Two Decades of RMB Funds: Between Life and Death

By Zhiyan Chen

Edited by Jing Liu

In early 1999, on Shenzhen's Huaqiangbei electronics street, inside Building 203 of the Shangbu Industrial Zone — the same aging structure where the Shenzhen Stock Exchange had been born — a small team gathered to establish China's first local venture capital fund.

This was one of the Shenzhen municipal government's top priorities on the eve of the millennium. Zhuang Xinyi, then a deputy mayor, quickly assembled a five- to six-person preparatory team drawn from the municipal science and technology bureau, planning bureau, and other departments.

A year earlier, in the 17th issue of China Economic Information magazine, editors had given their most prominent feature slot to a Harvard economist named Liu Manhong — ahead of coverage on the catastrophic 1998 floods, China's WTO accession, and economic forecasts. In an article titled "Venture Capital: The New Economic Myth of the Knowledge Age," she argued that venture capital was the "magic hand" creating economic myths and "a tremendous force for advancing technological progress and productive forces."

At this point in China, venture capital — and equity investment broadly — remained virtually uncharted territory. What little existed amounted to scattered outposts of dollar funds. Even before Sina, NetEase, and Sohu listed in the US in 2000, dollar funds had yet to fully prove that investing in China was a viable business model. Xiong Xiaoge, widely considered "China's first VC," had founded the country's first joint-venture investment firm, Shanghai Pacific Technology Ventures (later renamed IDG Capital), six years prior — and still hadn't recorded a single exit.

During the 1998 "Two Sessions," Cheng Siwei, then chairman of the China Democratic National Construction Association, submitted a proposal titled "On the Urgent Need to Develop China's Venture Capital Industry." This "Proposal No. 1" to the Chinese People's Political Consultative Conference carved out an exit path for domestic venture capital: the Growth Enterprise Market (GEM).

Acting on instructions from then-Shenzhen mayor Li Zibin, Zhuang Xinyi — himself a former general manager of the Shenzhen Stock Exchange — personally took charge of establishing the fund. From the completion of a research report in May 1999 to its official founding in August, "Shenzhen Innovation Technology Investment Co." came together in just three months at lightning speed. This was the institution that would later earn the moniker "elder brother" of China's RMB funds.

Though Shenzhen Capital Group represented the proposition that "China needs venture capital," its initial understanding of and tolerance for "risk" were limited. Bringing in Kan Zhidong — known alongside Guan Jinsheng and Wei Wenyuan as one of "the three godfathers of China's securities industry" — may have been the riskiest decision the firm made in its early years. Kan, who had led Shenyin Wanguo Securities, had been accused of "disrupting normal market order and fueling excessive speculation" through his manipulation of Shanghai local stocks, particularly Lujiazui. He ultimately left Shenyin Wanguo.

At the time, numerous deputy bureau-level officials in Shenzhen coveted the general manager position at Shenzhen Capital Group. But Kan Zhidong, with his market-oriented experience, emerged as the leadership's final choice.

Kan was the archetype of the first generation of RMB fund leaders. Most came from the securities industry, which sat adjacent to the primary market: Li Wei, chairman of Shenzhen-Hong Kong Industry-University-Research and son of renowned economist Li Yining, had previously engineered multiple "firsts" in China's securities market; Wang Yonghua, a co-founder of Tiantu Capital, had served as general manager of Southern Securities' investment banking division; Cai Dajian, founder of GTJA Healthcare, was formerly a deputy general manager at Guotai Junan Securities' investment banking department; and Zheng Weihe of Cowin Capital was a star lawyer well-known in securities circles at the time.

Fundamentally, beyond the severe talent shortage in venture capital, this reflected the simple reality that an industry born from favorable primary market exit conditions would naturally attract those positioned closest to it. As Zheng Weihe put it: "I could smell which companies were IPO-ready."

On the other hand, most RMB fund investors were local governments or state-owned enterprises. For instance, Pudong Sci-Tech, born two months before Shenzhen Capital Group, was funded by Shanghai's Pudong New Area; Shenzhen-Hong Kong Industry-University-Research was a bureau-level public institution jointly established by the Shenzhen municipal government, Peking University, and Hong Kong University of Science and Technology; and Fortunera's (Dacheng's) major shareholder was the state-listed company Hunan TV & Broadcast Intermediary. These funding lineages made fund managers instinctively risk-averse, craving stability.

This is the critical entry point for understanding RMB funds. Most observation and analysis of investment institutions focuses on "what they invested in," but "where the money came from" is actually the more decisive factor.

On Shenzhen Capital Group's founding day, Li Zibin delivered four principles on behalf of the municipal government that would shape the firm to this day: government guidance, market-oriented operation, following economic laws, and aligning with international practice. The ordering of these phrases carried weight — "government guidance" ranked first. In fact, this principle applied broadly to other early RMB funds as well.

In countless comparisons between dollar and RMB funds over the years, we have often overlooked this fundamental difference in their DNA.

American VC emerged against the backdrop of the Soviet Union's launch of Sputnik, the first artificial satellite — fundamentally a collaboration between government funding and market capital driven by demands for technological progress and leadership. But in 1999, the "birth certificate" of China's local RMB funds came almost entirely from a government "big hand": state capital injections combined with favorable exit mechanisms.

