In venture investing, most attention has traditionally been on US firms and deals, given the US has traditionally made up about two-thirds of the global market and has the longest history in its modern form. However, the rapid rise of Chinese internet groups that have raised money from corporate venturing and then listed and continued generating large free cashflows has created a band of supremely ambitious investors with the money and ability to lead large rounds around the world.
Alibaba, a China-focused, US-listed e-commerce company, was already an active investor before it celebrated the world’s largest IPO at the time in 2014, when underwriters exercised their option to purchase additional shares and boosted proceeds to $25bn.
That same year, the company backed 12 startups that raised a combined total of more than $1bn – a vast increase on its 2009 portfolio, when its three startups secured $22m.
The company has been stepping up its corporate venturing activity over the years, with 2015 a particularly busy one for funds that were either launched directly by Alibaba or secured some capital commitment from the group.
Most recently, Alibaba said it would train a million teenagers in rural China to start their own online businesses, through an agreement with the China Communist Youth League, according to the official Xinhua news agency.
In November 2015, Alibaba supplied more than $435m to non-profit funds targeting entrepreneurs creating technology that uses the company’s ecosystem – e-commerce, logistics, mobile, cloud computing and financial services offerings. The money was split between a $307m Taiwan Entrepreneurs Fund, managed by VC firm Gobi Partners, and a $129m Entrepreneurs for Hong Kong fund and will support companies at all stages.
The Alibaba Hong Kong Young Entrepreneurs Foundation is offering capital, training and assistance to local people hoping to launch startups that rely on Alibaba’s e-commerce platforms. The foundation is set up as an evergreen fund. At the time, executive chairman Jack Ma said: “We hope to create life-changing opportunities so that Hong Kong’s young people have an opportunity to build thriving businesses that will serve as a bridge between Hong Kong and mainland China.”
Also in November, Alibaba joined internet company Tencent to invest in CMC Holdings, a vehicle created by China government-backed private equity fund China Media Capital, that is targeting a $1.6bn close. Private equity firm Oriza also became a limited partner in the fund, which will focus on the content creation and hardware platforms markets.
In September 2015, Alibaba partnered social media platform Sina Corporation and Yunfeng Capital, the investment vehicle of Alibaba’s chairman Jack Ma, to create a sports technology group. Alibaba did not say how much of the group’s focus will be on investments, though Yunfeng’s participation pointed towards at least some degree of equity funding efforts.
A couple of months earlier, in July, Alibaba revealed a $161m fund targeting mobile app developers creating on-demand local services. Concurrently, the company’s financial services affiliate Ant Financial Services Group committed a total of $160m in the form of low-interest loans.
Ant Financial launched its own VC fund in May 2015 – Ant Ecosystem Co-Win Fund – aimed at internet finance startups and companies operating in related sectors, including online-to-offline services. Ant’s corporate venturing deals have included a stake in India-based Paytm – founded by One97 Communications – V-Key and 36KR.
In a combination of equity funding and fundraising, Alibaba disclosed a $194m investment in China Business News in June 2015 that gave the e-commerce company a 30% stake in the financial subsidiary of China-based media conglomerate Shanghai Media Group and initiated a partnership to operate an incubator to seek out opportunities in the media sector.
In March 2015, Alibaba joined VC firm Jerusalem Venture Partners’ seventh fund with a $15m commitment. The cash is expected to be directed primarily at data storage and network technology developers, and followed Alibaba’s debut investment in an Israeli startup two months earlier, when it supplied $5m in series B funding for scannable QR codes producer Visuaelad.
March last year was a busy few weeks for the company when it came to funds, as its cloud services provider subsidiary Aliyun launched Founder-plus, which aims to seek out startups in China. Founder-plus has also been backed by IDG Capital Partners, a VC affiliate of media company International Data Group, Innovation Works, Zhenfund, plus another 27 VC firms, 20 research firms and 20 marketing companies.
Based on its activity in the past 12 months, Alibaba seems to have no plans to reduce its corporate venturing efforts – the year was its busiest for funds since Global Corporate Venturing began tracking the business. The reasons for that keenness are perhaps best encapsulated by Joe Tsai, executive vice-chairman of Alibaba, who 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 the time, Alibaba was just 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 this year.
Leading such a high-profile round reflects Alibaba’s status as one of China’s internet titans, along with Baidu and Tencent. 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 will join Magic Leap’s board. Tsai was part of Alibaba’s founding team in 1999, 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. Alibaba’s founder, Jack Ma, also sits on the board of SoftBank, its major shareholder.
The company is in good company, above all in its homeland, from where reports emerged recently that funds supported by the government raised $230bn last year, as reported by our sister publication Global Government Venturing.
