Overseas expansion by Chinese technology firms means foreign venture capital groups are being handed increasing opportunities to get a slice of the stellar growth action, an industry conference heard on Friday.
With slowing growth at home, Chinese technology groups are increasingly looking to invest abroad, with such investments more than doubling to $37.8 billion last year, according to consultancy PwC.
“For us especially, who’ve been investing in information technology, the biggest trend now – and opportunity – is that more and more Chinese technology companies are going abroad,” Nobuaki Kitagawa, chief executive of CyberAgent Ventures (China), told Slush Shanghai, a start-up conference.
The venture capital arm of one of Japan’s biggest media and internet companies has invested in Japan, China, South Korea and Southeast Asia, focused on technology, internet services and consumer sectors.
Chinese companies’ overseas expansion “will help these startups grow further and give VCs exit opportunities as well,” said Kitagawa, whose firm has made successful exits from its China portfolio including video site Tudou.
Early investment in China’s technology start-ups has been largely dominated by domestic VCs, although some big names like Sequoia Capital China and IDG Capital Partners have obvious US ties.
“VCs in China are more thirsty and willing to bet big money,” Nick Wang, co-founder and COO at Quant Group, a financial big data firm backed by China’s Sunshine Insurance Group and Fosun Capital, told FinanceAsia at the same event.
For most Chinese startups, getting money from a local fund not only helps branding but also takes less time as there is no reporting needed to a global investment committee for review, which can be standard procedure at foreign funds.
However, with more Chinese startups venturing aboard, foreign VCs are now being given more opportunities to take a slice of the growth story. After all, China has delivered more than a quarter of the world’s new unicorns (firms valued $1 billion and above) since 2010, according to venture capital database CB Insights.
“Having an investor behind them that is a global fund is a great advantage … they can breach into a new market much faster,” Julien Mialaret, operating partner at Idinvest Partners, a global venture capital and private equity firm, told the panel.
The most recent cases are Ofo and Mobike, two bike-sharing unicorns from China that have expanded to Singapore, the UK and the US. The former even plans to reach 20 countries by the end of this year.
Ofo has international backers including New York-based Coatue Management, London-based technology investment company Atomico and Russia’s DST Global, which has invested in Facebook and Alibaba. Mobike is backed by Singapore’s Temasek as well as its venture capital unit.
Southeast Asia opportunities
For Chinese technology companies looking for global exposure, Southeast Asia – and its more than 600 million consumers – is already proving to be perhaps the most enticing battleground.
Alibaba spent $1 billion for control of Singapore e-commerce startup Lazada, for example, and the latter is now bringing Alibaba’s flagship marketplace Taobao to the region through its platform.
Tencent, which bought a stake in Sea Ltd, the Singapore gaming startup – Southeast Asia’s most valuable start-up – invested in Indonesian ride-hailing firm Go-Jek in May, TechCrunch reported.
Didi Chuxing, Asia’s most valuable start-up, backed ride-hailing firm Grab in July, while JD.com, an e-commerce rival to Alibaba in China and a Tencent ally, in September announced a $500 million investment to create e-commerce and fintech joint-ventures in Thailand.
“In general, it’s a good thing for the ecosystem in Southeast Asia,” Albert Shyy, Singapore-based principal at Burda Principal Investments, the investment arm of European technology and media company Hubert Burda Media, said at the conference.
Shyy later told FinanceAsia in a call that the likes of Alibaba can bring the right blend of experience to Southeast Asian start-ups.
“For Lazada, for example, it picked up a lot from Alibaba in operational know-how,” said Shyy, who was Lazada’s regional director between 2013 and 2014 before becoming an investor focusing on Southeast Asia.
“Players with deep pockets can bid on high valuations,” he said, adding that the Chinese technology giants “are bidding quite aggressively”. Go-Jek’s latest fundraising valuation pushed out a number of investors, for example, according to Shyy.
Still, such aggressiveness from the Chinese bidders is providing “exit options” for VCs that have invested in the region, as well as “external validation that Southeast Asia market is worth it,” according to Shyy.
Internet of Things
Sector-wise, Kitagawa is optimistic about Internet of Things (IoT) – the concept of connected smart devices sharing data between them – and artificial intelligence technology. “I strongly believe those two sectors are where Chinese players have the strongest advantage around the world,” he said.
This is because the scale of data is the key to both IoT and AI, and China’s 1.4 billion population provides an enviable advantage in terms of the volume of data generated every day, compared to foreign peers.
Chinese startups in IoT and AI will then have the potential to lead the innovation and business growth worldwide, according to Kitagawa.
