
In Q2 2018, Global VC Scales Tipped In Favor Of Chinese Startups Over American - azewail
https://news.crunchbase.com/news/in-q2-2018-global-vc-scales-tipped-in-favor-chinese-startups-over-north-america/
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calvinbhai
Many thanks to the lopsided high skilled immigration rules, combined with
China focused VCs, a lot of reverse brain drain to China has lead to this.

Imagine if every Masters or a PhD grad was given a green card. US would still
have been a leader in tech (at least wrt VC spending metric)

~~~
seanmcdirmid
The number of Chinese students staying in the US after graduation has been
relatively steady for the last 10 years; the number of Chinese students coming
to the US, in contrast, has exploded, pushing the stay percentage down.

~~~
hatred
Do you have any links to confirm the latter?

From what I have been seeing, the number of both Indian/Chinese students
coming to the US for studying has gone down post the Trump administration.
Also, I am seeing more Indian/Chinese folks going back home due to increase in
engineering wages/opportunities. Of course, it's still not comparable to US
but plenty-enough to live a very good life-style back home.

~~~
seanmcdirmid
I’m not sure if it’s gone down during the last 1.5 years of the trump admin,
but it has exploded in the last 10 years. Looking at the data. Looking at the
change for any given year is a bit noisy.

China has really great wages for programming (I should know), but lacks in
many quality of life factors. For example, many Chinese won’t go back once
they have kids because of educatio, hukou, and pollution factors. They would
have to pay a lot to get around those.

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itchyjunk
>>>In early June, news broke that Ant Financial, an electronic payments
service company affiliated with Alibaba, had raised a staggering $14 billion
in what’s technically a Series C round. To date, it’s the largest venture
funding round in history. Led by Temasek Holdings and GIC (a Singaporean
sovereign wealth fund), the round reportedly values Ant Financial at $150
billion. For perspective, that’s roughly twice Uber’s valuation and within
spitting distance of Amazon founder Jeff Bezos’s current net worth.

Hmmmm, just shows how little I understand about evaluation and/or VC because
this seems crazy to me.

~~~
adventured
Ant Financial is handling ~$4 trillion in payment processing annually. They
have about half of the Chinese mobile payments market in Alipay (WeChat has
something like 35-40%). They've moved into numerous financial segments.

They had about $9 billion in revenue in 2017, and are nearing a billion users.

The $150b valuation is rich, however it's about 1/3 to 1/4 the PE ratio that
Amazon and Netflix are being given currently. At $150b it's trading for ~85
times net profit.

The business is wildly profitable as you might expect. In terms of size,
consider how big Visa, Mastercard, PayPal, etc. are.

Visa now has a $294 billion market cap. That's based on $18b in sales and
extremely high margins. Mastercard is worth $204 billion. PayPal is worth $100
billion; Ant Financial will be larger than PayPal in terms of sales within
12-24 months (and is comparable now in profit).

The big risk regarding Ant Financial, is that the Chinese authorities are
afraid of it and have begun boxing it in with controls. As one might expect,
they don't like the idea of a single corporation controlling so much of
China's financial flow (unless it's very firmly under the boot of the
government).

~~~
skohan
Why would a company with such massive revenue need to bring in so much
external capital? Wouldn't the current stakeholders be better off keeping more
of the pie?

~~~
adventured
Keep in mind $9 billion in sales is not quite massive revenue in the pool that
Ant is now swimming. Their financial footing is not nearly so large as their
scale of processing, they've only begun generating meaningful profit in the
last year or two. Google is at $110 billion in sales, JP Morgan is at $94
billion, those are massive.

The dilution of current stakeholders is intentional. I believe it was required
by Chinese authorities (my speculation).

I've been following Ant / Alipay with curiosity ever since Jack Ma stole it
from Softbank and Yahoo (along with the rest of Alibaba shareholders). There
have been a lot of bizarre things done with the company over time. Jack Ma for
example gave himself the large majority share of ownership in the spun off
entity, and then proceeded to voluntarily debase his ownership dramatically
with no compensation. And now, having screwed Alibaba over with the Ant
Financial spin out, Alibaba was recently forced by Jack Ma to buy a chunk of
Ant again (33% of it).

