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China’s Investors Outpace American Rivals In VC Funding: Goldman Sachs

Sep 12, 2018 by Lousie Dang
China’s Investors Outpace American Rivals In VC Funding: Goldman Sachs

Though China’s economic development has been slowing down, Chinese investors have outpaced their North American counterparts in funding startups for the first time in history, according to a report published by Goldman Sachs.

The report reveals that Chinese startups have secured USD 30.9 billion worth of venture capital investment in the second quarter of 2018, higher than America’s USD27.3 billion.

ANT Financial, the Alibaba affiliate that operates Alipay, China’s largest online payment platform, contributes a USD 14 billion Series C funding to this fundraising record. This is also the largest-ever deal in the history of Venture Capital investment.

Heath Terry, the lead analyst at Goldman Sachs Research, mentioned in a note to clients that China’s internet dominators, collectively known as BATJ (Baidu (百度), Alibaba (阿里巴巴), Tencent (腾讯) and JD.com(京东) ) have created massive ecosystems of venture investments following in the footsteps of Japanese holding conglomerate SoftBank.

While corporate venture capital has been a major driver of economic growth globally, Asia has witnessed its most pronounced trend. Nearly every major private company in China has bagged investment from at least one of the five companies mentioned above. The venture capital investment ecosystem has an unprecedented level of influence in the growth and innovation of new technologies and business models as well.

These companies usually fund several competitors in the same industry to ensure that at least one survives and grows big. By investing across sectors, from fintech to logistics, these Chinese giants also widen their industry footprint.

Tencent, for instance, had invested in both Ofo and Mobike (acquired by Meituan), the two top bike-sharing stables in China. Similarly, Baidu Waimai, the online food ordering and delivery business backed by BATJ, merged with Ele.me which is backed by Alibaba, JD.com and Tencent. Alibaba has fully acquired Ele.me since then.

Government and public funds also play a remarkable role in China’s VC investments. They usually capitalize on the investees’ success before the companies file for IPO. As valuations continue to soar in the private market, more and more Chinese companies go public earlier than they did in the past.

The Chinese government’s efforts at transforming the economy from a manufacturing-dependent to a consumption-driven economy is also contributing to the rise of China’s global VC investment.

Lousie Dang

Lousie Dang is a Beijing-based investment analyst. She focuses on innovation and investment in emerging markets. She can be reached at wd602@nyu.edu

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