Consequently, during the decade-plus when dollar funds accumulated enormous wealth, however much RMB fund leaders expressed envy — including Fortunera's open declaration that it would "learn from Hongshan's good example" — they could never fully escape this genetically predetermined fate.

In November 2001, amid the bursting of the US internet bubble and successive scandals in China's A-share market, policymakers concluded that the stock market remained immature and needed consolidation of its main board first. The GEM plan was shelved for eight years — the very mechanism that had catalyzed the birth of China's local funds.

From this moment, local venture capitalists came to better understand that saying: individual effort matters, but you must also consider the course of history.

Cycles of Life and Death

One day in 2005, Liu Zhou, on a business trip to Beijing, received an ultimatum from Changsha: return from Shenzhen immediately.

This was Fortunera's fifth year. Though its investor, Hunan TV & Broadcast Intermediary, had been patient and tolerant of Fortunera's losses since the GEM suspension in 2001, prolonged losses inevitably bred shareholder skepticism.

Early that year, China's stock market was in deep slump. The index twice fell below 1,200, hitting a 68-month low. Over 100 stocks traded below book value, and more than 1,000 had price-to-book ratios under 2.5x. With Fortunera yet to record a single exit, Hunan TV & Broadcast Intermediary's management proposed dissolving the firm.

Liu Zhou, then at Beijing's Fragrant Hills, spent two days drafting a lengthy letter to shareholders — "Preserve the business, keep the flame alive." He hoped Hunan TV & Broadcast Intermediary and its shareholders would trust Fortunera. Fortunately, the management ultimately decided: "We'll give it one more year."

In 2002, Xiao Bing — now Fortunera's executive partner and president — joined the firm. With exits off the table, he watched colleagues leave one by one until "only a handful of people remained." The investment team was down to just two or three people still operating. Xiao Bing, who had come ready to make his mark in venture capital, ended up conducting due diligence himself, serving as project manager, making investment decisions — doing everything himself.

Fortunera, with its corporate venture capital character, wasn't even the worst off. According to Wang Shouren, executive vice president and secretary-general of the Shenzhen Venture Capital Association, local institutions had essentially only one thing to do — trade stocks. But the 2005 bear market delivered a crushing blow to RMB funds already clinging to their last lifeline. Of the nearly hundred local institutions that had once existed in Shenzhen, only about a dozen survived.

In the memories of many local venture capital pioneers, 2001–2005 marked the industry's first difficult period. But as early as 1998, China's first venture capital enterprise — China New Technology Venture Investment Corporation (Zhongchuang) — had collapsed and entered liquidation after 12 years of existence.

Zhongchuang's problem was structural: its funding came largely from bank loans, its investments lacked exit channels, and its portfolio was heavy with real estate projects — a case of "wrong time, wrong environment, wrong choices." People had believed 1998, with "Proposal No. 1," would be different. But in fact, until the STAR Market opened in 2018, the exit dilemma that hung over Zhongchuang — along with the persistent funding problem — remained suspended over all RMB funds.

Still, there were brief "small springs."

In 2006, driven by the split share structure reform that enabled full circulation, China's local venture capital recorded its first successful domestic exit — Coship Electronics. Fortunera earned 40x on this investment, more than covering its losses from the first six years. Shenzhen Capital Group's full exit yielded approximately 30x returns.

Shao Hongxia, Fortunera senior partner, later described Coship's significance to the "Shenzhen gang": "Back then, without full-circulation exits, investing felt like walking through a dark tunnel — you didn't know where the end was, or how long it would take to get out. But Coship's IPO was like a beam of light that suddenly let us see hope."

By 2009, the GEM finally launched after a decade of waiting. The following year, Cowin Capital celebrated eight portfolio company IPOs in a single breath; Shenzhen Capital Group notched 26 investment-backed IPOs, setting a world record for annual exits in the industry — a record that remains unbroken to this day.

What followed was the frenzied "PE for all" wave. Shao Bingren, chairman of the China Equity Investment Fund Association, later recalled: "From券商 direct investment and insurance institutions to banks, entrepreneurs, and private capital — everyone threw themselves into PE, scrambling for pre-IPO projects."

In Liu Zhou's memory, when evaluating a project back then, some decisions had to be made within a month or even two weeks — there was simply no time for proper due diligence. On one project Fortunera was negotiating at an 800 million yuan valuation, another local fund swooped in at several times that price.

Jiu Ding Investment was the extreme embodiment of this PE-for-all frenzy. Kang Qingshan, Jiu Ding's current chairman, told Yong Yong Waves in an interview that the so-called "Jiu Ding model" was philosophically grounded in the belief that PE investing involved far more "technical components" than "artistic components" — that it "could be standardized, processized, and replicated." The result: a constant pipeline of projects flowing in, with Jiu Ding conducting due diligence on over 800 projects in 2011 alone.

At that time, Sheng Xitai, founding partner of Hongtai Fund, had been appointed chairman of Huatai United Securities and was considered a representative figure of the securities industry's "Class of '92." He too observed this first wave of "mania" sweeping local venture capital.