My guess on some of these choices, is that it's about nationalism (taking Ant
away from foreign owners of Alibaba) and the requirement by Chinese
authorities that Jack Ma not have too much power (and that Ant's ownership not
be so concentrated in general). If he had held onto the stolen position in Ant
Financial + his stake in Alibaba, he'd be closing in on the world's richest
person title (~$100b in Ant, ~$30b in Alibaba + cash). That's a spotlight you
do not want right now if you're under Xi. I'm certain the Chinese authorities
do not want one person owning the majority control of something like Ant
Financial, given its size and importance to the economy. There's no other
rational reason for Ma to have voluntarily given up so much ownership in Ant,
he's shrinking himself as a target (plausibly he was given no choice; I
suspect it was always the plan from the moment Ant was taken from Alibaba).

Or put it simply: Ant may end up being worth several hundred billion dollars.
Imagine Jack Ma owning 2/3 of something worth $400 billion. Now picture the
target on his back, that would go along with such power and control over the
Chinese economy. It'd be Jack Ma vs Xi, and Jack Ma would lose; a very
dangerous game to play if you're a simple civilian. Better to stay smaller and
get to continue doing what you want to do (operate Alibaba and Ant), by giving
up some power, ownership, and not being in any way perceived as a meaningful
threat to the authorities and their absolute control.

~~~
baybal2
>Or put it simply: Ant may end up being worth several hundred billion dollars.
Imagine Jack Ma owning 2/3 of something worth $400 billion. Now picture the
target on his back, that would go along with such power and control over the
Chinese economy. It'd be Jack Ma vs Xi, and Jack Ma would lose; a very
dangerous game to play if you're a simple civilian. Better to stay smaller and
get to continue doing what you want to do (operate Alibaba and Ant), by giving
up some power, ownership, and not being in any way perceived as a meaningful
threat to the authorities and their absolute control.

For a Westerner, you seem to be rather perceptive of such things. The wording
for "instant billionaires" among CCP members is "the new class."

It doesn't take long to guess that they freaking hate and loath anybody
passing as a successful person and Jack Ma is the prime example of one. Just
how full of bile they are.

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neom
As a side note: I'm very curious to see what softbank[1] does, they've made an
impressive list of investment and Japan generally is in an interesting
position[2].

[1] [https://pitchbook.com/news/articles/vision-
fund-101-inside-s...](https://pitchbook.com/news/articles/vision-
fund-101-inside-softbanks-93b-vehicle) //

[2]
[https://www.nature.com/articles/s41598-018-23948-5.pdf](https://www.nature.com/articles/s41598-018-23948-5.pdf)
//

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radicaldreamer
Why is this a concern? The population of China is 3 times as large as the US.
If anything, this should be celebrated because resources seem to be allocated
more efficiently - Chinese innovation should outpace the United States in the
coming years (we’re already seeing this in mobile phones and marginal low end
technology like cheap IoT enabled gadgets).

~~~
marcell
> Chinese innovation should outpace the United States in the coming years

This may be true but it’s not an inevitability, or at least it wasn’t always.
Innovation is not just a function of population. Policy also makes a big
difference. For the US in particular, immigration policy could make or break
its success in tech. See Paul Graham’s famous article “Let in the Other 95%”.

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nicodjimenez
Incredible. It does seem like innovation in US is in a slowdown, with the tech
giants being the only ones thinking long terms, and the VCs trying to flip
companies to the tech giants on 3-5 year time scales. But very hard to tell
what's going on, for me at least.

~~~
godzillabrennus
Early stage VC and founders can both do a lot better economically by obtaining
earlier exists.

~~~
sk5t
You're both right!

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hawski
It just occurred to me that VC spending on the next big thing (usually a try
at monopolization by appifization) in a way is a DDoS on the governmental
oversight and by extension on the society. Governments may be too slow to
react to properly enforce old laws or to create new ones to also cover new
grounds. That gap allows companies to rise and profit, but many times at the
expense of the society. Governments will probably adjust one way or the other,
but I just hope that they will not throw the baby with the bathwater. They
probably will, but that's just pendulum going to the other side.

~~~
closeparen
The overwhelming majority of societal harm is inflicted by old, regulated
industries like manufacturing, agriculture, healthcare, and retail. Tech-
bashing has recently become fashionable as people realized it’s a cheap and
easy route to feeling self-righteous, but from a harm-to-society perspective
“appification” barely deserves a moment’s consideration.

~~~
hawski
You are right in where from the current harm is coming. However I think it's
just a beginning. Give it a few decades and then we will really see. Whatever
happens today will have long lasting consequences in decades to come.

