GCV November 2020 issue editorial by James Mawson, editor in chief, Global Corporate Venturing
There was plenty of discussion in our weekly Global Venturing Review podcast and over the past month online at Global Corporate Venturing about China-based financial services firm Ant Group’s planned flotation.
Ant will break a lot of records when it does complete its initial public offering (or if – given the regulators postponing issuance two days beforehand citing “major issues”). Raising at least $34.5bn would have made Ant the world’s biggest initial public offering.
By splitting its stock issuance equally across Shanghai and Hong Kong stock exchanges Ant would have also created effectively two main capital markets in Asia and both in China.
Ant was expected to issue at least 1.67 billion new shares in each location at RMB68.8 per share in Shanghai from an undisclosed date and HK$80 each in Hong Kong from November 5 giving it a market capitalisation of $313.4bn. The Hong Kong listing was the one thrown into doubt by the regulatory delay.
Strategic investors, led by former parent Alibaba, had subscribed to 80% of the company’s Shanghai-issued shares. Alibaba, via its subsidiary Zhejiang Tmall Technology, had agreed to buy 730 million A-shares to maintain its 33% stake in Ant Group.
The questions – regardless of the IPO in many ways – are will this ant supercolony take over the world and what does it portend for the venture ecosystem?
Ant became the world’s most valuable startup after a fundraising round in mid-2018 that valued it at $150bn. This was 14 years after Alibaba created its online escrow service, Alipay, to enable customers and retailers to trade with more confidence.
Ant would have been almost twice Alibaba’s market cap of $168bn when it floated in a record listing back in 2014 at about the same age. And while Alibaba’s value has soared to more than $800bn now, Ant’s potential could even be far larger if it cracks the international payments and financial services system as people turn away from cash and look to QR codes or contactless cards to help.
Already, Ant’s Alipay handles the same annual transaction volume as US peers Visa and Mastercard do combined but almost all from within China. Similarly, its loans, insurance and investments services rely on Chinese customers and third-party providers.
As the Economist noted in its review last month: “Ant is the most integrated fintech platform in the world: think of it as a combination of Apple Pay for offline pay, PayPal for online pay, Venmo for transfers, Mastercard for credit cards, JPMorgan Chase for consumer financing and iShares for investing, with an insurance brokerage thrown in for good measure, all in one mobile app….
“Ant is, in short, the world’s purest example of the tremendous potential of digital finance.”
It also reflects a future of corporate venturing – not just through its established dealmaking in third parties, as Kaloyan Andonov analyses in our financial services sector report from page 24.
The ideas of open innovation shared by Clayton Christensen and Henry Chesbrough have been intellectual underpinnings for corporate venturing to take off. But the models of buy, build, partner and invest now surfacing rely on scaling and speeding up innovation.
Alibaba’s decision to set up Alipay was a logical response to a pain point limiting it market growth. Spinning it off to form Ant and raise external capital while retaining a stake as a form of venture building again aligns with economic theory.
But it is harder for the entrepreneur to effectively manage both businesses or switch focus while both are growing fast.
Alibaba’s co-founder, Jack Ma, has effectively managed this switch. He sold his stock in Alibaba and resigned from being first CEO and then chairman. But Ma retained his shares in Ant and has effective control through shareholder agreements with others to hold just more than 50% of voting rights.
It is a form of speeded up venturing and relies on building partnerships with the right networks. Ant’s shareholder base is more local and connected to the political elite than Alibaba’s, which relied on foreign corporate venturers, such as Yahoo and SoftBank.
A similar example can be glimpsed in Jeff Bezos, founder of Alibaba’s peer, Amazon, and his side hustle running space exploration company Blue Origin.
As Harvard Business School professor Paul Gompers noted more than a decade ago, serial entrepreneurs have an above-average success rate of 36.9% in their first ventures. “It is more interesting that in their subsequent ventures they have a significantly higher success rate (29.0%) than do first-time entrepreneurs (25.3%).”
Market timing is crucial to this success rate and Ant has judged its flotation well given a record $2 trillion in retail demand for its shares. Whether it has judged the Chinese Communist Party and regulators so well remains less certain.
