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The overseas VC funds were paid to Chinese startups this year, at some points, surpassing their US counterparts. What is the attraction and will it last?
In the second quarter of 2018, for the first time in history, companies based in China secured more venture capital funds (US $ 30.9 billion) than their North American rivals (US $ 27.2 billion), according to Goldman Sachs data.
Although KPMG data show that the US has rallied the top spot for total VC investments in the third quarter, recording US $ 27.9 billion in the quarter compared to US $ 17.6 billion across Asia, China in any case, it represented seven of the 13 largest VC loans globally in the third quarter. . The offer figures reflect the way the China VC ecosystem has developed a proven track record of executing giant funding rounds.
ANT Financial, the Alibaba affiliate that manages China's largest online payment platform, Alipay, secured the largest VC funding round when it raised $ 14 billion in a round of C-series financing from a consortium including The Carlyle Group, Warburg Pincus, Temasek, GIC and Silver Lake, among others. ANT, which has added money market funds and credit scoring services to its Alipay payment platform, now has more than 870 million users and its profits have grown by 65% in the year to the end of March 2018. A IPO that could enhance the business at $ 150 billion or more.
Other billions of dollars worth of funding for Chinese companies include an investment of 1.9 billion US dollars in Manbang, the developer of a digital platform linking shippers and lorry drivers, a consortium led by China Reform Bank, Alphabet and SoftBank Vision Fund; and a $ 1.1 billion round of Ping An Medical online health insurance, led by SoftBank Vision Fund, SBI and IDG. Manbang, which applies the logic of travel-sharing apps to transportation and logistics, has significant growth potential in a fragmented market worth about $ 150 billion.
Ping An Medical, a division of China's largest health insurer Ping An, provides technology that allows hospitals to access patient records. Ping An has aggressively invested in technology and has financed a number of digital real estate, automotive and fintech companies.
Large rounds of financing such as these show that China has become the leading market for large venture capital rounds, with an aggregate value of US $ 100 million or more. According to the research of the Crunchbase technology company, US companies have raised $ 38.4 billion in these so-called "giant rounds" in 2018 (until the beginning of November), while Chinese companies have raised almost double of this amount, insuring 69 billion dollars in 160 "" round "giants.
Financing driver
For investors looking for growth beyond the mature and competitive US market, China is the obvious alternative. The scale and growth of the Chinese economy, a population of over 700 million Internet users targeted at disruptive and technologically advanced services and extensive financial support from a government eager to diversify a dominant economy in production they have made the Chinese market the second largest in the world, one that foreign investors can not ignore.
As has been the case in other jurisdictions, venture capital investments in China have coalesced around the transport and logistics, fintech and biotechnology sectors.
In the transportation space, Didi Chuxing's app that greets from Beijing has raised $ 500 million. Logistics Platform The new Dada has also raised 500 million US dollars and the Chinese electric car group Xpeng has secured 596 million dollars in a series B round.
In the fintech sector, meanwhile, China is rapidly turning into a cashless company, with platforms such as ANTPay from ANT Financial and Tencent's WeChat used by billions of consumers. (ANT Financial is also investing in outbound, in bKash Ltd., allowing the fintech mobile provider to promote greater financial inclusion for unallocated and underbanked communities in Bangladesh.)
According to iResearch and Forrester Research, Chinese buyers make mobile payments 11 times higher than their counterparts in the United States. The rapid spread of digital payments has opened the possibility of selling additional technology-enabled financial services to these huge user bases. Alongside the growth of China's payment platforms, other fintech initiatives like Bitmain, a bitcoin mining unicorn, have also attracted a large amount of funding.
In the health care sector, China's large population and extensive health services have encouraged investments in biotechnology, personalized medicine and technology tools that help reduce health care costs. Ping An's extensive investment in all aspects of Healthtech exemplifies this trend.
A brilliant future
As a VC investment center, China is not a flash in the pan. In the last two years, VC investments in the country have almost doubled, and senior technology executives, such as Google's head of the alphabet, Eric Schmidt, have predicted that China may be leading the United States in areas such as AI already as early as 2025.
But the Chinese market is not without challenges for foreign investors. The Chinese technology giants Alibaba, Tencent and Baidu are such dominant forces that it can be difficult for foreign investors to compete for business without going alongside one of these giants.
The protectionist views between the United States and China are also an obstacle, as it is now more difficult for successful Chinese platforms to build a presence in the profitable US market. ANT Financial, for example, has moved away from an agreement to purchase the MoneyGram money transfer company after being blocked by the US Foreign Investment Committee (CFIUS) due to national security issues.
The Chinese government supports VC investments, but has strengthened some rules that could influence investment opportunities for foreign investors. For example, stricter rules of the central bank for scan-and-go payments could slow down the growth in payment processing space.
Despite these obstacles, the Chinese VC model is following a similar path to the United States, according to Singularity University founder Peter Diamandis. And China recognizes that there is a lot to be gained from having foreign skills and capital to accelerate the development of the VC scene. Foreign investors in Chinese VCs and start-ups still have a lot to impress.
