China’s TH Capital has closed its debut US dollar-denominated fund on target at USD 100m, according to Rafael Ratzel, a managing partner at the firm.

The fundraising process began in early 2023 and concluded at the end of 2024. Several co-investment vehicles sit alongside the main fund, with USD 1 of co-investment capital for every USD 4 in primary commitments, Ratzel added.

Co-investment allocations and fee discounts were not top-of-mind for LPs contemplating participation in the fund. Rather, they were preoccupied by the more fundamental question of whether they wanted any new China exposure full stop.

“Out of around 500 LPs we’ve had one-to-one meetings with, only about a dozen ended up investing elsewhere in China instead of with us. Meanwhile, about 90% of the remaining LPs probably chose not to invest in China,” Ratzel said.

“Based on our focus, expertise and track record, we have captured a very good share of the people that did invest in China in 2023 and 2024.”

These were thin vintages for China strategies as geopolitical tensions and exit uncertainty undermined LP sentiment. About USD 4.4bn was raised across a dozen closes in the US dollar VC fund space, according to AVCJ Research. In 2022 alone, USD 17bm was committed to over 20 funds.

TH Capital, which originated from China’s Tsinghua University, has a 17-year history in the renminbi fund space. Funds under management exceed CNY 10bn (USD 1.3bn), the firm’s website states.

For its US dollar debut, TH Capital built an LP base comprising listed companies, family offices, and asset managers based in mainland China, Hong Kong, Southeast Asia, Europe, the Middle East, and the US. Half of the total capital raised came from Greater China.

The fund makes early and growth-stage investments in deep-technology companies, writing equity cheques of USD 5m to USD 10m, although it can extend to USD 15m on a case-by-case basis.

Half the corpus has been deployed in seven companies. They include artificial intelligence (AI) start-up Spirit AI, hydrogen fuel systems provider Aoyan, energy storage specialist Zhongchu Guoneng Technology, electric vertical take-off company Aerofugia, and chip developer Lanxin Computing.

Ratzel is bullish on the outlook for China’s deep-tech over the next 5-7 years, although he acknowledges AI investment is “overheated” even at the very early stage. While TH Capital looks at pre-revenue companies, it has yet to follow through and back one.

“For us, the questions are ‘What’s the actual application scenario?’ and ‘How feasible is commercialisation in the short term?’ In the end, we’re looking at commercialisation in relation to valuation. Especially in AI-related deals, it’s very important to be diligent when it comes to valuation,” said Ratzel.

The firm is currently tracking early-stage opportunities in embodied AI and AI applications.

There are no plans to alter the broader deep-tech strategy in light of worsening US-China relations and the recent tariffs embroglio. However, political and risk analysis is part of TH Capital’s investment decision process, and it is studying the potential impact of tariffs and export restrictions.

In addition, resilience is a priority in portfolio company monitoring. TH Capital is looking at the ability to manage costs, commercialise products, and secure revenue streams, as well as the capacity to secure follow-on funding.

Across the portfolio, the US contributes a small portion of revenues, so there is no significant direct tariff impact, Ratzel said. However, US import substitution has become a prevalent theme. Recent restrictions placed on international shipments of Nvidia’s H20 chips – popular in AI model training – underscore the importance of domestic chip development.

“The key is to have a system that works and fine-tune it based on changes in the macro environment, but you don’t overthrow the whole system just because somebody has implemented a tariff on something,” Ratzel added.