China investor’s money, dumb, aggressive or shaky?

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China Investment into Silicon Valley, excluding real estate, already hit a staggering USD 6 billion. More than 50 funds and accelerators powered by the China-based investors have established their presence in the area. Waves of China cross-border investment have suddenly spiked since 2013 and the reaction has been rather mixed.

Some said they show “gluttonous” appetite, in particular, led by giant corporate ventures. They gobbled up everything appearing interesting to them as if money never seems an issue but the sky is the only limit. Over 20% of US unicorns are backed by China-based investors, mostly corporate giants. In 2015, Chinese investors participated in nearly USD10 billion of US tech funding, including deals like Uber, Lyft, AirBnB, Sofi, and Snapchat. The total number of China-based investors involved in US tech financing deals soared from 34 in 2013 to 115 in 2016. The most active players in American startup ecosystem include names like China internet giant BATJ (Baidu, Alibaba, Tencent, JD), financial conglomerate PingAn Group, healthcare&real estate mammoth Fosun etc. According to CB insights, in 2015, 30% of the China investor deal activity happened in Seed/Angel stage, 24% in Series A, 22% in Series B~D, and 8% in series E+.

Nevertheless, the bitter dispute between Quixey and its investor Alibaba seemed to cast a dark cloud over the promising prospect between Silicon Valley startups and China giant corporations. Quixey (a mobile technology startup which offers in-app search and engagement) secured USD 50 million in Series C led by Alibaba Group in 2015. The rejoicing of receiving lifeblood from Alibaba was short lived. Soon it began to accuse Alibaba not paying the due amount after having worked on a customized technology for Alibaba’s operating system for months; while Alibaba refuted by saying Quixey had fallen behind on its deliverables. The two sides eventually reached a compromising settlement that Quixey would receive a loan of USD30 million under the condition of not suing Alibaba. It is not uncommon to witness nasty conflicts occurring between startup and investor. But since in this scenario we have a extremely powerful and prestigious investor, that is Alibaba from China , experts are examining it under a magnifying glass, considering such relation might be fraught with culture clashes and business value misunderstanding, both at corporate level and country level.

Of course, not all experiences are negative. Recently CEO of Angelist Naval Ravikant set up a USD400 million seed fund from an investment provided by China Science & Merchants Investment Management Group (CSC), one of China’s largest private equity firms. He welcomed Chinese investment with an open mind and said, “In China, they are more willing to try new things and take risks because they have not been sitting here (in the US) the entire time”. Many western startups sometimes are, in fact, truly impressed by how a deal can be more efficiently and quickly done by the Chinese investors compared to the traditional Silicon Valley VCs.

Still, some critics dubbed the China money “dumb” as those startups which might be rejected by the clubby VC firms on SandHill now probably have a new and easy access to be funded by deep-pocked Chinese investors. We know VC is essentially a very network based business, so as a newcomer in the valley, except those influential China corporate ventures, other China investors would need more time to build ties and figure out the learning curve. In general, the preferences of American entrepreneurs would almost always be traditional Silicon Valley VCs, who provide a “reputation”, good network and track record. But at the end of the day money is money, so entrepreneurs, aside from those who enjoy the luxury of having investors banging on their door to invest, will take money wherever they can get it. This might suggest that most of the time China investors are not nailing the “hot girls”, but wasting money on a bunch of “ugly girls”.

In the long run, China-based investors need to create a China-angle, as after all, what do they bring to the table in terms of being value added for the American startups in comparison with incumbent Silicon Valley VCs? They must educate those western startups on how to foray into the Chinese market, they must select those technologies which can be applicable and scalable in China, and above all, they must be able to help them to generate extra revenues and open distribution channels into this massive market.

Cecilia Wu

A witty, nutty and frosty writer who hopes to jot down moments of inspiration from her daily life

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