China expected to surpass U.S. in venture capital fundraising for start-ups
December 11, 2018 Category China News Round-up, Weekly
2018 is likely to go down as the “Year of the Red Unicorns,” when for the first time China beats the U.S. in attracting the most global venture capital for early-stage start-ups, private equity data provider Preqin said. Already in the first half of the year, China outpaced the U.S. in venture capital for promising privately held companies worth at least USD1 billion, raising USD56 billion versus USD42 billion, according to “The Year of the Red Unicorns” study by Preqin and graduate business school INSEAD. China is home to some of the hottest unicorns in the world, sparking multibillion-dollar funding rounds this year for companies such as Ant Financial, bike-sharing start-up Mobike and Ping An Healthcare.
The Preqin-INSEAD study tracks 321 unicorns, of which one third – or 98 – were Chinese and half – or 162 – were from the U.S. This means that, despite fewer in number, China’s unicorns tend to be highly valued by their investors. “The success of the red unicorns has spurred a culture of entrepreneurship in China, inspiring millions of young Chinese to follow suit as they are encouraged by government efforts to support innovation and entrepreneurship,” the report said. China is drawing huge global attention with its “Made in China 2025” program that aims to transform the country into a hi-tech powerhouse, taking on the U.S. and other Western tech giants in everything from robotics to aerospace to new material and new energy vehicles.
Five of the top 10 “mega-unicorns”, defined by Preqin as privately held, venture-backed companies with a valuation of at least USD10 billion and over, originate from China. At the head of the list is Ant Financial, which has a valuation of USD150 billion. The fintech and third-party payment network affiliate of the Alibaba Group has this year raised a record-breaking series-C round at USD14 billion, from such leading investors as Temasek, CPP Investment Board, Carlyle Group and GIC. Holding second place is Didi Chuxing, a ride-hailing mobile app in China that has since expanded into autonomous driving. Valued at USD56 billion, its backers include Softbank, Tencent, Singapore sovereign wealth fund Temasek, GGV Capital and others. In terms of investors with stakes in the largest number of Chinese unicorns, the three Chinese so-called BAT tech giants – Baidu, Alibaba and Tencent – are among the top five. Internet titan Tencent tops the list with equity stakes in 27 of the 98 Chinese unicorns that Preqin tracks. Alibaba and Baidu have 15 and 13 red unicorns, respectively. Second in ranking is Sequoia Capital, a U.S.-headquartered venture capital firm, which has 25.
Underlining China’s increasing dominance in producing unicorns, Raymond Chan, Allianz Global Investors’ equity Chief Investment Officer for Asia-Pacific, said China is also expected to surpass the U.S. this year in research and development (R&D) spending in 2018. The five-year compound annual growth rate for China R&D spending up to 2016 was 9.88%, compared to the U.S. growth rate up to 2015 of 2.01%, the South China Morning Post reports.
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