The top 25: Zhaohui (Jeffrey) Li Tencent Investment

In 2011, when Tencent set up a RMB10bn (then $1.5bn) corporate venturing program, one insider said: “Overseas, Tencent is being cautious partly as the China market is so big and also because so few Chinese companies have been successful overseas. So they are developing gradually, certainly compared with US firms’ way of doing business, which is to go into a market and tell how it should be done.”

Six years later and Zhaohui (Jeffrey) Li, Tencent Investment’s managing partner and a co-head of mergers and acquisitions – with Forest Lin since September 2015 – has exceeded expectations and invested more than $10bn in at least 300 companies. That excludes closing the acquisition of a majority stake in Finland-based gaming company Supercell for $8.6bn in October last year from Japan-based conglomerate SoftBank. The Supercell acquisition was complicated by Tencent syndicating 50% of the equity to others and a $3.5bn loan, requiring an enormous amount of negotiating, Li admitted.

Best-known for its flagship social products, WeChat and QQ, Tencent since September has been China’s largest listed company with a total market cap of nearly $300bn. The company said it was “committed to an open platform strategy, through which they aim to provide users one-stop lifestyle services by working with different partners”.

It added: “As part of the efforts in developing such an open platform, Tencent Investment’s team of 40-plus professionals, including a post-investment management team, has built an investment portfolio of hundreds of companies across all stages and in various sectors, including online gaming, social, e-commerce, online-to-offline (O2O) services, content, finance and healthcare, with multiple notable names like Riot Games, Didi, and”

By the end of 2015, the total fair value of Tencent’s investment in just listed portfolio companies reached $15bn, the company said.

With a phenomenal estimated 100 deals in both of the past two years, Tencent more than matches traditional corporate venturing industry behemoth Intel Capital by number of deals while putting billions more dollars to work – $5.5bn in 2015 alone. Li told attendees at the Global Corporate Venturing & Innovation Summit in January he expected to make another 100 investments this year.

Just last month, China-based classified listings provider agreed to spin out its second-hand goods mobile commerce platform Zhuan Zhuan with $200m of funding and resources from Tencent. Tencent is a long-term investor in New York Stock Exchange-listed itself, having paid $736m for a 20% stake in 2014 before adding $100m later in the year and another $400m at the time of 58’s Ganji acquisition.

And in India last month, e-commerce firm Flipkart raised $1.4bn from internet group Tencent, online marketplace operator eBay and software provider Microsoft at a post-money valuation of $11.6bn, while India-based grocery e-commerce platform BigBasket reportedly entered talks with Tencent and conglomerate Fosun for a prospective funding round sized between $110m and $150m.

But the biggest deal last month – possibly the biggest yet – involved Tencent’s investment in car-hailing service Didi Chuxing’s $5.5bn round at a reported $50bn valuation.

In January, Li had nominated Yao Xia, executive director at Tencent Investment, as a GCV Rising Star 2017 for this portfolio company. Li said: “He was the one to find Didi Taxi three years ago and is the driving force of our O2O social commerce practice.”

In one month, therefore, and just in its larger, public deals, Tencent invested hundreds of millions of dollars putting it on track to invest billions again this year in companies that are or could be so-called unicorns – businesses worth at least $1bn.

For example, Xia noted for his GCV Rising Star profile that two of his other deals had also reached at least $1bn in value. Online retail startup Xiaohongshu – Little Red Book in Chinese – was valued at $1bn in March last year, compared with the $70m valuation when Tencent first invested in 2014’s $10m B round. And used-car auction company Youxinpai was worth $2bn when it was raising a reported $400m earlier last year, compared with when Tencent first invested at a $50m valuation for the company’s series B round in 2013.

Li and Lin run a venturing and M&A team that draw on exceptional dealmaking experience in two former Goldman Sachs alumni, Martin Lau, Tencent’s president, and James Mitchell, its senior executive vice-president and chief strategy officer. Both Lin and Li report to Mitchell, who spent more than a decade experiencing “frequent jet lag”, as he described in his LinkedIn profile, as Goldman Sachs’s head of communications, media and entertainment research.

Analysing why China-based corporate venturing units had been so quick to develop their activities, Li for last year’s Powerlist said: “The competitive landscape of China internet space, especially the very high iteration speed of the market, forced all major players to capture future innovation. In that case, there might be relatively more minority deals [in China] compared with the US market. And the giants might leverage their market resource to speed up the growth of the investee company.”

The unit’s vision for the future is significant, with its sights set on a huge ecosystem that includes gaming, entertainment, transport, e-commerce and local services.

Tencent Investments is hoping to foster innovation in sectors such as virtual and augmented reality, driverless vehicles and pharmacology, as it drives consolidation across sectors including transport, where ride-hailing apps Didi Dache and Kuaidi Dache merged to form Didi Chuxing, a Tencent portfolio company, in February 2015.

Li said at last year’s GCV Symposium in London: “We have luckily had very strong organic growth, as we make investments off the balance sheet.”

Last year, Tencent posted profit of RMB41.1bn ($4.1bn), up 43% from 2015, while revenue rose 48% to RMB151.94bn as WeChat’s monthly active user numbers hit 889.3 million at the end of the year.

Tencent Investment is also taking an interesting approach to its portfolio companies, choosing to treat them as business units rather than separate entities, and Li said e-commerce company, in which Tencent owns a 20% stake, benefits significantly from that partnership model.

About 80% of Tencent’s deals have been conducted in China, though Martin Haemmig, an adjunct professor at Centre for Innovation & Technology Management, who introduced Li at the conference, hinted the company might increase its focus on Europe in the near future.

Li concluded his symposium keynote with his unit’s philosophy, dubbed “alliance of heroes”, alluding to online game World of Warcraft, stating that: “Rather than having one powerful hero in the game to play with, we try to play with an alliance of them in collaboration.”

In this regard, he paid tribute to the insights from its own corporate venturing investor, South Africa-based Naspers’ MIH unit, which has retained its roughly one-third stake taken more than a decade ago.

Li was promoted at the end of 2014 from executive director covering earlier-stage deals to managing partner, and he said helping investee companies was one of his main successes.

Li joined Tencent in 2011 and launched and led Tencent Investment’s efforts to penetrate key O2O sectors, including automotive, education and healthcare. He was responsible for Tencent’s investments in Huayi brothers, Zhihu, Netmarble Games, Howbuy and many others around the world.

Before joining Tencent, Li worked as an investment principal at Germany-based publisher Bertelsmann’s Asian corporate venturing unit run by Annabelle Long for two years.

He led deals there for Chinese automobile industry content and marketing services firm BitAuto and others, such as Phoenix New Media, in which Bertelsmann invested $2.8m for a 2.9% stake as part of a $25m round. Bertelsmann sold its stake in BitAuto to unidentified buyers for $65m at the start of 2014. Bertelsmann had reportedly invested $12m in BitAuto in 2009 and it floated on the New York Stock Exchange a year later, a year before Phoenix New Media.

Before that, Li worked for Google and Nokia in various product and business roles, where he gained substantial experience in the internet and mobile arenas. He holds a bachelor’s degree from Peking University and an MBA from Duke University’s Fuqua School of Business.