Chinese unicorns, billion dollar-plus private companies that were once rare, are more common than ever—and they’re going public faster than their Silicon Valley contemporaries. These private companies have accumulated $48 billion of paper wealth with IPOs in 2018. By comparison, U.S. tech giants are reported to have about $60 billion of paper wealth that remains untapped, and are more reserved in their timelines for going public. Just five Chinese IPOs accumulated $48 billion of net worth for at least 16 Chinese techrepreneurs—and half are co-founders of one company. But why are these young companies going public faster than ever? It’s all about outlook.
Chinese Unicorns are Embracing Opportunity
For many of China’s unicorns, the timing for going public could not be better; many are “striking while the iron is hot.” Essentially, these companies’ leaders are more opportunistic about their IPOs than many U.S.-based companies, and want to go public before the opportunity passes—or isn’t as lucrative. This has led many to go public after one year of strong performance, with the concern that they wouldn’t be able to sustain this type of growth for years to come.
But these unicorns did not emerge from a vacuum; they are each a part of the rapid growth of China’s one billion-plus club. This distinction used to apply to 14% of the globe’s unicorn community, but just shy of two years later covers 35%. This is in contrast to the decline in percentage of U.S.-based unicorns, dropping from 61% of the globe’s unicorns to 41% in the same timeframe as China’s rapid growth.
Investors Are Funding AI- and Tech-related Chinese Unicorns—And Are in It For the Long Haul
Chinese companies have applied for four times the number of AI-related patents than have U.S. companies, and three times as many blockchain- and crypto-related patents. This perhaps comes as no surprise when one considers that, between 2015 and 2017, Chinese startups focused on AI received nearly $5 billion in funding—with 2017’s total funding weighing in at more than double 2015 and 2016’s combined. This included robotics companies, deep learning processors manufacturers, AI-based clinical research platforms, and other tech companies.
One Chinese company has now become the world’s most valuable AI startup. SenseTime Group Ltd., creators of specialized face and image analyzation systems, has a valuation of over $3 billion—just four years after its founding. And it’s partly the hope of investing in the next SenseTime (or any skyrocketing startup) that is driving investors to pour money into these young companies; Chinese startups brought in $84.5 billion worth of private funding in the first half of 2018—almost double the amount from the same time in 2017. Chinese investment firm Hillhouse raised $10.6 billion that will go directly to primarily Asian companies. But it isn’t just Chinese investors who are helping fuel these unicorns; foreign investors are continuing to supply young Chinese companies with generous funding as well.
Unicorns No A Longer Rarity in China
Between 2012 and 2017, China gave rise to 46 startups that were worth at least $1 billion each—accounting for 80% of Asia’s unicorns. Just inside China’s capital of Beijing alone, $72 billion worth of funding has been invested in Chinese companies since 2012, outpaced only by Silicon Valley at $140 billion. While the U.S. still boasts the highest concentration of cities with stable startups and more mature businesses, half of high growth cities around the world are in Asia.
Expand with a Trusted Partner
Companies looking to expand into China to take part in its booming economy and flourishing startup scene have many avenues for success—but it’s crucial to understand the political, economic, and social environments before taking the leap. If you’re considering expanding into China, reach out to Velocity Global today to learn more about receiving country reports and insights into compliantly hiring and operating in China, as well as how our full suite of global expansion services can help take you there.