China-based VC investor Source Code Capital is looking to raise USD 300m for an early-stage fund led by a younger partner as the firm’s founder, Yi Cao, scales back his involvement in day-to-day operations, according to two sources familiar with the situation.

The new fund, Source Code Venture Fund VI, will also be known by a Chinese name that translates into English as Source Code Rhythm. The strategy will focus on Series A investments in artificial intelligence applications in software and robotics and in businesses that can expand overseas or generate significant revenue from international markets, the first source said.

Fund VI will be invested by relatively small team under the leadership of Yungang Huang, who joined the firm from Matrix Partners China in 2017. At Source Code, he has led investments in Relx Technology, an e-cigarette business that listed in the US, machine vision and robotics specialist XYZ Robotics, colour contact lens brand Moody, and synthetic biology start-up Bota.

Cao – who established Source Code in 2014 after stints at Sequoia Capital China (now HongShan) and Ceyuan Ventures – will continue to oversee existing funds and participate in portfolio management and exits, according to Chinese media.

These shifts within the team follow a string of departures from the firm, which had a headcount of approximately 120 in 2021. Last year, seven people at vice president level or above left, including Jireh Li, a partner who headed the investor relations function, according to slides in a presentation deck shown to AVCJ.

A Source Code spokesperson confirmed Li’s departure and said that the firm now employs around 100 people. The spokesperson declined to comment further when asked about the new fund.

Source Code has about CNY 35bn (USD 4.82bn) in assets under management across US dollar-denominated and renminbi funds. Its LP base includes government guidance funds, financial institutions, fund-of-funds, corporates, sovereign wealth funds, endowments and foundations, and pension plans, according to the firm’s website.

The last set of US dollar funds closed in 2021 on USD 1bn. This included USD 420m for Source Code Venture Fund V and USD 580m for Source Code Growth Fund II. The institutional hard cap was set at USD 950m, with the GP commitment making up the difference. In its previous vintage, in 2019, the firm secured USD 300m and USD 270m for venture and growth funds, respectively.

Source Code established a seed strategy – called Yisu – in 2022 under the leadership of Xinchen Zhang, one of the managing partners. The firm had also raised five renminbi funds as of 2021. The most recent vintage came in at CNY 7bn, nearly twice the size of its predecessor.

The overall portfolio has featured more than 300 companies to date, including Douyin and TikTok owner ByteDance, consumer services platform Meituan, online real estate brokerage Ke Holdings, and electric vehicle manufacturer Li Auto.

China-based managers have encountered significant challenges in fundraising, with commitments to US dollar vehicles reaching USD 13.7bn in 2023, compared to an average of USD 29.9bn for the prior five years, according to AVCJ Research.

Venture capital firms that previously added growth vehicles to core early-stage offerings are now scaling back their ambitions. 5Y Capital closed its latest fund at the hard cap of USD 800m in the first quarter of 2024. In the previous vintage, the manager raised VC and growth pools of USD 700m and USD 1bn.