by Deal Journal

U.S. venture capitalists continue to pour money into China, with two more firms — Silicon Valley’s Accel Partners and IDG Technology Venture Investment, based in China — set to announce a new, joint $510 million China investment fund.

The two firms together launched a smaller, $310 million fund to invest in Chinese companies two years ago. Managers of the new fund will target Internet and mobile-phone deals and hope to make 30 to 40 investments over the next three years, says Jim Breyer, a partner at Accel in Palo Alto, Calif., and an adviser to the joint effort.

The fund, officially called IDG-Accel China Growth Fund II, raised money from investors in just four weeks and closed Thursday, according to Breyer.

IDG and Accel have already sold one company in the first fund’s portfolio, Breyer said: All Yes Investment Network, which was bought by publicly traded Chinese media firm Focus Media Holding Ltd. for about US$300 million in stock. The value of the deal has risen since it was announced earlier this year, however, and IDG and Accel will likely make a return of four or five times their original investment, says Hugo Shong, a China-based partner with IDG-Accel.

The new IDG-Accel China fund is the latest in a string of U.S. venture-capital forays into China, despite worries that the market is overheated. In April, the venerable Kleiner Perkins Caufield & Byers said it had closed a $360 million China fund and would open an office in China. Last year, boutique Seattle venture firm Ignition Partners said it had formed a new Chinese arm called Qiming Venture Partners and raised $200 million for Chinese investing. Earlier this month, Sequoia Capital filed documents with the Securities and Exchange Commission saying it was raising two new China funds. – Rebecca Buckman

Copyright Fund China 2008.

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