Tencent's dividend-based reduction in JD.com, but a heavy bet on hard technology?
Author | Li Baiyu
Edited by 丨Gao Yan
Source | Mustang Finance
Regarding the latest investment direction of Chinese Internet companies, Tencent gave the answer.
On December 23, Tencent announced that it would reduce its holdings in the mature period of JD.com by means of medium-term dividends, and issue all 460 million shares of JD.com shares to Tencent shareholders, reducing the shareholding ratio from 17% to 2.3%, no longer being the largest shareholder of JD.com, and Tencent President Martin Lau will also step down as a director of JD.com.
Image credit: Canned Gallery
As one of the largest Internet companies in China's investment territory, Tencent responded that "investing in growing enterprises in the development period" has always been the main strategic direction of Tencent's investment, and when the invested enterprises have the ability to continue to self-raise funds, they choose to exit under appropriate circumstances. It will continue to explore new tracks and new opportunities, especially cutting-edge technology and the digitization of the real economy, and seek strategic synergies with long-term value to society.
In the past year, strengthening anti-monopoly and preventing disorderly expansion of capital have been the main tone of the development and regulation of the Internet industry. At the recent Central Economic Work Conference, the policy direction has been clear, not only to prevent the barbaric production of capital, but also to support and guide the healthy development of capital norms.
Historical experience shows that investment from Internet companies has been made up for in the first time when China's new energy automobile industry fell into the ice valley. Tencent's clear investment direction focuses on "long-term investment" and "hard technology", which is equivalent to the timely replenishment of China's Internet investment again.
Fill in time
Zhang Ying, founding managing partner of Matrix Partners China, a well-known venture capital firm, prompted on Weibo more than two years ago: "During this time, the external financing environment is relatively harsh, and the difficulty of financing is infinitely increasing. I hope that everyone (CEO, founder) can take a good rhythm, efficiently use every penny on the account, and do not cut off food because of carelessness and misjudgment. ”
The black swan of the epidemic continues to hover, and although the world has ushered in a number of policy monetary easing, the situation of China's venture capital fundraising has not improved.
Wind data shows that in 2020, the number of Venture capital (Venture) funds raised in China was only 3, totaling only 612 million yuan; even if the growth strategy of raising 236.627 billion yuan was jointly counted, it was only slightly higher than the last low tide in 2012-2013.
The investment teams of Chinese Internet companies officially started around 2013 and have two core elements:
First, during this period, due to the economic recovery of European and American countries, the downturn in the Chinese stock market at home and abroad, the pace of IPO exit of Chinese VC/PE institutions has slowed down significantly - the book return has fallen, the valuation of the primary market has been lowered, the speed of institutional investment has slowed down, and China's venture capital has once again entered a low tide, giving the Investment Team of Internet enterprises the opportunity to enter the market.
Second, China's Internet has entered a historic critical period: the mobile wave. In 2013, 4G licenses began to be issued, smart phones began to spread, more Chinese became Internet users, and a huge demographic dividend market was cultivated. Unlike ordinary venture capital institutions, the investment teams of Internet companies are rooted in the industry, have more stable strength, stronger motivation, and more accurate vision to seize this mobile wave - and are more likely to find high-quality assets.
The market has gradually realized that China's Internet companies have gradually completed the transformation from capital demanders to capital suppliers, and entered the ecological vacancy left by traditional venture capital.
As mentioned earlier, since 2019, venture capital institutions have entered a new cycle of fundraising difficulties, and investment from Chinese Internet companies has been replenished in a timely manner, and the new energy automobile industry, which represents the national strategic direction, has benefited a lot.
For example, Ideal Auto took the investment of Meituan, Xiaopeng Automobile relied on Ali's investment, and Weilai, which had been hovering on the brink of bankruptcy, received continuous blood transfusions from Tencent in 2019. Without investment from Internet companies, China's new car-making forces may have disappeared before the "dawn" and have no chance to compete with Tesla.
He is the stone of the mountain
China's Internet capital is also constantly criticized. Especially after falling into the controversy of group buying in the melee community, how to get rid of the tunnel vision of "competing with vegetable farmers for profits"?
The Central Economic Work Conference for two consecutive years pointed out the direction - the state supports the innovative development of platform enterprises and enhances international competitiveness... Prevent the barbaric growth of capital, support and guide the healthy development of capital norms.
In the historical narrative of Internet platforms enhancing international competitiveness through investment, there is no shortage of other mountains and stones that can be seen. The head platform represented by Google and Apple supports the United States to become the world's largest digital economy, and their frequent investment in mergers and acquisitions is also one of the abuses of the international competitiveness of the US platform.
In 1999, Sequoia and KPCB jointly invested $25 million to acquire a 20% stake in Google. More than 20 years later, Google has become the global leader in search engines, app stores, online advertising and many other fields, with a market capitalization of $1.95 trillion as of December 23, 2021, equivalent to five times Baidu ($387.3 billion).
