Venture Firm That Made $30 Billion on Chinese Video App Plans New Fund

5Y Capital, the venture firm that delivered a $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 $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 Corp. Founded by Richard Liu and Ken Shi, 5Y Capital has also invested in Agora Inc., the Chinese company that is said to power the breakout social networking app Clubhouse.

Formerly known as Morningside Venture Capital, 5Y Capital was a spinoff 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 $3 billion of assets for sovereign wealth funds, family offices, university endowments and pensions, according to its LinkedIn page.

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 Liu’s investment managers spotted an app that focused on sharing GIFs, the precursor to Kuaishou. The fund invested 2 million yuan ($310,000) for a 20% 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,” Liu said in a speech last year. He and the fund declined to be interviewed for this story.

5Y Capital holds a 16.59% stake in Kuaishou, which is now worth about $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 Ltd., which is now a $23 billion company, according to 5Y Capital’s website.

Portfolio companiesCompany value
Xiaomi$94 bln
Keep$2 bln
WeDoctor$5.5 bln
Agora$10 bln
SenseTime$7.5 bln
Xiaopeng$34 bln
Trip.com$22.6 bln

Source: Bloomberg, CB Insights

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. 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, Liu said in last year’s speech.

©2021 Bloomberg L.P.

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