoia, the later stage focus is not. The firm has managed a growth fund alongside its early stage funds since the late 1990s.

Its latest U.S. growth fund is flexible across deals. For example, it invested in privately held Cambridge, Mass.-based ITA Software in early 2006. The 10-year-old company, which designs airfare pricing, shopping and seat availability management software for airlines, raised $100 million from Sequoia, Battery Ventures, General Catalyst Partners and Spectrum Equity Investors.

In China this year, Sequoia invested in peer-to-peer video sharing site UUSee’s $23.5 million second round of financing in March, social networking and blog site’s $10 million second round in May and Internet advertising platform CTS Media’s $8 million second round in May, according to Thomson Financial (publisher of VCJ).

Overall, Sequoia invested $65.5 million in nine Chinese startups last year. The average deal size for China is $7.3 million, nearly 50% more than the firm’s overall average for 2006.

In addition to China, Sequoia is making a push in India, having recently raised $400 million for a growth fund there. It partnered with established Indian venture firm Westbridge Capital Partners in 2006 to create Sequoia Capital India. —Alexander Haislip