Chinese startup (启动) ecosystem & growth in English (Part I)

Jugal Anchalia
Sep 5, 2018 · 5 min read

For past 3 months, I’ve been fascinated by Chinese companies and the scale at which they operate. I’ve traveled to China and met multiple people in my quest to understand this apparently closed economy. Foreigners often find it difficult to understand the growth of multi-billion dollar startup/companies active in consumer internet market in China. This is my attempt to break down the details as much as possible.

Note: Please pardon me if you find grammatical mistakes or poor use of english language in this article. I’m not a professional writer and I don’t intend to become one.


Baidu-Alibaba-Tencent

Robin Li of Baidu, Jack Ma of Alibaba & Ma Huateng of Tencent

Talking about BAT is an apt way to start the story of Chinese startup ecosystem. Although, it is quite evident that these three giants have a stake in lot of growing consumer startups in China, understanding the scale, investments and size of these startups would come as a shock to many. I have created a simple list of the network below.

About the Data:

  1. This data has been compiled with help of some anonymous researchers from whom I have gained an understanding of the Chinese market.
  2. Investments made by Alibaba & Ant Financial are not differentiated for the sake of simplicity. (Anyway, after a controversial split-up, the two companies are again united as Alibaba picked up 1/3rd stake in Ant Financial before an anticipated IPO)
  3. Names coloured in yellow indicate public/listed companies
  4. The list below shows only top investments (in terms of amount invested or a company of interest as per the author) made by each of the three giants.

Also note: This data might not be accurate and in no way represents the exact deal structure between investor and investee. Please take it with a pinch of salt!

(i) Baidu ($80B in Mar-cap): Baidu has made several investments but they are smaller in size when compared to the other two companies. Baidu usually believes in a complete acquisition of companies as opposed to picking a majority/minority stake. Also, Baidu has made investments in multiple companies operating in a similar niche.

Baidu Investments by Category

(ii) Alibaba ($450B) + Ant Financial (~$170B): Alibaba has a diverse portfolio with investments in many sectors. It has acquired controlling stake in a lot of its investments. Alibaba also has a pool of companies with strong strategic integration (both horizontal & vertical) with its core businesses — Taobao, Tmall & Alibaba.com.

Alibaba Investments by Category — Part 1
Alibaba Investments by Category — Part 2

(iii) Tencent ($410B): Out of the three, Tencent by far has the largest portfolio and capital corpus. They usually prefer to pick small stake (with long term horizon) in consumer internet companies esp. built on its own WeChat ecosystem. They also have significant investments in offline sector.

Tencent Investments by Category — Part 1
Tencent Investments by Category — Part 2

A lot of market experts see the Big 3 in China moving towards Big 2; with Baidu moving out of the league when compared with Alibaba & Tencent.


Chinese Consumer Market

In late 1970s & 80s, business ownership became popular in China, however, limited to unemployed, lower income families. Jobs in state-owned corporations & government was still considered a prestigious career prospect. However, Chinese economy really started turning towards capitalism in 1990s when trade contributed to a major share of business. A lot of poor entrepreneurs became significantly rich (present day billionaires) during that period.

With the turn of the millennium, China uncovered the potential of its consumer economy. Chinese consumers with higher disposable income than other comparable developing nations enabled innovative online & offline businesses to reach a massive scale in the mandarin-speaking closed economy.

Scale: China vs India

I’m adding some random examples on top of my head to understand the difference in size of Chinese & Indian markets.

  1. Geography: In China, 60% of the total population lives in urban areas as compared to 30% population in India
  2. Internet Users: 750m in China v 460m in India
  3. Online Transacting Users: 470m in China v 180m in India
  4. E-commerce: Alibaba Singles Day (11/11) 2017 GMV was $25B, Flipkart’s Big Billion Day 2017 GMV was $1.5B
  5. Mutual Fund: Alibaba’s Yu’e Bao, the largest money market fund in the world (bigger than JP Morgan, Fidelity etc.) is about $250B, while in India it is about $42B (ICICI)
  6. Ride-hailing Apps: Ola + Uber in India = 2.8m Rides per day; Didi Chuxing = 30m rides per day
  7. Food Delivery: Swiggy & Zomato each deliver about ~720,000 orders every day present in around 30–50 cities in India. On the other hand, Ele.me & Meituan Dianping each deliver over 15,000,000 orders every day in 1000+ cities in China

Although the scale at which Indian startups operate is quite small when compared to China, India will provide a huge opportunity for innovative startups and investors in coming years. The next phase of growth in India will definitely come from products that are inclusive of the people consuming information in hundreds of Indian languages.

Part II Chinese Growth Hack — How Chinese apps like Toutiao, YY, UC Browser and others have used product innovation to gain a significant share of time of an average consumer in China, India & SE Asia. (Expected — October 2018)

Jugal Anchalia

Written by

Founder of JustDoc | Technology Enthusiast.

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