"It was an era tightly bound to investment banking," he told Yong Yong Waves. Still operating within securities industry logic, fixated on pre-IPO plays, "making moves around late-stage projects."

Chen Wei, chairman and founding partner of Oriental Fortune Capital, once listed "five absurdities" of local PE, one being that the investment criterion was "IPO probability rather than growth potential."

Yet by autumn 2012, unable to withstand sustained market declines on both A and B shares, the CSRC suspended IPO review for the eighth time — an unexpected winter that would last over a year.

Originally, projects backed by the "PE for the masses" were supposed to hit their concentrated exit window between 2012 and 2014. But when that window stretched out, it directly choked off subsequent fundraising. By 2013, the entire PE industry faced a brutal reckoning — 90% of domestic PE firms were staring down insolvency or forced pivots. Some PE/VC shops, desperate to close new funds, slashed LP minimums to 3 million yuan or even lower.

The ever-expressive Chen Wei took to Weibo with feeling that August: "August skies, fallen leaves drunk, PE suffers, founders cry tired — who's gonna exit these deals? It's always the GPs in tears!"

In 2014, after more than a year in the deep freeze, IPOs restarted. The NEEQ — New Third Board — expanded nationwide. Its positioning as "serving the innovation and entrepreneurial economy of the internet era" quickly became another "lifeline" for local VC firms. Tianshi Capital, barely two years old, went all-in. Its founder, Liu Yan, had made the unlikely jump from police officer to private equity titan. He rapidly assembled a team of several hundred people and "swept" through over 400 NEEQ listings in a single year.

The raw imperative of "raise and exit" to keep living — that was the clearest motive driving VC firms to list on the NEEQ. Feng Weidong, founding partner of Tiantu Capital, put it to media at the time: "Leveraging the NEEQ will create a virtuous cycle of financing and exits."

Similarly, there was Shan Xiangshuang, perennially decked out in "yuppie" style. His veteran PE firm, Zhongke Zhaoshang, raised 10 billion yuan in the first half of 2015 alone, becoming the undisputed "king of private placements" for the moment. "List on the NEEQ, ignite the NEEQ, blow up the NEEQ private placement market," Shan thundered at a forum in late 2015. "Zhongke Zhaoshang has become the NEEQ's biggest beneficiary, and also one of its biggest contributors."

Many Jiuding Investment employees still vividly remember the summer of 2014. The firm had just completed two private placements, and brothers Wu Gang and Wu Qiang would more than once hold forth before colleagues with electric energy about their "300 billion yuan market cap" dream. That same summer, "with a few cornerstone LPs in tow, they flew on a private jet Wu Gang had chartered to Brazil to watch the World Cup."

But regulators quickly sensed trouble. In the first eleven months of 2015 alone, just 12 PE firms' cumulative fundraising accounted for nearly one-third of total NEEQ issuance. PE fundraising had become a veritable "pump" draining the market. Following the stringent "Eight Rules for Private Equity," by end of 2017 five PE firms including Zhongke Zhaoshang had vanished from the NEEQ for failing to meet rectification standards.

In the more than two decades since local venture capital's birth, despite several broad opportunities — share structure reform, the launch of the ChiNext board, NEEQ expansion, the push for a strategic emerging industries board — the RMB fund market never truly moved from "survival" to "development."

This is because every wave of China's RMB fund boom fundamentally traced back to shifts in exit channels. And the abrupt opening and slamming shut of the IPO gate produced a simple result: RMB fund expansion and contraction either hit the gas pedal or slammed the brakes.

So in local venture capital, one could observe an interesting phenomenon: at least before 2021, even in public remarks, fund titans' words always carried notes of "bitter grievance."

In 2017, Zero2IPO's Ni Zhengdong sat down Dazhen's Liu Zhou and Shenzhen Capital Group's Ni Zewang for a meal. Ni Zhengdong offered the usual pleasantries — that Sequoia, IDG, Shenzhen Capital Group, and Dazhen were always jostling for top spot on Zero2IPO's rankings. Liu Zhou responded frankly that "from a certain perspective," Dazhen remained "far behind" IDG and Hongshan in mechanism and structure.

A local firm founder stated flatly at a 2019 annual meeting: "It wasn't winter that killed RMB funds — it's that RMB is new money, USD is long money."

A saying has long circulated in investment circles: USD funds are more market-driven; RMB funds really understand policy. This contrast seems especially stark now. For instance, Shenzhen Capital Group told An Yong Waves that "whatever the country needs, that's what Shenzhen Capital Group invests in" — calling this its basic strategy. Dazhen has publicly declared it "must follow the Party, must follow policy," with the essence being to thoroughly research policy and macro direction, holding regular internal policy seminars to grasp potential impacts on investments and future development.

But viewed from another angle, this too is the result of seeking survival through years of policy whiplash. Only by being sufficiently "policy-savvy" could one secure smooth exits, spot signals and cut losses before stagnation hit, avoid the threat of annihilation.

