Take probably the best venture capital exit you can think of, such as say Meta (then known as Facebook’s) $22bn acquisition of social messaging application WhatsApp in 2014. It was a big win for Sequoia Capital, the company’s only venture investor, which turned its $60m investment into a reported $3bn.
Then multiply it. China-based gaming and internet group Tencent at the end of last year said it would pay a $16.4bn dividend in the stock of China’s second-biggest ecommerce group, JD.com, of which it is the largest shareholder.
This comes seven years after Tencent paid $214.7m in cash and transferred its e-commerce businesses QQ Wanggou and Paipai and a minority stake in Yixun to JD.com. Tencent took a 15% stake in JD.com at that time and also agreed to buy a further 5% at its May 2014 flotation on the Nasdaq stock exchange.
More importantly, JD formed a strategic partnership with Tencent, giving JD exclusive access to Tencent’s WeChat and Mobile QQ platforms, which then had more than 200 million users and now have 1.2 billion.
But whereas Sequoia has set up a master fund structure to try and hold its assets longer, especially after they list, Tencent is being forced in the other direction.
Capital inflows into US corporate-backed deals 2021

As the Financial Times notes: “The Chinese government is forcing Chinese tech groups to retract the financial tentacles that tie them together to the detriment of consumers – and state power.”
The HK$127bn ($16.4bn) transfer cuts down Tencent’s stake in JD from 17% to 2%, leaving Walmart as JD’s largest investor. US-listed retailer Walmart acquired 5% of JD.com in June 2016 and agreed a strategic partnership.
Last month, Tencent trimmed its stake in Singapore-based, listed shopping and gaming application Sea by selling shares worth $2.8bn to $3bn. Tencent sold the shares at $208 each and, after the sale, Tencent’s stake in Sea declined to 18.7% from 21.3%.
Tencent had participated in five rounds of funding to Sea between 2014 and 2017’s initial public offering, investing a total of approximately $268m, according to its prospectus. Tencent’s remaining 18.7% stake was worth about $19bn, more than 70 times its pre-IPO investment, according to news provider Nikkei.

The divestments were a reversal of Tencent’s prior policy to hold and invest more in portfolio companies even after their flotations.
Last summer, China-listed Meituan raised an additional $400m from Tencent. Tencent increased its share of the local services and ecommerce group to 17.2% from 17%. Meituan said it would use the proceeds for technological innovations, such as unmanned vehicles and delivery drones, and it remains Tencent’s most valuable holding.
The FT added: “Over the past decade Tencent has been one of the country’s most active investors, nurturing hundreds of tech startups and slowly accruing a publicly traded investment portfolio valued at Rmb1.2tn ($190bn) as of September 30, equalling roughly one-third of its total market value….
“Tencent shares rose 4% following the dividend announcement. They are down a fifth this year. It will remain a risky investment so long as Beijing’s break-up of big Chinese tech groups continues.”
Similar moves to unwind the conglomerate model of growth investing at Alibaba, Bytedance and other active CVCs in the country will have potentially important ramifications for China’s innovation ecosystem given the historical make-up of the CVC and VC industry.
Alibaba-backed financial services provider Ant Group shut down its online crowdfunded medical aid service Xianghubao on January 28.
China’s Banking and Insurance Regulatory Commission (CBIRC) has said since last year that all online financial activities must be overseen and licensed by regulators. Mutual aid platforms, such as Xianghubao – with 100 million members – and Tencent-backed Waterdrop, are not licensed by the CBIRC and have been closed.
ByteDance, the China-based owner of short-form video app TikTok, said it was dissolving its corporate venture capital team, according to newswire Bloomberg.
ByteDance said it wanted to “strengthen the focus of the business, reduce investments with low connection (to the main business) and disperse employees from the strategic investment department to various lines of business,” ByteDance told CNBC.
Instead, some corporations are focusing more on externally-managed VC funds to avoid regulatory pressure.
China-listed Yangzijiang Shipbuilding has committed RMB900m ($141.5m) as a limited partner in Wuxi Jinyu Yangchuan Venture Capital, which is managed by Tibet Gold Investment Management. Yangzijiang has committed 90% of the fund, which will provide seed capital in China’s Jiangsu province’s healthcare, new materials, information technology services, smart manufacturing, new energy and ecological environment industries over the next seven years.
