Source | Pencil Road
Author | Pencil Road, Huang Xiaogui
Edited by LeadPencil Dao and Zou Wei
Original title: The angel investor behind Zhang Yiming is exiting: a 15,000x return
The angel investor behind Zhang Yiming is exiting China’s VC market.
According to relevant reports, the U.S. financial group SIG is gradually scaling down its China venture capital team (SIG Asia).
Carrie Gong, who has served as Managing Director for China operations for nearly two decades, is expected to depart and launch a new fund targeting at least $100 million in fundraising, with SIG potentially becoming an investor. SIG Asia will retain only a small number of staff to manage its remaining unexited investments.
The most important investment by Hillhouse Asia is undoubtedly ByteDance.
In 2012, when Zhang Yiming was preparing to found ByteDance, Hillhouse Capital was among the first institutions to invest in him. The initial investment was just $80,000; thereafter, it continued to add capital and participated in ByteDance’s $5 million funding round in its founding year. By 2024, Hillhouse Capital was reported to still hold approximately 15% of ByteDance’s shares, making it one of the company’s most important external shareholders.
This may be the most profitable early investment in Chinese venture capital history: according to the latest valuation, Hillhouse Capital’s stake has a paper value exceeding $90 billion, delivering a 15,000-fold return.
Now, Hillhouse Capital, which holds these assets, has decided not to seek the next Zhang Yiming.
It's not just about investing in ByteDance
Sequoia Asia has always seemed a bit of an outlier in China.
The SIG behind it stands for Susquehanna International Group, headquartered in Bala Cynwyd, just outside Philadelphia, Pennsylvania, USA. SIG’s core business is not venture capital, but quantitative trading, options market making, and securities trading.
In 1987, Jeff Yass and several college friends who loved math and poker co-founded SIG. The company still uses poker as a key tool for training traders. New hires spend significant time playing cards during training, learning how to assess probabilities, manage positions, and accept that their judgments may be wrong—even with incomplete information.
Haitong International Group has a deep poker culture.
This way of thinking has also entered Sequoia Capital.
Traditional VCs typically raise funds first from pension funds, university endowments, sovereign wealth funds, and family offices, then invest and exit over a fund cycle of about ten years. Fund managers earn management fees and performance carry, while also regularly reporting performance to external LPs.
Sequoia Asia has primarily used the partners' own money.
This means it faces less pressure to raise funds and isn’t forced to sell a still-growing company just because a fund is about to expire. If the project is strong enough, it can hold it long-term; even if the industry fluctuates, it can continue investing. ByteDance later became one of the world’s most valuable private tech companies, revealing the full importance of this funding structure.
To some extent, Hillhouse Asia functions more like a long-term trading account that SIG has opened in China, rather than a standardized venture capital fund.
Gong Ting is not a typical celebrity investor.
He earned his bachelor’s degree in Applied Physics from Shanghai Jiao Tong University (graduated in 1984), followed by a Ph.D. in Electrical Engineering from Princeton University. He has served as an assistant professor and researcher at the University of Rochester, and has experience in real estate investment, corporate management, and angel investing. He also founded the unified communications company Hotvoice, though the venture ultimately did not succeed.
In January 2006, Gong Ting joined Hillhouse Capital and has since long been responsible for its China operations. Prior to this, he had been an entrepreneur, professor, advisor, and investor. Compared to younger investors who came up through investment banks or consulting firms, he has a deeper understanding of how startups fail.
In his early years, Gong Ting rarely set strict industry boundaries for Sequoia Capital China. He explicitly stated that Sequoia Capital China dislikes “herding” and avoids competing for deals. As long as they could participate in China’s market growth, industries such as food and beverage, car rental, healthcare services, and the internet were all potential investment targets. Rather than betting on a single sector, Sequoia Capital China places greater emphasis on whether a company is still undervalued by capital, whether the entrepreneur is worthy of long-term trust, and whether the business, once validated, can sustain ongoing investment and be held over the long term.
Today, Hillhouse Capital has invested in over 350 companies, with cumulative investments exceeding $3.5 billion. Public portfolio companies include ByteDance, Home Inn, Xiangcunji, Bona Film Group, Damai.cn, Himalaya, Agora, QuestionPro, Flash Express, Genomics Health, and Musical.ly.
SIG even invested in Musical.ly. In 2017, ByteDance acquired Musical.ly and subsequently integrated it with TikTok. This means SIG not only bet on the information distribution platform that later swept through China, but also correctly identified the most crucial piece in TikTok’s globalization journey.
Admit that you don’t understand
The most famous prop in the story of investing in ByteDance is a napkin.
In 2007, Hillhouse Capital invested in KuXun, and Managing Director Wang Qiong was sent to the company as the investment representative. At the time, Zhang Yiming, aged 24, was chairman of KuXun’s Technology Committee. Thereafter, Wang Qiong continued to follow Zhang Yiming’s progress. In 2009, Hillhouse Capital further invested in JiuJiuFang, a spin-off from KuXun’s real estate search business, and supported Zhang Yiming in leading this project.
