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China Tech Investing In U.S. Slows And Refocuses In Rough Currents

This article is more than 6 years old.

China investment in the U.S. tech companies cooled off considerably last year in the wake of growing frictions over security, control and debt issues. And this cross-border deal flow will likely decrease more this year as Chinese deal makers hone in on smaller, highly focused deals in emerging companies with much lower profiles rather than the headline-grabbing deals of recent years such as Uber, Lyft and Snap.

China investment in the U.S. information technology sector checked in last year at $13 billion, off from a peak of $16 billion the year before while the number of deals declined to 74 from 97 from a high in 2016, Capital IQ data show.  The slide would have been steeper if not for the inclusion of a mega-$8 billion investment in Uber last year that was led by Softbank with Tencent, points out David Williams, founder investment banking firm Williams Capital Advisors in Silicon Valley.

China's tech titans known as the BAT or Baidu, Alibaba and Tencent have been at the forefront of this outward push into the U.S. in recent years.  The three companies have accounted for more than half or $25.1 billion of the total $44 billion invested by China companies in U.S. technology businesses over the past five years.

Despite all the attention on China's outreach to the U.S. and inroads into leading-edge American technology, the U.S. accounts for only 25 percent of this total investment by China. Asia attracts about three-quarters of China's tech investment, primarily because Chinese products and services can catch hold due to more similar cultural, demographic and tech usage trends.

But the U.S., and Silicon Valley, in particular, remain big draws. Tencent is the largest China-to-U.S. tech investor, inking $11.5 billion last year. Besides making a big bet on Uber, last year Tencent took a 5 percent stake in Tesla for $1.78 billion.  Tencent has been buying into mobile gaming businesses globally, and in early 2015, Tencent bought gaming studio Riot Games in Los Angeles.

Alibaba also has been pro-active about angling into cutting-edge U.S. tech companies. Alibaba notably co-invested $1.3 billion in two deals in 2016 and 2017 with Alphabet Inc., JP Morgan and Fidelity Management to buy artificial reality startup Magic Leap.  A few years before, Alibaba edged into the U.S. ride-sharing business, co-investing $1.9 billion in Lyft in 2014 and 2015 with Japanese e-commerce leader Rakuten, General Motors and Chinese ride-sharing giant Didi Chuxing. In another big move, Alibaba joined a $2 billion deal in 2015 to buy into Snap.

In the run-up to its IPO in New York in 2014, the e-commerce giant bought into a string of Silicon Valley-based tech startups including TV remote app Peel Technologies, gaming upstart Kabam, messaging app Tango.me and mobile search firm Quixey.

Alibaba's bid for soft power in Hollywood is also well known -- tycoon Jack Ma teamed up in 2016 with Steven Spielberg’s film group Amblin to produce and bring films to China, and formed Alibaba Pictures in Los Angeles.

Alibaba affiliate Ant Financial has been in the action too, and acquired Kansas City-based security technology upstart EyeVerify, in 2016 for an estimated $100 million.

These deals happened well before the recent crackdown on Chinese investment in U.S. tech. A $1.2 billion deal to buy MoneyGram by Alibaba’s Ant Financial was rejected early this year by CFIUS over concerns about the Chinese government getting access to personal information -- despite assurances by Ant Financial that the data would be stored in the U.S.

Forging ahead in spite of rough currents, deals by China's tech giants on American turf are becoming more focused and strategic about building a base while expanding into new territory. Chris Evdemon, a partner with Sinovation Ventures, points out that China's tech titans are getting into several new tech sectors,  among them healthcare, enterprise software, education and robotics.

After co-investing with Sand Hill Road firms in 2014 in a $2 billion investment in Uber, Baidu has more recently been doing deals that support its push into artificial intelligence and autonomous driving. Last year, Baidu bought Kitt.ai in Seattle, and invested some an estimated $40 million in three machine learning and data companies: Silicon Valley-based data link analytics entrant TigerGraph, big data application Tiger Computing Solutions, and computer vision startup xPerception.

Alibaba too is has gotten into the deep learning business, investing $20 million late last year into NVLX Technology, a cloud computing business that supports machine learning.

Likewise, Tencent has branched out -- several of Tencent's 12 tech deals in the U.S. last year were in biotech startups. The social messaging and gaming companies led a $15 million investment medical artificial intelligence startup VoxelCloud in Los Angeles, co-invested $5 million in biotech startup Locus Bioscience in Research Triangle, and co-invested $50 million in disease detection startup Karius, Inc.  Tencent even ventured into robotics, leading a $41 million deal in educational robotics maker Wonder Workshop.

Look for more of this sort of horizon deals from China's superpowers as they maneuver in these fast-moving and sometimes treacherous currents.

 

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