INSUBCONTINENT EXCLUSIVE:
The evidence is increasingly clear: 2018 is the year of the Chinese venture deal.
With half of the year now complete, China is driving
ahead of Silicon Valley and the rest of the United States on venture capital dollars invested into startups, according to a number of data
sources including Crunchbase, China Money Network, and Pitchbook.
These sorts of top line numbers are always driven by large deals, and the
Chinese VC market is no exception
Monster rounds this year have included a $1.9 billion investment from Softbank Vision Fund into Manbang Group, a truck hailing startup
formed from the merger of two competitors, Yumanman and Huochebang, as well as Ant Financial, which raised a whopping $14 billion from
investors.
While China hasn&t overtaken the U.S
in terms of total VC rounds, it has seen spectacular growth in deal volume
Crunchbase analysis shows an almost four-fold increase in the number of venture capital rounds completed last quarter in China compared to
the same quarter last year
That in comparison to a dismal seed funding market in Silicon Valley, where seed volume has dropped off of a cliff over the past few years,
down by 60% or more by some estimates.
That a rather linear look, though, of an industry that is facing extreme flux
Venture capital today is being wholly redefined by new crowdsourcing models and of course, the rise of blockchain and the world of Initial
On the latter, billions of dollars have been raised by blockchain projects, perhaps most notoriously in recent weeks by EOS and Telegram
Institutional capital still matters, but it isn&t the sole source of funding anymore, even at the growth stage
That makes VC aggregate data much less compelling than it might have been in the past.
However, what these aggregates do show is the
changing power dynamics between the U.S
and China, particularly in critical future growth markets in the emerging world.
Nowhere is that more obvious than in the burgeoning
strength of China high-flying tech companies
While venture firms are of course widely present in China, it is the country largest tech companies that are driving much of the venture
investment in the mainland ecosystem
As China Money Network noted recently, &Tencent, Alibaba and Baidu … ranked as the first, fourth and eighth most active investors in
[April], inking 11, 5 and 4 deals respectively.&
The aggressive investment strategies of Chinese tech firms was recently observed by Sequoia
partner Mike Moritz in the Financial Times
In his analysis, Moritz wrote, &Between 2015 and 2017, the five biggest US tech groups (especially Apple and Microsoft) spent $228bn on
stock buybacks and dividends, Bloomberg data shows
During the same period, the top five Chinese tech companies spent just $10.7bn and ploughed the rest of their excess cash into investments
that broaden their footprint and influence.&
Context can explain some of this behavior, but there is also an outlook difference across the
Pacific that is important to appreciate
American venture firms are robust, and Google and other tech companies don&t feel as compelled as their Chinese counterparts to step into
the game themselves in order to finance the innovation industry.
Yet, one can&t help but feel that a different concept of ambition is being
adopted by American companies — one that looks internally for growth rather than externally in new markets.
That certainly not the case in
China, where companies are looking in both directions
Moritz again: &Most Chinese activity is outside the US, with Tencent and Alibaba building vast constellations of satellites
Tencent has more than 600 investments, while Alibaba has around 400 — totals that almost make Japan SoftBank look like a penny-pinching
slowpoke.&
Meanwhile, in the United States, we see a complete pull back from much of the emerging world
The drastic reported cutback in Facebook efforts in the emerging world is just the latest example of this myopia.
The old line about venture
capitalists still holds true: most don&t want to invest more than 40 miles from their house
While many Silicon Valley-based VCs have since extended that geography to the rest of the United States, only an extraordinary few have
invested in more than a handful of companies in the developing world
That has left open opportunities for investment in countries like Indonesia, Nigeria, and Brazil, where the next set of internet users are
For founders, focusing on aggregate numbers is useless
Investors are either interested in a startup or not, and while macro factors can provide context for a fundraise, they don&t typically drive
But when it comes to evaluating the corporate strategy of tech giants, they are far more impactful
can&t continue to look inward and expect the high rates of growth we have seen in the tech sector over the past two decades
Only new, global markets are going to be the driver of prosperity, and right now, China has its money where the action is.
