Report: China PE fund stopped in crowdfunding effort

Chinese online shopping site Taobao immediately shut down an advertisement by Phoenix Capital that was soliciting for investors in its private equity vehicle.

Taobao, the Chinese equivalent of eBay.com, has prohibited a domestic fund, Phoenix Capital Asset Management Group, from using an advertisement on its website to raise capital, according to Chinese media reports. 

The posting, which asked Taobao users to each commit a small amount of capital to a private equity fund, was said to be illegal by the site as it breached Chinese law that says private equity firms should only market funds to sophisticated investors and include less than 200 LPs in any given fund. 

The suggestion was that Phoenix was targeting the broader public (likely far over 200 people) to make commitments for as little as RMB 100 (€12; $16) to its vehicle.

“Taobao shut it down almost immediately,” said Yansong Wang, managing director at China First Capital. 

Phoenix’s plea for capital comes as private equity firms across China struggle to raise capital. Wang said, “This is probably the first private equity firm to open a Taobao store to raise money, but clearly a lot of private equity firms are pulling out hairs trying to figure how they can raise money.”

RMB and US dollar funds alike have seen a decline in fundraising. RMB 39.4 billion (€4.8 billion; $6.3 billion) was raised in China during 2012, according to Private Equity International’s Research & Analytics division, a 50 percent drop from the RMB 79 billion raised in 2011. 

PEI data showed a total of $5.8 billion was raised in US dollars for China during 2012, a 58 percent decrease on the $13.8 billion raised in the currency during 2011.

“It is very hard if not impossible right now to raise funds in China so [GPs] are trying anything they can think of,” Wang continued. “[Large] funds that have established track records and solid relationships with sophisticated, mature LPs [find it] relatively easier to raise funds.”

However, as China’s growth slows and exits remain stalled for many private equity funds, a lot of LPs are more cautiously allocating their money, leaving many smaller, local funds unable to raise new capital.

“It is hard to exit [in China right now], which makes things even worse,” Wang said. “LPs see that previous funds are still stuck with their [portfolio companies] so think, ‘why should I give you more money?’”