If we let it, we will just repeat out failures from the past, when harmful-
today industries barely deserved a moment's consideration from a harm-to-
society perspective. It just sounds like an appeal to worse problems.

Also is it that strange to see tech-bashing on a tech news site?

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dalbasal
I was walking around my home town recently. It's more than doubled since I
left in 2002. Most of the new housing was built as new, dense (10-20 stories)
suburbs.

Th urban architecture is not bad. Decent green spaces, so that buildings open
into "garden paths" rather than streets. You can get between places using
green pedestrian walkways. Conveniently located schools & creches. Most of the
parking is underground.

The "economic architecture" OTOH, is striking. There are 2 small malls,
walking distance from eachother, where all the cafes, resteraunts and shops
are. There are two big commercial/adminstrative buildings where the dentist,
post offices and stuff is. There is no high street, no corner stores, or any
place that a sidewalk pizza shop could exist. ..no place where an independent
retail or service business could exist, not even a news stand.

It occurred to me that not only is this related to "concentration of wealth"
it _is_ that concentration of wealth. Those Malls and commercial real estate
can be owned by €bn funds. Street level real estate doesn't lend well to that.

Now... A lot of this has to do with the structure of the financial system, how
things are capitalized. A developer can approach a large real estate fund, to
sell a mall "off the plan." They can then go and presell leases, to their
client base.. chain stores and restaurants.

There is no equivalent financial sector that could fund real estate suitable
for sole traders. So, sole traders will decline. There is obviously a chicken-
egg dynamic between the underlying economics (eg revenue per square meter, and
hence rent) and the existence of a friendly capital market. But, I think
causation runs the other way as well.

In this case, it just seems very planned. The architecture and planning of a
city assumes a certain economy, the urban architecture reflects that, and the
underlying capital system reflects that. The three lock eachother into place.
If there had been a vibrant market for financing small retailers, but not
malls, then the whole city would have probably been built differently.

Anyway China is unidealogical about such things, atm. They don't mind
engineering a cityscape for a certain economy, engineering financial markets
for a certain cityscape or cityscape or if the proverbial cat is black or
white.

My long winded point is that maybe it's time to "pick winners" in financial
markets, subsidizing or penalising certain types of capital markets over
others. Ive always been dubious about market liberalism when it comes to
banks.

~~~
forapurpose
> My long winded point is that maybe it's time to "pick winners" in financial
> markets, subsidizing or penalising certain types of capital markets over
> others.

Who gets to pick the winners? Why should those people benefit and others lose?
How do you prevent the massive corruption? And why is it time now, not 10 or
50 years ago or 10 years in the future?

~~~
dalbasal
..the people who are officially not picking winners now, but effectively are.

It's time now for small businesses because small businesses are now at a
massive disadvantage relative to large institutions, for reasons that are
unrelated to underlying economics.

It's time now for the VC market, because VC capital is an essential ingredient
for making the next generation of companies. If you looked at your major
companies in 1978, there aren't many that needed VC to exist in order to be.
If you go through the exercise now, you will find that a decent portion of
your economy may have hinged on closing a few small (in financial markets
terms) on getting funded by VCs at some point.

The liberal purist would probably argue that the availability of VC money is
directly proportional to the potential returns to that money, which is in turn
proportional to the value to the economy.

I'm agnostic about this in abstract terms. It might be true. In practice
though, I think it isn't true. The financial market are limited by, but not
shaped by economics. They exist almost outside the economy. That's why we have
financial bubbles.

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nutcracker46
Good luck and have fun with that. Double up on your due diligence there, as
lies abound and there are no rules.

~~~
noonespecial
The recent explosion in investment activity likely indicates this is no longer
the case (although you may have to learn some _different_ rules).

~~~
sk5t
The old poker adage applies--if you don't know who the fool is at the table,
you're it.

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pwaai
yeah but how does China guarantee my IP? In the US I can sue at least. In
China? Good luck. By the time you launch a product, a dozen imitation pops up.

You, as a foreigner, are essentially tasked to upload your expertise and
knowledge to a centralized communist power structure that will redestribute
the wealth amongst the Chinese population. They don't have the hot clean air
spots like Western Europe and North America offers to the elite. I guess
ideology is a heavy price to pay.

How about the fact that any number coming out of China can easily be
manipulated?

~~~
est
> By the time you launch a product, a dozen imitation pops up

They don't. But that's why some Chinese companies are extremely competitive.
They fought a way out of a bloodbath.

