China, with its multitude of tech decacorns, is catching up as a global economic powerhouse. It was hard to say that decades ago, let alone 2010 post the ’08 financial crisis when the world was launched into global turmoil. But as noted in the latest KPCB Internet Trends report, the Asian giant has 9 of 20 biggest internet companies in the world (by market cap) v. five years ago when they had 2.
But the more exciting news is the state of these decacorns today, and how they will affect the years to come..
Let’s take a look at the top 5 prospective list of 2018 Chinese IPOs: Ant Financial (FinTech), Xiaomi (Smartphones, IoTs and Devices), Didi (Ridesharing), Meituan (On-demand Delivery) and Tencent M (Music Streaming). For additional clarity on these companies: Ant Financial Services Group, formerly known as Alipay, is an affiliate company of the Chinese Alibaba Group, while Tencent Music is an affiliate of Tencent:
That Tencent M and Ant Financial especially are valued as subsidiaries and are massive, if not bigger than its parent company, is in and of itself pretty incredible. These numbers are gargantuan, but that doesn’t tell the full story of how big these actually are. Comparing to U.S.’s top 5 IPO prospects this year (some which happened already), you can see a starking difference in valuation sizes:
China blows U.S. out of the water in terms of overall exit potential market cap. As you can imagine, this chart can be somewhat flawed because we are only looking at top 5 IPOs per country (so, U.S. could have way more liquidation events each with smaller valuations, but collectively larger market capitalization). However, when looking at the sheer volume of dollars, there is an order of magnitude difference between Chinese and U.S. companies. Even when comparing industries: Spotify went IPO at $19B with 159M MAUs (71 million paid subscribers) v. Tencent Music valued at $25B with 700M MAUs (121 million paid subscribers). Recall that Tencent Music isn’t even a standalone company, rather a subsidiary of Tencent’s broader conglomerate.
For additional perspective: last year 137 Chinese companies IPOed, raising whopping $32.2B combined. With Ant Financial and Xiaomi raising a prospective $19B IPO size all together, that already covers more than half of last year’s raise.
Comparing to previous Chinese decacorns, there has been an overall decrease in the number of average years it takes for a Chinese decacorn to go public, which fuels the Chinese capital markets even more.
The gradual rise between 2000 - 2014, in my guess, was likely due to a larger number of companies that were realizing growth and critical mass, and were still maturing in terms of how to be efficiently run and in what was considered an emerging economy. The ’08 crash didn’t help shorten the time span either. Additionally, those were the periods when China was adapting to the changing technological landscapes. By 2015 once most regulations have been setup, and with far more open and free markets, it became incentivizing and lucrative to take companies through liquidity rounds, and at a faster pace than ever while the market is hot.
When you compare this data to the state of unicorns 5 years ago charted by Aileen Lee not too long ago, she noted that U.S. unicorns on average takes 7 - 9 years to liquidate. Though it’s hard to be conclusive with the data provided above, one takeaway we can gather is that Chinese companies are closing in on the speed at which companies are founded then IPOed. I predict that the landscape can change even further with the introduction of ICOs via cryptocurrencies, which, if materialized, can evolve into an alternative medium for cash infusion and public interest by way of a decentralized currency network (we’ve seen this happen with the app Telegram, which raised over $1.2 billion via the public markets).
Alibaba stands to be the largest IPO in the history of tech, raising $25B on U.S. soil (Nasdaq). But what was more interesting was the backstory behind where it got to be the largest.
Alibaba chose to list at NYSE back in 2014. The decision to raise in the U.S. came from a dual-class voting controversy that forced Alibaba to move away from Hong Kong’s public listing. At the heat of this lost, and the success that followed for the tech giant, it became a wake up call to have them amend their mistakes and switch up their policies. It is critical to HK’s long-term economic power to be attractive to private players, and that recognition consequently became a forcing function to pressure the city to be more global friendly and more open to listing convenience.
This is likely one reason why we are seeing a mad increase in the number of prospective IPO companies for 2018 alone; although NYSE has been perceived as the crowned hallmark for any IPO company, because of the positive, swift HK changes over the past years, it can be that Chinese companies prefer to bring companies back home with regards to increased geographic convenience and to capitalize on the domestic wealth (e.g. tax breaks).
HK isn’t the only city that is taking part in the “exchange showdown” – the LSE: London Stock Exchange, is also trying to attract Chinese tech darlings. The fight to be the leading international center for the capital markets is on, and almost analogous to the story of U.S. cities constantly courting Amazon for their HQ2 setup, private markets are having the upper advantage in the golden age of technology.
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Again, China, with its multitude of tech decacorns, is now undoubtedly in a position of global power. To me, this is exciting because it’s exposing the maturity of the global markets, not only the U.S.’s; Silicon Valley has been for the longest time seen as a beacon for technological breakthroughs and innovation. But with the world shifting around, it forces us as technologists and investors to think not at the micro-level, but at the macro, and how internationalization can both strengthen and threaten us.
I call that: opportunity.
Sources: 1 2 3 4 5 6 Crunchbase, Wyatt
I'm an Investor @ Obvious Ventures (obvious.com). Previously, I was a Product Manager @ Dropbox, Uber and FiscalNote, & studied CS at Stanford. I also write on Medium.
Ping me daniel@ obviousventures.com, or follow @dcliem / AngelList– let's chat.