China’s share of the global venture capital industry is growing rapidly, along with a rise in tech unicorns. The trend threatens the supremacy of Silicon Valley.
America’s wide lead in venture capital is fading, threatened by Asia and its rising brain center: China.
A surge of new money from China and the rest of Asia helped drive funding totals to the stratosphere and transformed the venture landscape. Last year Asia directed 40 percent of the global total versus 44 percent from the United States.
China’s share was 24 percent, according to Dow Jones VentureSource. Just a decade ago China’s share of VC spending in start-ups globally was less than 5 percent.
That tidal wave of Chinese cash into promising new start-ups could herald a shift in who controls innovation and the world’s technological advantage. Already we are seeing the trend play out in CNBC’s 2018 Disruptor 50 list, released Tuesday.
For the first time, two of the unicorns on the list are mammoth Chinese unicorns — Didi Chuxing and Xiaomi — each of which has attracted billions in equity financing. Fourteen of this year’s Disruptor 50 companies, including Airbnb, Uber, Ellevest, Lyft, LanzaTech and WeWork, have financial backing from Chinese investors, such as Didi Chuxing and China Broadband Capital Partners.
A historical look sheds more light on the trend. Since the list was launched in 2013,41 Chinese investors backed CNBC’s Disruptor 50 companies. They contributed $35.4 billion in financing to these start-ups since 2002, according to PitchBook.
China is taking a giant leap forward in a race for global technology innovation and venture capital dominance by developing emerging VC and start-up hot spots in Beijing, Shanghai and Shenzhen. It is home to several top-performing venture capitalists, such as Neil Shen, managing partner of Beijing-based Sequoia Capital China; JP Gan, managing partner of Qiming Venture Partners in Shanghai; and Hurst Lin, general partner of DCM Ventures. All three have funded several of China’s emerging tech leaders, such as smartphone maker Xiaomi. The company is No. 28 on this year’s CNBC Disruptor 50 list with a valuation of $46 billion. It is readying itself for an IPO later this year.
China’s powerful BAT companies — Baidu, Alibaba and Tencent — the Chinese equivalents of Apple, Alphabet, Microsoft, Amazon and Facebook — are spurring the action, investing across leading-edge start-ups in the hottest tech sectors, such as biotech, virtual reality, fintech, security and artificial intelligence.
Last year China dominated venture spending in the all-important field of artificial intelligence at 48 percent of $12 billion globally in 2017, compared with the United States at 38 percent, according to CBI Insights.
Now Chinese investors are about to reap a huge payoff. Bob McCooey, senior vice president at Nasdaq, predicts that China IPOs in New York will increase 25 percent to 30 percent in 2018, up from 16 China IPOs in the United States in 2017.
The magnitude of China venture deals and power to create megabrands is hard to match. China’s Didi Chuxing cranked up its market-leading ride-sharing business in 2012 and took over rival Uber in China in 2016 in a $35 billion transaction. The $9.5 billion that Didi took in from venture funding in 2017 counted as the largest global venture deal of the year, second-largest funding of the past decade and biggest ever for Asia, according to Preqin data.
Mega-financings of Chinese tech upstarts are nothing out of the ordinary. Four of the six biggest venture investments globally in the fourth quarter 2017 were in Chinese companies: Didi at $4 billion, GroupOn-like Meituan at $4 billion, bike-sharing start-up Ofo at $1 billion and electric-car contender Nio at $1 billion, a report by PWC/CBI Insights notes.