After a quiet end to 2020 as Alibaba and its related Ant Financial group suffered regulatory pressure, the company’s corporate venturing units have bounced back by the end of 2021 and helped the country reach record investment activity last year.
Venture-capital investors put $129bn into more than 5,300 startups in China in 2021, higher than the market’s last record of around $115bn for 2018, according to data from investment database Preqin quoted by the Wall Street Journal (WSJ).
And where the CVCs are investing directly it seems more focused on government-approved investment areas of strategic importance to the country, such as deep tech and chips.
The WSJ added: “Unlike in previous years, when most Chinese tech funding went to internet startups in e-commerce, the bulk of the money in the past year headed into areas that hew more closely to Communist Party priorities, such as semiconductors, biotechnology and information technology….
“The country’s new five-year plan labelled technology development a matter of national security and announced aims to increase spending on research and development by 7% annually – higher than budget increases for its military. The economic blueprint included plans to speed up development of technologies from chips to artificial intelligence and quantum computing, which officials hope can reduce China’s reliance on foreign providers or allow it to take the lead in advanced technologies.”
Tao Liu has recently moved to the strategic investment group at China-based online retailer Alibaba Group.
He will back cloud and tech companies having spent the past seven months at sister company Alibaba Cloud making undisclosed technology investments on semiconductors and silicon, sensing, artificial intelligence (AI) and virtual reality.
Capital inflows into US corporate-backed deals 2021

Alibaba Cloud, the cloud services subsidiary of e-commerce group Alibaba, last year pledged $1bn to an initiative to support tech startups and developers. Project AsiaForward, as the initiative was dubbed, is intended to support some 100,000 recipients over the next three years while also providing training for prospective software developers and linking entrepreneurs to venture capital investors.
In addition, Chinese technology companies are considering expanding overseas much earlier in their lifecycles, a venture capitalist told CNBC – marking a shift in attitude among firms in the world’s second-largest economy.
That shift has been prompted in part by China’s tighter regulatory scrutiny on technology as well competitive pressure in certain sectors, according to Ben Harburg, managing partner at venture capital firm MSA Capital.
He added early-stage companies in sectors from artificial intelligence to health care were going global or “thinking about plotting their globalisation strategy”.
Such Chinese firms could find that their business models work in emerging markets in particular, Harburg said.
Xiaomi is now the third-largest smartphone player by market share globally – thanks to big gains in India – while Tencent and Alibaba have also been investing more overseas.
New research by Harvard Business Review into “Xiaomi’s growth strategy suggests that the Beijing-based electronics giant has developed a blended approach, borrowing elements of both traditional ecosystem and CVC firms to create a broad ecosystem of strongly-supported partner ventures….
“Xiaomi structures its investments to incentivise innovation and build trust while still ensuring alignment, proactively fosters an ecosystem mindset throughout its organisation, and takes a deliberate, measured approach to expanding the scope of its ecosystem over time.”
Other Chinese companies, such as Huawei, Oppo, and Vivo, are also pursuing strategies modelled on Xiaomi’s blended approach, HBR added.
Nevertheless, regardless of approach, China will require the country’s biggest firms to get approval for any investment deals they make.
The Cyberspace Administration of China, the country’s main internet regulator, recently enacted a new protocol that means internet companies must obtain formal approval for investment deals if they have 100 million users or more or have posted revenue of at least RMB10bn ($1.5bn) in the past year, people told the WSJ.
The Cyberspace Administration of China said on WeChat that it has not publicly announced any new rules.
But just as China tightens control on domestic firms the US has started paying closer attention to inward venture investment into the Asian country, while other countries, such as the UK (see box on p87) tighten their own scrutiny of dealmaking.
A proposed new screening regime would have seen up to 43% of US investment in China between 2000 and 2019 come under review under the proposed new legislation.
Lawmakers have debated the so-called National Critical Capabilities Defence Act (NCCDA), which was introduced by US senators last year, and would follow rules focused on Chinese investment into the US through the Committee on Foreign Investment in the United States (CFIUS) and Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
But other countries are continuing to invest (see box below), potentially limiting impact as the world moves into bipolar areas of geopolitical and financial influence between its two largest economic and military superpowers: China and the US.
