SAIF Raises China’s Largest VC Fund

Hong Kong-based SAIF Partners has raised $643 million, the largest fund ever raised by a domestic Chinese venture firm, PE Week has learned.

Andrew Tan, president and managing director of the firm, told PE Week that the fund closed on June 29. It will make growth and late stage investments in IT and media companies, with investments ranging from $10 million to $40 million each. Tan expects the fund to back between 25 to 30 portfolio companies. SAIF’s fund has already made seven investments, but Tan wouldn’t disclose their identities.

The firm, previously called Softbank Asia Infrastructure Capital, was managed by Softbank Asia and had one limited partner – San Jose, Calif.-based networking systems maker Cisco Systems. Today, SAIF is owned by the eight GPs in the fund and is independent of Softbank. And while Cisco remains the largest LP in the new fund, having contributed $250 million, SAIF II has added a number of top tier LPs, including: Softbank, Princeton University, Rockefeller Foundation, The MacArthur Foundation, Carnegie Mellon University, Horsley Bridge, The Common Fund and JP Morgan among others.

Tan says the firm was able to raise so much money because of the quality of the firm’s team, most of whom have been at the firm since 2001.

Plus, the track record of the firm’s first fund helped in the latest fund-raising efforts.

“Several of our LPs have told us that our first fund was number one in the world in annualized IRR for an ’01 vintage fund and also number one in terms of the capital it has returned, again, for an ’01 vintage fund,” Tan says.

According to Tan, SBAIF I is fully committed and has already returned $560 million from the $400 million invested in that fund. He adds that $80 million of the fund has yet to be drawn for existing commitments. Among the highlights in those returns was the an investment in one of the most successful IPOs last year – Shanda Interactive (Nasdaq:SNDA). SAIF was the sole investor in Shanda’s $40 million round in 2003.

The Shanghai-based online gaming company raised $150 million in an IPO in May 2004. Tan says the firm, which owned 25% of Shanda, exited from its investment in January and returned “14X our original investment.”

As for raising its latest fund, Tan says that the firm spent the last six months visiting with LPs, telling them about Shanda and demonstrating the firm’s track record. The result, he says, is the that the current fund was heavily oversubscribed.

“We cut the fund off at $643 million because we really couldn’t raise any more without changing our investment strategy,” he says.

In related news, SAIF co-founder Eric Hsia is leaving the firm. He continues to maintain an office in SAIF’s Palo Alto, Calif. headquarters, and has not disclosed details about his future plans, except that they will involve private equity.