In the five years that Global Corporate Venturing has been closely following Alibaba’s corporate venturing activity, the firm has primarily, and unsurprisingly, focused on the consumer sector, where it has conducted at least 13 deals over that period. The sector shares first place with IT (also 13 deals), and is followed by transport (eight), media and services (six each) and financial services (two).
Most recently, portfolio company China Internet Plus Group, a China-based local services company, secured $2.8bn in a round featuring internet company Tencent. China International Capital and Capital Today also contributed funds to that round, which followed the company’s formation after a merger of Meituan and Dianping. Alibaba had led a $50m series B round for Meituan in 2011 and returned to participate in a $300m series C in 2014.
In fact, Tencent is the top co-investor with Alibaba, sharing six portfolio companies with the e-commerce group. Temasek, the sovereign wealth fund of Singapore, meanwhile has invested alongside Alibaba in four startups, while insurance provider Ping An, semiconductor specialist Qualcomm and telecoms firm SoftBank participated in three deals with Alibaba. SoftBank was one of Alibaba’s earliest investors, have contributed to rounds in 2000 and 2004, according to database provider Crunchbase.
Just looking at these coinvestors identifies how the top tier of businesses build ties that help expand their influence further. Temasek first invested in Alibaba in the fiscal year ended March 2011, buying $36m of the company’s China registered shares, and the value of the holding increased by $1bn to $3.86bn as the shares gained 38% in the period despite some sales recently.
Temasek has also backed Alibaba’s 48%-owned logistics startup, Zhejiang Cainiao Supply Chain Management, which has also gained funding from Singapore’s GIC and Malaysia’s Khazanah Nasional at a reported $7.7bn valuation.
Alibaba has strong ties with government investors. Its financial services subsidiary company Ant Financial last July closed a series A funding round which included investment from China’s largest pension fund, the National Social Security Fund, “major Chinese insurance corporations” and other investors, and Ant is reportedly currently looking to raise a further $3bn at a $60bn valuation.
With revenues in Alibaba’s fourth quarter in 2015 rising to RMB34.5bn ($5.3bn), the company is also unafraid to take on businesses such as Uber, a ride-sharing app developer that is gunning for world dominance of the sector and, despite regulatory challenges in several markets, has been mostly unstoppable so far. Indeed, Alibaba is betting on the success of Uber’s China-based rival Didi Kuaidi, whose $3bn funding round in September 2015 is the largest that Alibaba has participated in to date and the single largest recorded by a private company. To balance its odds, Alibaba has also been an investor in taxi company Lyft’s $1bn series F round.
Ping An Ventures, the investment unit of Ping An, co-led that Didi Kuaidi round with sovereign wealth fund China Investment Corporation and private equity fund Capital International Private Equity Fund, while Tencent and Coatue Management also participated.
Didi Kuaidi was specifically formed to take on Uber and is the result of a merger between Didi Dache and Kuaidi Dache in February 2015. Its warchest stands at approximately $4.5bn, which may soon receive another boost as the company disclosed in February 2016 that it is seeking $1bn in fresh funding.
In fact, Alibaba’s top 10 biggest deals are rounded off with Kuaidi Dache: the startup secured $600m in a January 2015 round led by SoftBank’s subsidiary SoftBank Internet and Media. Apart from Alibaba, the round also featured Tiger Global Management.
Meanwhile, Alibaba’s largest acquisition to date as recorded by our deals platform GCV Analytics is the $1.5bn acquisition of China-based digital map service AutoNavi in 2014. Alibaba had been a shareholder since 2013, when it purchased a 28% stake in return for a $294m investment that valued AutoNavi at $1.05bn. AutoNavi had floated in the US on stock exchange Nasdaq in a $107m IPO in 2010.
Finally, Alibaba’s biggest exit to date came in 2014 when China-based microblogging platform Weibo completed an IPO that raised $285.6m despite floating at the bottom of its range at $17 per American depositary share.
Rather than celebrating a return on investment however, Alibaba decided to increase its stake from 19.3% to 32% by acquiring an additional 29 million shares – perhaps fuelled by the shares’ lower-than-anticipated price. Weibo has had a bumpy ride on Nasdaq since the flotation, trading anywhere between less than $12 and just over $20 since its heights of $24.11 on the second day of its IPO.
Alibaba hopes to be a company that lasts at least 102 years – having been founded in 1999, it would mean the business will have spanned three centuries, a claim that only a few select enterprises can make. Fostering an ecosystem around its different offerings is arguably one of the most sustainable ways to achieve that ambitious vision.
It remains to be seen whether that will mean Alibaba will eventually join the ranks of SoftBank, the Japan-based company that started out as a telecoms firm but has morphed into a diversified holdings firm and last year revealed it was winding down its corporate venturing unit to integrate strategic investments into the parent company’s business plan.