In the embryonic years of an emerging industry, decision-makers constantly sought balance between "expecting capital to drive innovation" and "protecting retail investor interests." And this decision-making psychology, layered with the human nature of industry participants, naturally drove local VC firms into a recurring loop: favorable policy drops — firms swarm in — market goes manic — suppressive policy drops — local VCs die in droves.

Round and round, round and round.

The Wild Growth

One day in 2007, on a bus from Shaoxing to Shanghai, two young men with glasses sat dejected. They'd just returned from an unsuccessful fundraising trip — talked themselves hoarse and raised not a cent — yet were still animatedly discussing "how to actually do investing well."

The driver suddenly turned around: "This sounds interesting. How about I put in a few tens of millions?" The young men were stunned. The "driver" in their eyes turned out to be a "big boss," who indeed became one of their earliest LPs.

These two young men were Wu Gang and Huang Xiaojie, not yet 30. The PE firm they'd founded in a Beijing Wudaokou basement — "Jiuding Investment" — debuted with 17.6 million yuan in registered capital, and would become one of the most important presences in the "PE for the masses" wave.

Before this, PE in China was a "game for aristocrats," with deal-making confined to five-star hotels. But as the financial crisis hit, private enterprises' demand for equity capital grew. Meanwhile, because going public in China was so difficult, companies that did list commanded premium valuations — rapidly spawning PE firms' pre-IPO gambling "listing-oriented investing," i.e., "find a high-growth company and judge whether it can go public."

Beyond the ChiNext board bringing spring to local VC exits, another deeper shift underlay this boom: "where the money came from" began diversifying.

In June 2007, the revised Partnership Enterprise Law took effect, finally giving legal grounding to LP/GP fund structures. Grassroots forces began sprouting. The earliest individual LPs appeared. Equity investment was no longer confined to government self-funding or SOE strategic deployment — it had more diverse fundraising sources. By 2010, "PE for the masses" reached explosive heights.

In retrospect, this was the first time China's primary market expanded at scale beyond state power — a wild carnival of upstarts.

Marketized fund-of-funds also emerged at this moment. Just after New Year's 2006, the predecessor to Yuanhe Holdings — "Zhongxin Venture Capital" — arranged a meeting with China Development Bank leadership. Within two weeks, both sides jointly launched a 1 billion yuan RMB fund-of-funds: Suzhou Industrial Park Guochuang Venture Investment Co.

Wang Jipeng, senior partner at Yuanhe Chenkun, told An Yong Waves that from then on, "the earliest batch of individual investors began entering equity investment, and local VC firms started their comprehensive rise." This produced the scene above of Wu Gang and Huang Xiaojie running everywhere to raise money. Yet, tellingly, this grassroots force is still not considered truly good money to this day.

In 2009, RMB funds' fundraising and investment amounts first surpassed USD funds. By 2010, VC/PE fundraising hit 176.8 billion yuan — roughly double 2009's scale. Wang Jipeng defined 2009–2012 as: the "first golden development period" China's venture capital industry encountered.

Noah Wealth's Wang Jingbo decided in 2005 to "provide better wealth management services for high-net-worth clients," and after a 45-minute conversation with Neil Shen in 2007, secured exclusive fundraising advisory rights for Hongshan's first RMB fund. For many years after, Noah was an indispensable fundraising channel for numerous RMB funds.

Dazhen first decided to partner with Noah, formally opening marketized fundraising. But the market was still deeply immature. Shao Hongxia remembers a joke: at one fundraising event, the GP opened with "money goes to us, LPs have no decision rights" — half the room walked out. Then the GP added, "this money will probably take 5–10 years to come back" — the other half walked out.

Over a three-month fundraising period, hitting three or four dozen cities, meeting countless individual LPs. Shao Hongxia gave at least one pitch daily — "pitch to 1 person, pitch to 10 people." Dazhen's first marketized fund, originally planned at 300 million yuan, ultimately closed at 463 million.

"The more diverse the LP base, the more complex the fundraising work — but it gave me tremendous security," Dazhen's Shao Hongxia told An Yong Waves. "But so much of life is choosing between two options: what's easy now, or what's safe long-term?"

Gradually, local VC was no longer confined to Shenzhen alone, developing a nationwide multi-point flowering pattern. In 2006, Chen Wei left Shenzhen Capital Group to found Oriental Fortune Capital. In 2007, almost simultaneously with Jiuding's Beijing launch, Li Wei established Songhe Capital on the foundation of the Shenzhen-Hong Kong Industry-University-Research Institute; Xiao Shuilong left Shenzhen International Trust to found Chuang Dongfang. After 2010, Shanghai saw Yan Li and Mei Zhiming establish Zhongding, Li Quansheng and Ye Weigang establish Datai, and Li Yuhui establish Panlin. In Beijing around the same time, Wang Xiao left Baidu to found Jiuhe, and Fan Bao backed Chen Keyi to establish early-stage firm Xianfeng under Huaxing's umbrella.

But good times didn't last. With the 2012 IPO review suspension, local VC that had just warmed up plunged back into the icebox.