Jiujiu Fang did not become a large company, but Zhang Yiming left a credit record.
After the 2012 Spring Festival, Zhang Yiming met Wang Qiong at a café near Zhichun Road in Beijing. He did not bring a complete business plan, but instead sketched a product prototype on a napkin: continuously recommending personalized content based on user interests.
That became the basic logic behind Toutiao later on.
Public reports vary in their estimates of SIG's early investment amount. Some reports state an initial investment of $80,000, followed by an additional $2 million several months later; others claim the total early investment amounted to approximately $5 to $6 million. A consistent point across reports is that SIG was ByteDance's earliest major institutional supporter, with Gong Ting and Wang Qiong serving as the primary drivers of this investment.
But a napkin is just an easily spread story.
The real challenge of this investment is not understanding recommendation algorithms in a café, but getting a large financial group to trust the local team’s long-term accumulation of non-standard information.
Zhang Yiming did not have a polished resume or a meticulously crafted business plan. Toutiao was not initially an easy business to explain—news content involved copyright issues, the advertising model had not been proven, and the mobile internet was still in its early stages, with companies like Baidu, Tencent, and Sina already controlling major traffic channels.
It was possible to invest because Wang Qiong had observed Zhang Yiming for many years. She knew how he managed products and how he handled the failure of Jiujifang. Gong Ting, as the head of China operations, was willing to provide organizational support for this judgment.
In other words, Hillhouse Asia’s advantage is not that its headquarters understands the Chinese internet better than others.
On the contrary, its strength lies in the headquarters acknowledging what it doesn’t know and granting sufficient decision-making authority to those who live, work, and build relationships in China.
Gong Ting's role was not to personally discover every project.
His more important capability is establishing a mechanism that allows frontline investors to make non-consensus judgments. The core of an excellent investment firm is not having every transaction approved personally by the most famous partners, but empowering those who truly possess the information to take positions.
In conversations with pencildao and some investors, those familiar with Gong Ting describe him as a "big brother" who looks after young people like a mentor.
And Gong Ting himself has long maintained a low profile.
During the most vibrant era of Chinese venture capital, many investors turned themselves into public figures through speeches, social media, and public debates. Gong Ting rarely appeared in the spotlight. He has stated that investors should be "unsung heroes" and believes that venture capital is better suited as a career stage later in life, as investing requires the cumulative experience gained from entrepreneurship, management, and failure.
This low profile sometimes causes outsiders to underestimate his role.
New phase of USD investment
SIG shutting down its venture capital team in China does not equate to a complete exit from China.
According to relevant media reports, SIG will retain a small team to continue managing equity assets that have not yet been exited, such as those in ByteDance. At the same time, SIG continues to expand its securities trading and market-making businesses in China. The teams primarily shut down were those focused on identifying startups, negotiating financing terms, and making new equity investments.
In 2026, China’s venture capital market is actually rebounding.
According to relevant industry data, from January to May 2026, venture capital and private equity investments in China reached RMB 620 billion, an increase of nearly 60% year-over-year; during the same period, the scale of newly registered venture capital funds reached RMB 154 billion, exceeding the total for all of 2025. Artificial intelligence, robotics, quantum technology, the low-altitude economy, and advanced manufacturing are attracting substantial funding.
The problem is that the money returning today is not the same kind of money that SIG brought into China.
Around 2005, the classic model of U.S. venture capital was very clear: raise U.S. dollars from U.S. or global LPs, identify internet startups in China, set up offshore structures, and ultimately list on Wall Street or in Hong Kong. China provided entrepreneurs, engineers, and markets, while the U.S. provided capital and exit channels.
Each link in this chain has now become more complex.
In 2024, China's VC investment amounted to $40.2 billion, a 36.7% year-over-year decline. By early 2025 and 2026, technology investment from the U.S. continued to decline, while the RMB market became increasingly reliant on state-owned capital, government-guided funds, and industrial capital.
The regulatory boundaries have also changed.
The U.S. Department of the Treasury’s foreign investment security rules took effect in January 2025, imposing prohibitions or reporting requirements on U.S. persons investing in certain Chinese semiconductor, quantum information, and artificial intelligence projects.
The most popular entrepreneurial directions in China today are precisely AI, chips, robotics, and advanced manufacturing; and these sectors are also the ones with the highest compliance costs for U.S. investment institutions.
The old cross-border VC structure, where a U.S.-based headquarters managed branding, dollar-denominated funds, and global returns, while a Chinese team sourced local projects, is being dismantled—Sequoia, GGV, and others have completed the separation of their old and new brands.
This may also be a preview of the next phase for Chinese USD VCs: large multinational institutions gradually scaling back their direct operations, while local investors, leveraging their accumulated brand, relationships, and track records, strike out on their own to raise smaller, more flexible, and more diversified funds.
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