The week has started with some tantalizing morsels from our news editor, Rob Lavine, rested after his recent holiday and very welcome for his return (especially by Thierry Heles who covered for him so well last week).
Ant Group (FKA Ant Financial) is reportedly targeting $30bn in a dual offering that would be the largest of all time at a potential $200bn valuation in the flotation, while SenseTime is reportedly near to raising $1.5bn at a $10bn valuation and Xiaopeng, the smart electric vehicle producer also known as Xpeng, is reportedly raising $300m that will be added to a series C-plus round that so far totals $500m.
The common factors behind these companies are their large size, China focus and Alibaba backing.
Alibaba and peer Tencent have used the downturn to step up their focus on innovation. And they are dragging China’s venture ecosystem with them. Eighty percent of Chinese tech startups have taken a form of investment from Baidu, Alibaba and/or Tencent by the time they reach $5bn in valuation, according to a report by the Economist.
In the first six months of this year, corporate VCs participated in 15% of venture capital investments in China, according to venture market research firm Jingdata quoted by Technode.
Venture capital investment in China amounted to $12.7bn across 633 deals in the second quarter (Q2) between April and end-June, up from 530 deals totalling $9.1bn in the first three months of the year.
Accountants KPMG’s Venture Pulse Q2 2020 report added that large platform companies in China began to resume investment activity in April. China-based startups, such as biotech MGI Tech raised $1bn, Didi Chuxing’s bike (Qingju) and autonomous driving spinoffs each raised external money, while Zuoyebang raised $750m and Tencent backed large rounds for produce delivery company Xingsheng and MissFresh.
Egidio Zarrella, partner and head of clients and innovation at KPMG China, said: “Covid-19’s impact on travel and global supply chains combined with the ongoing market turbulence is causing many investors to refocus on local market opportunities. This could lead to an upswell in domestic VC investment over the next quarter [in areas like 5G, smart cities, internet of things and health care innovation].”
The increased local focus for Alibaba and Tencent makes sense. As the Financial Times noted in this week’s feature (see table below), Tech cold war comes to India: Silicon Valley takes on Alibaba and Tencent, “As political tensions dominate India’s relations with China, US companies see an opportunity.”
But as the FT said: “Experts think China is down but not out.”
Its markets are deep and liquid, state support is strong and its companies are large and understand venture and innovation.
The Hong Kong Stock Exchange attracted two secondary listings from major Chinese companies, JD.com, which raised almost $4bn, and NetEase, which raised $2.7bn, as geopolitical tensions between China and the US spills over to capital markets and local operations, potentially including ByteDance’s forced sale of its American operations of subsidiary Tiktok to Microsoft.
ByteDance was second behind Ant as the highest-valued unicorn – a private company worth at least $1bn, according to Hurun Research Institute.
Hurun’s Global Unicorn Index 2020 found six of the world’s top 10 unicorns came from China. The other four in the top 10 from China were Didi Chuxing, Shanghai Lujiazui International Financial Asset Exchange (Lufax), Beijing Kuaishou Technology and Cainiao Network Technology.
The US, which took the other four top-10 unicorns, leads China with 233 to 227 of these $1bn+ companies worth in aggregate about $1.9 trillion. Together, the US and China have almost 80% of the entire blessing of unicorns, adding 30 and 21 new unicorns respectively this year.
Led by Beijing’s 93 and San Francisco’s 68, nine of the top 10 cities for unicorns are in China or the US, with London, UK, as the exception.
UK-based Rupert Hoogewerf, chairman and chief researcher of privately held Hurun, in his report said: “The US and China continue to dominate … despite representing only 40% of the world’s GDP [gross domestic product] and a quarter of the world’s population.”
As the June issue of Global Corporate Venturing noted, Look east for our emerging future, and further indications will be found in our next GCV Powerlist 100 awards (Jeffrey Li, managing partner at Tencent Investment, collected the top award at the UK’s House of Commons) and our GCV Digital Forum 2.0 from mid-September.
