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One tech VC is increasingly bullish on China

A Vipshop banner and Chinese flag hang outside the New York Stock Exchange.
Mark Lyon | Flickr
A Vipshop banner and Chinese flag hang outside the New York Stock Exchange.

It's been a wild year for China's tech companies. But one venture firm is more bullish than ever.

DCM, a 20-year-old firm with operations in Beijing, Tokyo and Silicon Valley, is aiming to raise $400 million for a China-focused fund, which would be 21 percent bigger than its previous fund from early 2014. The filing was registered with the SEC on Friday.

Investing in Chinese start-ups has proven challenging for U.S. venture capitalists, with firms like Kleiner Perkins Caufield & Byers struggling to replicate their domestic success. Yet DCM's wins in China have so far outstripped the firm's performance in the U.S. that it's using the name DCM China Ventures Fund.

Chinese stocks

Not including this fund — DCM's eighth — the firm has over $2.8 billion under management. A DCM representative acknowledged the filing but said, "We can't provide any comment on current or future fundraising efforts."

While volatility is an inherent characteristic of Chinese investing, 2015 has seen particularly violent swings.

The Shanghai composite index surged in the first six months of the year, then plunged 43 over the next two months and has since rallied. Ultimately, the index is up about 10 percent in 2015, compared with the S&P 500's 2.7 percent drop.

Alibaba, the Chinese e-commerce leader, has tumbled 25 percent and search engine Baidu has dropped 17 percent, while social Web giant Tencent has soared 35 percent. Alibaba and Baidu are listed in the U.S. as are many of DCM's companies.

Of course, venture firms invest in companies long before they go public so start-up activity doesn't necessarily follow the stock market.

There's no doubting China's long-term potential. While the country's growth is slowing, it's still projected to be 6.2 percent by 2017, according to the Organization for Economic Cooperation and Development. There are 1.3 billion mobile phones in use in China, quadruple the number as the U.S., according to CIA data.

DCM has invested in 54 Chinese start-ups and has an eight-person team focused on China, according to its website. The companies that have gone public include 51job, a provider of human resources software, Bitauto Holdings, which provides marketing services for China's auto industry, e-retailer VipShop Holdings and Internet portal Renren.