VCs caught in US-China trade war: Matrix rebrands China, India units

This is the latest version of the article that was previously updated on September 22, 2023.

While temperatures between the US and China have been high, it has recently reached a sizzling point. The US government under the Biden administration has been preparing new rules to restrict investment in China, especially in the tech sector, since the beginning of last year.

The news of these investment regulations has already seen reverberations across VC and private equity firms across the world. Last year, Sequoia Capital’s decision to split the firm into three separate entities – US, China, and India – and GGV Capital split its business into two – US and Asia.

Most recently, Matrix Partners rebranded their China and India businesses to MPC and Z47, respectively, while the US business will retain the same name.

Sequoia’s decision to spin off its China business was no surprise to many as it has a higher amount of business in the country – it has US$56 billion in assets under management (AUM) in China. In comparison, it has US$53 billion AUM across both the US and Europe.

While this move got everyone talking about the impact of the ongoing US-China trade war on the startup world, several VC firms and limited partners (LPs) across the US, Europe, and Australia have already shut their operations or halted their investments in China.

Investments from the US in China-focused VC or private equity funds dropped by nearly 3x year on year to US$16.5 billion in 2022 and amounts to only US$1.2 billion so far in 2023, as per Preqin data.

According to Tech in Asia’s analysis, seven LPs and institutional investors, six VC firms, and one accelerator have either withdrawn from China or have halted investments in the country since March 2022.

In May, US-based VC firm SOSV rebranded its Chinaaccelerator and stopped investing in the country to focus on other markets.

Earlier in March, US fund Vanguard Group was reportedly exiting from the China market, which included withdrawing from its joint venture with Ant Group and shutting its Shanghai office.

Besides US investors, several Canadian and Australian pension funds have decided to leave China as well. Many of these firms are some of the biggest limited partners who contribute to VC funds.