By late 2013, Li Yuhui and Panlin Capital reached a developmental fork in the road. Panlin's first three years were a "dream start": 17 investments, 8 A-share IPOs. But with the A-share gate closed, mid-to-late stage investing reverted to more classical forms, and Panlin's original business model looked increasingly unviable. After all-night partner meetings, Li Yuhui ultimately decided to pivot fully from PE to VC.

Almost simultaneously with Panlin's exploration of early-stage transformation, new local early-stage investment firms also began emerging. For instance, Qifu Capital, founded by Fu Zhekuan, formerly a partner and VP at Dazhen Venture Capital.

By then, Fu's early investment in Sunner Development was Dazhen's first single-project profit exceeding 1 billion yuan. At Dazhen, Fu rose from investment manager to VP, successively heading the firm's two most important regional operations — South and North China.

By 2013, Fu Zhekuan watched USD fund-driven internet waves surging through the market, with the emerging trend of internet transforming traditional industries. At the time, industrial internet hadn't entered Dazhen's field of vision, and he suddenly felt like "a battle-hardened general entering twilight years."

Fu Zhekuan, inwardly drawn to decisive, command-style investing, ultimately left the employer he'd fought for 13 years to establish an early-stage firm focused on industrial internet — voluntarily amplifying investment risk by orders of magnitude.

"What I mainly saw then was the opportunity of internet upgrading and transforming industries. Investing early, the expected exit cycle would be relatively long, expecting some changes in the A-share market or RMB outbound channels," Fu Zhekuan told An Yong Waves.

Curiously, the new fund's name came from Fu Zhekuan's experience as a father. He once noticed the words "Qifu" (启赋, literally "inspiration and endowment") printed on his daughter's milk powder can. "Isn't early-stage investing just like feeding a startup—providing the essential nutrients and nurturing their healthy growth?"

That same year, another newly established domestic firm set its sights on early-stage investing and plastered a slogan across Beijing's Startup Avenue: "Dong Zhenge de" (动真格的)—"doing it for real." Little did they know, this phrase would make its way to the ears of ZhenFund's Xu Xiaoping and Wang Qiang. At an industry forum weeks later, Wang Qiang teased the firm's founder: "Tai Ge, I hear your investment managers want to move against our Zhen?"

The "Tai Ge" Wang Qiang referred to was Sheng Xitai, who had just left the securities industry to co-found Hongtai Capital with Yu Minhong. The "doing it for real" slogan wasn't targeting ZhenFund—it meant doing institutional angel investing with real conviction and real effort.

To demonstrate they weren't dabbling, Sheng and Yu each contributed one character from their names to form the new fund. They also raised 200 million RMB for their first close from longtime friends. The LP roster glittered with names like Wang Zhongjun, Huang Nubo, and Niu Gensheng, making Hongtai the largest single RMB angel fund in China from day one.

Qifu and Hongtai arrived at precisely the right moment. While the capital markets had slammed shut one door for pre-IPO investing, they opened a window for early-stage investing for domestic newcomers.

On November 20, 2014, the "mass entrepreneurship and innovation" campaign launched, and the venture capital industry suddenly found itself swept up in wave after wave of opportunity. Serial entrepreneur Huang Mingming founded Mingshi Capital; the Chinese Academy of Sciences established CAS Star, focused on early commercialization of its own scientific achievements, recruiting Chen Hongwu, an investor with IDG VC experience, to join.

Standing at that moment and looking back at the previous 15 years of Chinese venture capital: since 1998, domestic RMB funds had been held captive by the word "exit"—scrambling for arbitrage when exits seemed possible, dying in droves when they didn't. The emergence of early-stage institutions signaled that investors were finally beginning to search for paths beyond the mad dash toward liquidity.

Some arrived at this realization passively, but at least they grasped the significance of going deep into industries.

At Dachen's tenth anniversary in 2010, when Neil Shen brought his team to visit Shenzhen, Dachen employees described Sequoia's demeanor as "extremely humble." But by 2014, Sequoia's sector-betting approach had taken shape. With over 40 portfolio companies listed at home and abroad, Neil Shen had made the global best investors list for three consecutive years, becoming China's true "godfather of venture capital."

To solve the problems before them, Dachen's team made multiple trips to Silicon Valley, the birthplace of venture capital. Xiao Bing himself led the way as the "advance party," walking alone onto Sand Hill Road.

The brief experience deeply moved Xiao Bing. He told An Yong Waves that after the Silicon Valley trip, the team quickly reached a consensus: Dachen should not pursue scale, but excellence; not size, but sustained long-term growth—"be the best, not the biggest."

Dachen began a company-wide process of "painful reflection and repeated post-mortems," eventually diagnosing the core problem: professional capabilities needed improvement, and industry understanding needed to go deeper. From 2014 onward, Dachen decided on three things: first, all future investments would be driven by industry verticals; second, investment staff would be subject to a "clean break"—no more hiring from finance or accounting backgrounds, only recruiting people with deep industry experience; third, further control over fundraising scale, expanding only after industrial capabilities were sufficient.

Similarly, in February 2014, Jiangsu Hi-Tech Venture Capital, a state-backed firm founded in 1992, launched its SOE restructuring. The spun-off Yida Capital established an industry-focused investment approach, creating eight investment divisions covering emerging and creative industries, plus twelve regional investment teams targeting advantageous industries in China's hotspot regions.

