China-based e-commerce firm Alibaba was co-founded by Jack Ma, executive chairman, and Joseph Tsai, executive vice-chairman, in 1999, but it is Tsai who controls its investments and corporate venturing strategy along with his direct report, Ethan Ying Xie, managing partner of Alibaba Innovation Ventures, that have built up its market dominance.
Alibaba aims to be a company that lasts at least 102 years, so that it will have operated across three centuries, and many of the company’s current plans hinge on the abilities of Xie, who joined Alibaba in January 2013.
With growth at payment platform Alipay, which is owned mainly by Alibaba’s founders, Jack Ma and Simon Xie, rather than Alibaba, and financial unit Ant Financial, which Alibaba spun off ahead of listing expected sometime this year on the new Shanghai technology board, according to an unnamed delegate from the Chinese People’s Political Consultative Conference, the group has strong potential inside and outside China.
Alibaba has complemented venture deals with significant outright purchases of companies, including Asian e-commerce platform Lazada, logistics platform Cainiao Network and Chinese on-demand services company Ele.me, according to one of Alibaba’s portfolio companies, South China Morning Post in an article.
Alibaba also pointed in its results to “cash outflow of RMB22,888m ($3,329m) for investment and acquisition activities, including investments in Focus Media and Tokopedia” in its fourth quarter.
Apart from Ant Financial, Alibaba backed 11 unicorns in 2018, including China-based mobile news platform Toutiao.
In China, every 3.8 days a unicorn company was born in 2018, according to a report published in January this year by Hurun Research Institute. Chinese unicorns, which are worth an aggregated $700bn, grew from 2017’s 120 to 186 by the end of 2018 – a 55% increase. Ant Financial and Toutiao dominate one-third of the Chinese unicorn market which is an indicator of how important Alibaba is, even excluding their track records outside of the country.
Alibaba first began investing heavily in 2013 when Xie joined. Tsai summed up the vision when he said in 2013: “Alibaba is run by entrepreneurs, and we believe in supporting entrepreneurs with great vision and a strong sense of mission for their companies.”
At that time, Alibaba was launching an investment arm in the US to seek startups working in the e-commerce and emerging technologies spaces. It has since scaled up in the US, including leading the $793.5m series C round for augmented reality company Magic Leap in February 2016 and joining October 2017’s $502m D round – a second tranche was executed in March 2018 by Saudi Arabia’s Public Investment Fund and other new investors including Axel Springer Digital Ventures, the media group’s CVC unit, thereby making it a $963m D round.
Leading such a high-profile round affirms Alibaba’s status as one of China’s, and the world’s, corporate titans. Rony Abovitz, founder, president and CEO of Magic Leap, said: “We are excited to welcome Alibaba as a strategic partner to help introduce Magic Leap’s breakthrough products to the over 400 million people on Alibaba’s platforms.”
As part of the round, Tsai joined Magic Leap’s board. Tsai was part of Alibaba’s founding team in 1999, along with Simon Xie and Ma, having previously been a private equity investor at Sweden-listed Investor AB. Alibaba’s senior team is experienced in venture investing, with CEO Daniel Zhang leading its strategic investments in Haier, Intime Retail, which he chairs, and Singapore Post. Ma also sits on the board of SoftBank, a major shareholder after its earlier corporate venturing deal to back Alibaba’s growth. US-listed Yahoo also owns a substantial corporate venturing stake in Alibaba.
They are, therefore, well-qualified to judge a good investor and rate Ethan Xie highly, as do his peers. When Xie ran a workshop at the GCV Academy in Shanghai, he scored 4.5 out of 5 for the program presentation and was described as having “very good local knowledge and a well-respected brand in CVC”, according to Andrew Gaule, who headed the academy at the time.
In an interview held in July last year with 36kr, Xie said: “Alibaba is essentially a commerce company. The success of an investment is not based on financial returns, but rather on the strategic synergy with our main business units and see if there is a chemical reaction of 1+1>2 between Alibaba and the invested company.”
Adding that in 2018, Alibaba had focused on AI, chips, semiconductors and storage, Xie said: “The ability to generate business value is the only criterion for Alibaba to evaluate the success of its strategic investment.”
Alibaba also makes forward-looking investments unrelated to its core business, such as smart travel, focusing on the company’s technological innovation and business model innovation.
Alibaba’s strategic investment department has three teams – one being the TMT (technology, media and telecom) Xie is responsible for, and the other two being entertainment and retail. The three teams also work with different business units.
For example, Xie said: “I cover Alibaba Cloud, enterprise services, enterprise app Ding Ding (also known as DingTalk), Alibaba’s technical support department AIS, and so on. The investment team will go to the weekly, fortnightly or monthly meetings with business units to find out what they are going to do.
“When we invest in any project, we have to deal with the business units. Whether a company is discovered by the investment team or by the business units, there is a lot of communication going on in the early stages.”
Albeit the differences between departments, their ultimate goal is the same, “that is, invest in this company if it can have long-term value for the Alibaba Group as a whole”.
In mergers and acquisitions, Alibaba’s attitude toward entrepreneurs is for them to stay together. For example, Alibaba acquired UCWeb in 2014 for $4.7bn – the largest Chinese internet M&A deal – and its CEO Yongfu Yu became president of Alibaba UC’s mobile business group.
Xie said: “The most important thing is the entrepreneur’s own ability. If they can reach the M&A step, it shows that they have the ability to do so. In the end, whether or not you can integrate into Alibaba’s team will ultimately be reflected in your ability.
“In fact, you should treat the founding team of the acquired company as a normal talent flow. I do not want to distinguish whether someone came in through M&A or if we recruited them. There is no essential difference. The core is that after you integrate – are you in a better state to do better things? That is the most important question.”
Based on its activity in the past 12 months, Alibaba seems to have no plans to reduce its corporate venturing efforts. If such dealmaking continues, Xie, with a science degree from Tongji University and a post-grad from University of Sydney, could feel he has already packed a 100-year history into his short time at Alibaba.