Google itself quickly moved to the investment track. According to a survey by the Us House of Representatives Judiciary Committee, from 2001 to the end of 2019, Google and its parent company acquired about 250 companies, and some of its key investments enabled Google to acquire the core technology of the mobile Internet ecosystem: in 2005, Google spent $50 million to acquire Android (Android). Today, Android runs on more than 80% of the world's smartphones, so Google also controls the underlying operating system of the global mobile Internet.
Another mobile Internet core operating system in the world is Apple IOS. Apple is also a master of investment in the Internet giants, starting from the first purchase of Network Innovations in March 1988, most of the investment is around the IOS ecosystem for technology and talent reserves, and the key leap is to march upstream of mobile smart devices - chip technology.
In 2008 and 2010, Apple spent less than $400 million to acquire P.A Semiconductor and Intrinsty, respectively, and brought in 250 outstanding Silicon Valley engineers to launch its first self-developed chip, A4. Since then, Apple has successively acquired Anobit, a flash controller design company, California's Passif Semiconductor Company, which specializes in low-power wireless communication chips, and a chip manufacturing factory, etc., establishing its own chip ecology from 0 to 1, breaking through the technical limitations of Intel and other manufacturers.
In the past 30 years, investment and mergers and acquisitions have become the leading force in the financing and development of American start-up technology companies, affecting the chip technology industry represented by Intel, the biotechnology industry represented by Genentech, and the mobile Internet underlying operating system represented by Google and Apple.
Fill in again
People's Daily previously commented that in recent years, the United States has successively sanctioned Chinese technology companies in the fields of chips and operating systems, and overcome the "card neck" problem in key technology areas, which has become a concern of the whole country.
Chinese Internet companies with strong financial resources, a large number of data resources and leading digital technologies have been laying out "hard technology", from Alibaba's Dharma Academy, Tencent's self-developed chips, to Baidu's driverless cars. How China's head platform, like the Us Internet, breaks through key technologies and enhances international competitiveness is already a topic of the times.
Obviously, in addition to self-research, investment in this economic leverage is indispensable.
According to 36Kr, while reducing jd.com' holdings, a new feature of Tencent's investment is becoming prominent: Tencent has increased its long-term investment in technology start-ups compared with its previous long-term support for consumer Internet companies such as JD.com and Pinduoduo. In the field of "hard technology", Tencent has previously participated in several rounds of early financing of chip manufacturing company Flintwon Technology, and recently participated in the 2 billion yuan A round of financing of GPU chip research and development company Moore Thread.
According to 36Kr incomplete statistics, since the beginning of 2020, Tencent has participated in more than 100 non-controlled minority investments in technology start-ups, involving cloud services, artificial intelligence, big data, integrated circuits, medical health, automatic driving, financial technology, blockchain, biotechnology and pharmaceuticals, intelligent manufacturing and other fields.
In the growth period, technology start-ups have the characteristics of high innovation risk, long investment cycle and large capital demand. Their asset-light model makes it more difficult to obtain loans from traditional financing channels, so obtaining financing from venture capital institutions is one of the few paths.
There are a large number of charitable funds, pensions, university funds, and family funds in the United States that take venture capital as a "must-have" for asset allocation, and the sovereign funds of some rich countries are also important investors in the US venture capital market. These funds understand the characteristics of venture capital and are willing to adhere to long-term investment, coupled with the SBIC (Small Business Investment Company) model supported by the US Small Business Bureau, which together solve the funding problem of technology start-ups.
Figure: A brief diagram of the current SBIC funding model Source: sba.gov
In China's venture capital industry, the lack of long-term funding sources is still a prominent problem. According to the data of the Asset Management Association at the end of 2018, among the sources of funds for Private Equity funds in China, high-net-worth individual funds accounted for 17.1%, and various asset management plan funds accounted for 34.1%, while long-term funds such as pensions, social welfare funds, and university funds accounted for only 0.3%. Subject to the source of funds, these venture capital institutions generally have an exit time limit of 5+2 (investment period of 5 years, exit period of 2 years), or even 3+2.
The head enterprises in China's Internet industry are relatively stable in operation, good financing credit, and abundant cash flow, which can cross the cyclical troughs of fundraising time and again, and can come up with more long-term stable funds, which is quite consistent with the financing characteristics of technology start-ups. The Internet investment bet on "hard technology" by Tencent and other Internet investors is equivalent to making up for it again after the new energy automobile industry in 2019.
Moreover, the government industry funds and guidance funds throughout the country are becoming more and more mature, and they work with domestic and foreign venture capital institutions and the investment funds of China's Internet enterprises to improve China's multi-level venture capital supply structure, and together with start-ups, they work together to go to the "sea of stars of scientific and technological innovation and the infinite possibilities of the future".