Venture firm that made US$30b on Chinese video app plans new fund

[HONG KONG] 5Y Capital, the venture firm that delivered a US$30 billion return on its investment in Chinese short-video app Kuaishou, is seeking to raise another fund to bet on a new generation of startups, according to people familiar with the matter.

One of the earliest investors in Kuaishou, 5Y Capital is planning to raise at least US$1 billion, the people said, asking not to be named because the matter is private. A representative for the firm declined to comment.

Before its Kuaishou windfall, 5Y Capital was best known for generating an 866-fold gain from its bet on smartphone maker Xiaomi. Founded by Richard Liu and Ken Shi, 5Y Capital has also invested in Agora, the Chinese company that is said to power the breakout social networking app Clubhouse.

Formerly known as Morningside Venture Capital, 5Y Capital was a spin-off from Hong Kong property mogul Ronnie Chan's Morningside Group. The fund renamed itself last year after a Shanghai street known as Wu Yuan where it started operations about 13 years ago. It manages about US$3 billion of assets for sovereign wealth funds, family offices, university endowments and pensions, according to its LinkedIn page.

Mr Liu's early career included a stint in IT maintenance at a state-owned steel factory in the 1990s. He joined Morningside in 2000 after receiving a degree from China Europe International Business School.

GREAT EXPERIMENT

Around 2011, one of Mr Liu's investment managers spotted an app that focused on sharing GIFs, the precursor to Kuaishou. The fund invested two million yuan (S$411,500) for a 20 per cent stake the following year. 5Y Capital also helped Kuaishou's creator find a chief executive officer to focus on business operations.

"I am still thrilled that we were able to take part in this great experiment so early on," Mr Liu said in a speech last year. He and the fund declined to be interviewed for this story.

5Y Capital holds a 16.59 per cent stake in Kuaishou, which is now worth about US$35 billion after the shares more than tripled since listing on the Hong Kong stock exchange earlier this month.

Other 5Y Capital investments include Musical.ly, which was sold to TikTok's owner, and Trip.com Group, which is now a US$23 billion company, according to 5Y Capital's website.

5Y Capital has faced setbacks in some of its investments, especially in ride hailing. Even though it made early bets in the sector, 5Y backed Yongche and a smaller company that was acquired by Didi Chuxing, instead of the bigger startup.

Mr Liu, a proponent of value investing, said in an interview in 2017 that he had to adjust his strategies in light of the "burn-cash-to-win-market-share" mentality prevalent in China in previous years.

For new areas of growth, 5Y Capital is investing in cloud computing, artificial intelligence, semiconductors and bio-pharma companies, Mr Liu said in last year's speech.

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