June issue editorial by James Mawson, editor in chief, Global Corporate Venturing
As the worlds of innovation and capital met up for the GCV Digital Forum on June 3-4, it was an opportunity to test where the future is being created as countries emerge from the first coronavirus lockdown period.
In this crucible of the future, where Europe and the rest of the world are also-rans, there is increasingly more attention on eastern activities than even the home of venture capital in Silicon Valley.
Alibaba sold more than $1 trillion of goods and services (called gross merchandise value – GMV – in the jargon) across its online platform in its last financial year.
By comparison, Amazon’s GMV last year was $335bn, Marketplace Pulse estimates based on the US online retailer’s disclosures.
Alibaba’s GMV figure reported at the end of May (its financial year-end is March 31) catches the eye. In terms of corporate venturing and acquisition activities, it also remains a giant only now broadly matched by its local peer, Tencent. (SoftBank is a special case given its near-$100bn Vision Fund over the past four years but future investments after this will likely drop after its $10bn or so of fund reserves are used up unless large exits are recorded in the interim.)
Alibaba in the 12 months spent a reported $2bn on the acquisition of Kaola from NetEase and about a further $6bn on investments, including in Meinian Onehealth Healthcare, Red Star Macalline, STO Express and China TransInfo.
Alibaba and Yunfeng, the investment firm launched by Alibaba founder Jack Ma, also agreed to invest $700m into NetEase Cloud Music’s latest funding round last September.
All this excludes the impact of Alibaba converting its profit share agreement in Ant Financial into a 33% stake in the financial services firm.
“In fiscal year 2020, we recognised one-time gains of RMB71.6bn ($10.1bn) … in relation to the receipt of the 33% equity interest in Ant Financial.”
Alibaba’s US securities filing showed RMB189.6bn of equity stakes at the end of March. By comparison, fair value of Tencent’s stakes in listed investee companies (excluding subsidiaries and private corporate venturing stakes) totalled RMB410.3bn at the end of its first quarter to end-March.
This puts Tencent and Alibaba on a par with or even above US peers, such as Alphabet’s GV, CapitalG and other corporate venturing units, which had $12.4bn in non-marketable securities at the end of March, according to its Q1 report.
But while Intel Capital has put out $132m in the first five months of the year, its Chinese peers are continuing to invest more heavily despite economic turmoil from the coronavirus and its disease.
At the end of last month, Tencent said it would invest RMB500bn ($69.9bn) over the next five years in areas from cloud computing to artificial intelligence. Alibaba a month earlier said had it would invest RMB200bn over three years in its cloud computing division.
Tencent invested $669m in half a dozen US and Europe deals, such as Roblox, Farfetch, Yager, Funcom, Qonto and Lydia, in the first quarter, as it broadened its global network, according to investment bank GP Bullhound.
During the final quarter of its financial year ended March 31, Alibaba’s net cash outflow of $476m for investment and acquisition activities was offset by cash inflow of $1.4bn from disposal of various investments. Alibaba also owned 2% of Cambricon, a China-based artificial intelligence chipmaker, at a $3bn market capitalisation at its flotation at the end of March having concentrated its investments locally.
And the investments came even as Alibaba, in particular, was caught by China’s early entry into economic lockdown for Covid-19.
Alibaba said in its annual results: “The Covid-19 pandemic has caused widespread disruptions to the economy and the businesses of our equity investees may be adversely affected, which could negatively impact our share of results of equity investees in future periods.”
Alibaba’s $810m annual loss on its equity shares was partly offset by its share of profit in Ant Financial. Alipay, Alibaba affiliate Ant Financial’s wallet, has also used corporate venturing to back nine other wallets, while Tencent’s WeChat Pay has taken stakes in others, such as Australia-based Afterpay in its second quarter.
In the Economist’s excellent special report last month on how geopolitics and technology threaten the US’s financial dominance there is an eye-catching data point on how China’s 35-fold increase in mobile payments from 2013 to 2019 saw its consumers spend $49 trillion via their phones last year after the development of the QR code and superapps to pay for almost anything out of the digital wallets from Alipay and Tencent’s WeChat Pay.
As the world turns more digital, and whether it is in the future of AI, deep tech or financial services, gaming and healthcare, the future is dawning in the east rather than the west for entrepreneurs.