In 2015, after developing a deeper understanding of technology industries, PineVC, led by Li Wei, innovated on its development strategy. For different sub-sectors, PineVC experimented with forming more specialized funds in partnership with industry-leading enterprises and institutions.

"Around 2013, RMB funds diverged: either go earlier-stage, or do small-scale M&A restructuring, or launch industry-vertical sector funds," Wang Jipeng of Oriza Holdings told An Yong Waves. During that period, Oriza concentrated its investments in domestic firms like Tonghe Capital (predecessor to 6 Dimensions Capital) and F&G Capital. Their common characteristic mirrored Dachen's conclusion: going deep into industries.

Wang Jipeng believes that the "industry route" represents a form of self-evolution that RMB funds undertook to survive.

If one were to select the single most successful example of a domestic firm transforming from "opportunistic investing" to "industrialized investing," Eastern Bell Capital would be the paradigmatic case.

In 2010, amid the "PE for all" frenzy, as hot money flooded in, Yan Li and Mei Zhiming, co-founder and CEO of GLP, founded Eastern Bell Capital. Initially, like most others, they chased opportunities and cultivated relationships, arbitraging the spread between primary and secondary markets.

But once, to land a deal, Yan Li took his team on week-long road trips, making repeated contact through every means possible, closing distance over drinks, pushing himself to physical exhaustion. The talks seemed to be going well, but at the last moment, the founder stood him up. This made Yan Li realize that continuing this way violated his original purpose in starting a fund—and earned him no respect, created no value.

After this, Yan Li organized two full days of team discussion on whether to completely abandon the opportunistic approach and choose focus. The decision was excruciating for Eastern Bell at the time: "Keep going as before, survive—but without dignity. Focus, and we might die—but with hope of building an institution with sustained vitality and earned respect," Yan Li told An Yong Waves in a recent interview.

This was Eastern Bell's watershed moment. Ultimately, the firm put down roots in logistics—"Eastern Bell's Jinggangshan"—and gradually extended from this focused domain to its current "supply chain+" overall layout.

More than a decade later, the strategic choice of industrial focus has made Eastern Bell one of the rare domestic firms to successfully raise two USD funds. It staged a comeback story of "grassroots entrepreneurship, no state-owned or overseas background, yet winning recognition from top-tier international USD LPs."

"The decision to subtract is hard. Looking directly at life or death—that was a moment of existential stakes," Yan Li told An Yong Waves.

No "Heroes" in the Arena

On July 16, 2015, a personnel announcement exploded across venture capital circles: Jin Haitao, chairman of Shenzhen Capital Group (SCG), would officially retire. His successor would be Ni Zewang, former Party secretary of Shenzhen's Luohu District.

Eleven years earlier, Jin Haitao had been entrusted with managing SCG in a moment of crisis. Through short-term profit strategies in its first two years, SCG had grown its capital to 1.6 billion RMB—but its outstanding entrusted wealth management funds were roughly the same amount. The Shenzhen government's attitude had shifted from high hopes to viewing SCG as having "extremely serious problems." A city leader approached Jin Haitao, then deputy general manager at SEG Group, asking if he was willing to take over. Jin replied: "Very willingly."

Over eleven years, Jin Haitao led SCG to pioneer the government-guided direct investment fund model, built a nationwide fund network, and transformed SCG into a comprehensive financial investment group encompassing venture capital funds, public funds, and private placement funds. In 2015, constrained by institutional mechanisms, Jin retired at over 60, leaving the investment tower where he had worked for so many years.

His successor Ni Zewang further clarified SCG's vision: to become a world-class investment group with venture capital at its core, guided by a strategy of "specialization, diversification, platformization, and internationalization."

Rumor has it that at the handover, someone asked Ni Zewang: "What will the SCG era of Ni Zewang look like?" The former Luohu District Party secretary smiled faintly: "There will be no one's era."

Though this detail is unverifiable today, it captures something of how people perceive the role of leaders in RMB funds.

An institution is an extension of a person. In the investment industry, this is an unassailable truth.

Xiong Xiaoge, Zhou Quan, and other "veterans" shaped IDG Capital's intellectual temperament; Neil Shen's shrewdness, decisiveness, instincts, and commercial insight form the entire substrate of Hongshan. Liu Qin's philosophical bent gave rise to today's 5Y Capital. Even the temperaments of USD fund veterans live on in younger investors. The most typical example: nearly everyone attempts to draw comparisons between the "Three Musketeers" of Gaorong and IDG Capital, or between Yi Cao of Source Code and Neil Shen.

But with RMB funds, it's difficult to observe similar patterns. An Yong Waves has asked many industry practitioners: which people, which institutions, which approaches have shaped RMB funds? The answers we received largely pointed in one direction: in the world of RMB funds, the faces of core leaders are blurry, institutional personalities are hard to sketch, and investment approaches are more homogenized.

This even showed up in our reporting. Some funds insisted that interviews not be conducted under individual partners' names, but only in the institution's name. When most interviewed funds described their differentiated approaches, they couldn't escape keywords like "industry," "technology," and "specialized and innovative enterprises." When discussing fundraising and exits, they tended toward attitudes of "accepting reality" and "focusing on ourselves."