One question, if in the legend of giants Mothra and Godzilla, which one is analogous to the US and which to China?
Alternative ways into China
South Korea-based financial services company Qraft Technologies has raised $146m from SoftBank Group.
Part of SoftBank’s money will be used to help the company expand in the US and China while an undisclosed amount will be used to fund share purchases from undisclosed investors. Qraft said it would open offices across New York, San Francisco as well as Hong Kong.
SoftBank said it would become a customer of Qraft to run an artificial intelligence (AI)-enabled public portfolio management system.
Qraft develops and operates deep learning-based algorithms that provide portfolio weight signals which can be alpha-generative. The company has used its AI engine for its NYSE-listed exchange-traded funds (ETFs).
Kentaro Matsui, managing partner at SB Investment Advisers, which runs the two Vision Funds, and former managing director at SoftBank Group, said: “Qraft can revolutionise the way financial institutions manage public equity assets, by providing their own AI technologies that have been tested and proven in the US equity market.”
Robert Nestor, former president of Direxion ETFs and head of BlackRock’s iShares Factor ETF business, who recently took charge of Qraft’s US expansion as US CEO, said outside of trading, AI technology had only started to change the $100tn asset management industry.
In a call he added that traditionally managers tried to find alpha – the excess return on an investment after adjusting for market-related volatility and random fluctuations – by developing a hypothesis and testing it against data to support disprove the model. With AI, however, the algorithms can look at the data and come up with models to generate outperformance.
SoftBank’s private company data from its portfolio and insights could bring unique insights to public trading Nestor said.
“It is an inevitable evolution,” he added.
Inflows into corporate-backed deals in major regions

UK implements security act
The UK’s government’s switch-on moment for its National Security Investment Act that came into force last month followed insights from Lord Gerry Grimstone, UK Minister for Investment at the UK’s Department for International Trade (DIT) and the Department for Business, Energy and Industrial Strategy (BEIS), at the GCV Symposium in November .
The act requires minority investments in sensitive sectors to be reviewed before clearance, similar to the US’s CFIUS and FIRRMA regulations.
Lord Grimstone had promised clarity and speed in his earlier keynote discussion at the 10th GCV Symposium but also the prospect of the “more investment opportunities than I have seen in my lifetime” due to the reinvention of the economy around sustainability and decarbonisation.
Hosted the Institute of Chartered Accountants in England and Wales (ICAEW), Martin Callanan, a UK Minister in the House of Lords, explained the rationale behind the move that will affect deals in 17 core sectors that might impact UK national security – similar to approval rules in the US (CFIUS), Germany, Australia and Canada.
Chris Blairs from the UK ministry running the supervision unit, BEIS, and Andy Sellars at the CSA Catapult representing entrepreneurs and researchers from a majority (nine) of the affected tech areas said about a third of deals could require notifications with maybe 10 reviewed based on prior analysis, although lawyers and advisers said almost all public deals would likely be put forward.
However, the Act replaces the Enterprise Act of 2002, which has only had about a dozen cases called in for review and none blocked, including the controversial Newport Wafer deal in the summer when the UK’s only fab was seized by one of its corporate venturing investors for failure to hit a conditional clause (delivery of chips) – a type of negative ratchet often used by Chinese investors. Although the Newport deal is nominally still under review Companies House shows a transfer of shares have happened – a move very hard to unpick ex post facto, lawyers said.
Of greater impact than a potentially toothless Act that just slows down dealmaking and creating more work for lawyers, therefore, will be how BEIS approaches protecting university researchers and startups before a controlling (defined as a share of at least 25% of shares or voting rights or with material impact on governance) takeover or investment happens. Here a little more progress is being made behind the scenes to limit university vice-chancellors’ proclivity to take hostile actors’ money but almost nothing on the training for venture investors and procurement support for startups to tackle cybersecurity.
Nicole Perlroth’s sobering investigation into the cyber weapons arms race, This Is How They Tell Me the World Ends, has just been named Financial Times and McKinsey Business Book of the Year for 2021 and should be read more inside government as well as business.