China’s venture capitalists have started to take an interest in foreign startups in an attempt to find the next tech unicorn.
“China’s venture capital landscape is undergoing a shuffle,” Shanghai-based Wei Zhou, founder and CEO of XNode, said in an interview with Venture Beat, “which means that startups are scrutinized more rigorously than in the past and fewer domestic candidates pass the screening. This opens the door like never before to founders of foreign-bred startups with deep tech solutions that are serious about commercializing in the Chinese market.”
While Chinese VCs have been wary in the past of investing in foreign startups, things shifted last year when Google’s DeepMind AlphaGo artificial intelligence (AI) computer beat the world champion in China’s ancient board game, Go. The loss was seen as a national embarrassment, and two months later, China’s State Council launched the New Generation AI Development Plan, aimed at ensuring that the country becomes a world leader in AI by 2030.
And within the past year, Chinese tech investors are stepping up their game in looking outside for promising startups. For example, Glory Capital launched two venture funds: the first with RMB 250 million ($36 million) for investing in Chinese startups, and a second fund of around $10 million for Israeli startups that the company believes will succeed in China.
“We add value to our Israeli portfolio companies by connecting them to the likes of Xiaomi and Huawei, two of China’s hardware titans, helping them commercialize their products here in China,” said Eric Yang, one of Glory Capital's co-founders.
As of October 2018, venture investment in China hit $93.8 billion, $2.2 billion more than the US. It takes an average of four years for a startup in China to reach unicorn status, compared to the seven years it takes in the U.S. There are now 109 unicorns with a total valuation of $535 billion in China, and 127 unicorns in the US with a total valuation of $478 billion.