This personality convergence runs through the long narrative of RMB funds. Domestic institutions rarely have "stories" of investors and star founders meeting when unknown, appreciating each other, accompanying each other, and achieving together—narratives that USD investors have long taken for granted. The reasons trace back to RMB funds' long-standing pre-IPO investment model and limited early-stage deployment, as well as the difficulty of forming such stories when individual LP capital isn't long-term enough and government/state LP industrial guidance preferences dominate.

In December 2020, Pop Mart listed on the Hong Kong Stock Exchange. This company, missed by nearly all mainstream USD funds, could have been a moment for domestic institutions to shine. Yet among early investors, the most memorable figure was perhaps angel investor Mai Gang. His essay "The Years I Was 'Abandoned' by the VC Circle" instantly went viral.

In the history of domestic institutions' growth, there have certainly been highly individualistic leaders. But the RMB market's tides rise and fall too quickly; overly distinctive personalities and expressions don't necessarily help institutions survive longer.

Shan Xiangshuang, who once claimed to have "ignited the NEEQ," went into prolonged seclusion after China Merchants Capital was forcibly delisted in 2017. His most recent public statement came in a 2021 speech, where Shan said he concerned himself not only with immediate interests but with national and regional development trends, proposing a "three services" philosophy of serving national development strategy, industrial development, and regional economic development—making positive contributions to advancing regional economies and supporting national economic strategy.

Such "politically correct" language perhaps reinforces an ongoing reality in China's investment market. As one RMB fund investor told An Yong Waves: "When people trace the sources of capital for many RMB funds, they find massive amounts of government, central SOE, and state-owned enterprise money. Many believe that 75% to 80% of capital in the RMB market comes from government or state-owned sources."

"This money carries national missions. Before these missions, GP personal will and institutional personality simply cease to matter," this investor told An Yong Waves.

Beyond the Hype

Over the past two decades, China's investment industry has seen its share of "boy who cried wolf" stories — the coming of age of fund-of-funds, the buyout boom, and so on. This partly stems from the fact that investing is a highly lagging industry; its shifts rarely materialize overnight. The rise of RMB funds represents the extreme case of such narratives.

Since the expansion of the NEEQ at the end of 2013, almost every few years, whenever there was positive news about exits or fundraising in domestic capital markets, the thesis that "spring is coming for RMB funds" would resurface.

Today's situation is somewhat different. Especially given the multifaceted pressures on dollar funds — in fundraising, investing, and exits — RMB funds have an unprecedented sense of vindication. Add to this the constant emphasis on "specialized, refined, distinctive, and innovative" enterprises and the push for greater self-reliance in innovation, and the investment industry aligns more closely with RMB fund preferences. On the exit front, the 2019 launch of the STAR Market and the 2021 establishment of the Beijing Stock Exchange both look like "stacking buffs" for a bright RMB fund future.

So, does the future belong to the era of RMB funds?

Arriving at an answer remains difficult.

The phrase "spring for RMB funds" appeared more often in the mouths of dollar investors An Yong Waves spoke with. When we posed the question to more than ten local fund leaders, their attitude was largely: the current environment fundamentally favors RMB institutions, but whether local funds can "defeat" dollar funds remains "very hard to say."

For local VC institutions, the certain positive factor is that the former existential crisis of "difficult exits" has been fundamentally transformed. Xiao Bing of Fortune Venture Capital believes that the successive establishment of the main board, SME board, ChiNext, STAR Market, and Beijing Stock Exchange has basically formed a complete exit environment. "The probability of repeated IPO suspensions like in the past is decreasing."

But fundraising problems have not been effectively resolved. Back in 2019, a local institution declared that they "must do dollar funds" — a view widely reposted by media and resonating throughout the industry. This slightly venting statement articulated an objective reality for local RMB funds: the strong constraints on capital sources.

"The main issue is still a relative lack of market-oriented long-term LPs," Xiao Bing told An Yong Waves.

A key logic behind "dollar funds are stronger than RMB funds" has always been that dollar LPs are far more sophisticated about equity investment than RMB LPs: "less meddling, primarily seeking financial returns, more patient."

Among RMB LPs, government guidance funds often do not prioritize financial goals but rather emphasize industrial promotion, investment attraction, and political performance; financial institutions, insurance, and social security funds — recognized as "good money" — are heavily influenced by policy and regulation, with stronger inclinations to do direct investing rather than serve as LPs, and prefer top-tier funds, making it hard to benefit the entire industry; entrepreneurs and high-net-worth individuals, in volatile market environments, tend toward opportunistic investing and struggle to commit consistently.

Kang Qingshan told An Yong Waves that JD Capital had earlier expanded its fundraising coverage to high-net-worth individuals, but its core fundraising targets have now shifted to institutional investors — including insurance capital, local government funds, market-oriented fund-of-funds, family offices, listed companies, and various local industrial investment institutions.

"The primary factor affecting high-net-worth individuals' commitment is indeed the long cycle of equity investment. Second, since investing is not their main business, they are affected by other capital needs, making sustained, stable, large-scale reinvestment difficult," Kang Qingshan said. This has become even more apparent during economic downturns.

In Wang Jipeng's view, local VC institutions actually experienced a "second golden development period" around 2015-2017. The fundraising characteristics of this period were: the emergence of more local guidance funds, and local governments becoming more accustomed to using fund-based approaches to deploy capital to enterprises through VC institutions. On the other hand, driven by "mass entrepreneurship and innovation" and supply-side reform, state-owned institutions, financial institutions, and other quality investable assets entered the market.

"Another landmark event in 2015 was bank capital entering the primary market, leading to a leapfrog development," Wang Jipeng told An Yong Waves. "Yuanhe Chenkun also incorporated bank capital partnerships in its third fund-of-funds in 2016."

But soon, affected by the Asset Management Regulations, the equity investment market entered a period of sober adjustment. From 2018 onward, the phenomenon of "state advance, private retreat" in fundraising became increasingly apparent.

Multiple RMB fund investors mentioned in interviews with An Yong Waves that state-owned capital currently accounts for 70% or more of RMB LP composition. Such a fundraising structure means local VC institutions "face relatively more constraints."

Regarding future fundraising for local funds, there are optimists. Li Feng, founding partner of FreeS Fund, prefers to interpret the apparent "important role of state capital" as an intermediate state.

Founded in 2015, FreeS has always been a dual-currency fund; in recent years the RMB-to-dollar ratio has approached 10:1, with state capital exceeding 40%. In an interview with An Yong Waves, Li Feng offered this perspective: the shift of local governments from subsidies and grants to investment essentially represents a devolution of regulatory control over capital.

"Although government guidance funds currently appear to have restrictions on investment back into the locality and industry requirements, from the ultimate goal perspective, the direction should be toward reduced control," Li Feng said. "Previously, subsidies and grants were 100% government-controlled, but now with the shift to investment-based approaches, government control is actually shrinking."

In a recent interview with An Yong Waves, Sheng Xitai argued: "After the Asset Management Regulations, it will be the norm for RMB funds to have government capital with local investment requirements. Fiscal resources are always limited; GPs will certainly be expected to spend where it counts — either bringing new GDP growth, or adding to tax revenue and employment. For the next decade, not just RMB funds but dollar funds too will need to adapt to this approach, to this new era."

"For the past decade or two, dollar funds basically held absolute dominance in domestic capital markets. Now, the conversion between dollar and RMB has only just begun. If U.S.-China relations don't ease and international tensions continue to intensify, then the era of RMB fund dominance will arrive," Sheng Xitai predicted.

For the newer generation of local boutique VC firms, going earlier, more focused, and more disciplined may solve fundraising challenges.

At the end of 2021, Borchid Capital completed the first close of its second RMB fund at 500 million yuan, and exceeded its full target in Q1 2022, officially closing. Borchid continued its first fund's strategy of making founders of new consumer companies and new consumer listed companies its core LPs, taking a more flexible, fully market-oriented capital path.

Borchid emphasizes an early-stage value discovery strategy of being "first" and "lead." A review of its investment cases reveals that companies where it served as the first institutional investor, exclusively or as lead, account for over 80% of its total portfolio.

One of its founding partners, Tu Zheng, is a veteran of the local VC circle. He joined Fortune Venture Capital in 2007, and in 2013 co-founded Qifu Capital with Fu Zhekuan and others. In 2018, he and Chang Xin founded this boutique venture capital firm focused on early-stage new consumer investments.

"A fully market-oriented LP structure with no requirements for local investment, co-investment, or registration allows our team to focus more energy on investing," Tu Zheng told An Yong Waves. Entrepreneur LPs are also evolving. Unlike earlier private capital LPs who contributed less and worried more, Borchid's LPs average over 100 million yuan in commitment.

"They've basically known us for 5-10 years, or even longer. This is what builds trust. An LP structure composed of entrepreneurs or enterprises, for institutions focused on deep industry cultivation, can better provide sustained, diversified support to portfolio companies in their early and middle stages, while the relatively flexible nature of such capital is more conducive to return optimization."

Another question more directly related to investing: with dollar funds facing various difficulties, have RMB funds developed sufficient internal capabilities to win in direct competition?

On this, multiple interviewed investors believe that after years of pre-IPO-oriented investing and an opportunistic approach, RMB funds still show uneven understanding of industries and targets. Dollar funds, inheriting overseas experience plus years of practice, have developed relatively mature understanding in information technology, mobile internet, consumer, and other sectors.

"Although many RMB funds are pursuing boutique strategies, there are indeed more institutions just trying to survive," Xiao Bing believes. In hard tech, advanced manufacturing, and other fields generally considered RMB fund advantages, dollar funds won't take long to catch up. "Ambitious dollar funds won't sit idle."

Wang Yang, partner at Songhe Capital, believes that "whether they can retain good talent" is the biggest problem currently facing RMB funds. "In management philosophy, RMB funds lag behind dollar funds, and differences in income structure also create short-term income gaps."

"RMB funds are quite lively, but that doesn't mean they're healthy," Wang Yang said.

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