Why China Just Spent $2.3 Billion On America's Hottest Startups.

Buenos Aires-based photographer Federico Winer creates perspective-altering compositions from Google Earth satellite images. This view of Silicon Valley indicates Zip code areas of Chinese investment in red.
Five days before closing a planned $12 million funding round in June 2013, Thiru Arunachalam and Bala Krishnan, founders of remote control app maker Peel, received an unexpected phone call. TransLink Capital, one of Peel’s soon-to-be investors, asked them to consider taking an additional $1 million from a Chinese company called Alibaba, a name they barely knew.

“Listen, this is too late in the game,” Arunachalam recalls saying, given that it was a Monday and he anxiously wanted to close the deal by Friday. “Let’s just leave them alone and move on.”
But their suitor would not be turned away. Within 48 hours Alibaba offered to put in $5 million–helping to pump the funding round up to $18.9 million–and sent over a two-page memo explaining its e-commerce business and ambitions in entertainment. By Thursday morning Hongping Zhang, managing director of Alibaba Capital Partners, showed up at Peel’s door in Mountain View, Calif. and wooed the two cofounders over a long lunch. That night, already Friday Beijing time, Alibaba shot over the cash.
“They were the last people to talk to us but ended up being the first to wire the money,” Arunachalam says. “They moved like a big startup.” Less than a year later Alibaba dropped another $50 million into Peel during its Series D round, helping to fund the company as its app grew to more than 100 million users.
0522_china-investing-chart_825
ForbesBrandVoice
?
CenturyLinkVoice

5 Things To Consider In Your Cloud Transition

This investment proved an early and tiny piece of the e-commerce giant’s recent spending spree on American startups, one that speaks volumes about a trend quietly reshaping the venture capital ecosystem. Alibaba and its two giant Chinese Internet rivals–search engine Baidu and gaming/messaging firm Tencent–a trio known as BAT, are pouring money into all manner of firms at every stage from seed to late rounds. Since 2012 we count more than 50 investments totaling $2.3 billion. In the past 18 months alone Alibaba has plowed more than $1 billion into just ten U.S. firms.
Many of the investments are bizarre on the surface, smacking of dumb money rushing in late in the cycle and driving up valuations for everyone. Why would an e-commerce giant spend tens of millions of dollars on a startup like Peel that’s outside of its core business, not to mention its core country?
In a word: smartphones. The three BAT companies each monopolize a sphere of China’s desktop-style online behavior, but they risk falling behind in mobile. This is a problem in a country where tens of millions of people skip PCs entirely. Hence the landgrab–the Big Three don’t much care where the innovations on this new intertwined platform come from or, it seems, how much they have to shell out to secure them.
“In the online world, everybody has their own domain, but in mobile, everyone’s competing on everyone else’s turf,” says Jay Eum, cofounder of TransLink Capital, the venture capital firm that introduced Alibaba to Peel and has invested in two other Alibaba-backed startups, Quixey and Tango.
To some extent it’s similar to the concurrent multifront competition in the U.S. among Amazon, Google and Facebook, and each of the three Chinese companies brings its own style. Tencent is the most quiet about its investments, reflecting the low-profile personality of its billionaire founder, Ma Huateng. Baidu focuses on research investment as well as direct funding in startups, a hybrid style similar to that of its U.S. inspiration, Google. The company is sinking $300 million into an R&D lab in Sunnyvale, Calif., the largest yet by any Chinese Internet company in California, run by Andrew Ng, cofounder of online educator Coursera and the man who set up Google’s deep learning project.
Meanwhile, Alibaba’s venture unit operates much like its largest outside shareholder, Masayoshi Son’s SoftBank. “There’s always a strategic angle, but a certain level of investment returns is the bottom line,” says TransLink’s Eum. Alibaba’s Jack Ma saw how much SoftBank and Yahoo made from investing early in his firm–now he wants his own lottery ticket.
0521_china-giants-arunachalam-krishmn-peel_1200x675
Bala Krishnan (left) and Thiru Arunachalam, cofounders of app maker Peel, barely knew Alibaba when the Chinese e-commerce giant offered to invest. (Eric Millette For Forbes)
The competition among the three plays out in ways that often don’t seem rational. Last December Baidu’s chief financial officer, Jennifer Li, right-hand woman to its billionaire CEO, Robin Li, helped lead Baidu’s roughly $200 million investment in Uber at a reported $41 billion valuation. A search engine buying into a car-hailing app doesn’t make a ton of sense on paper. No matter, says Li: “Mobile development in China is exploding. Baidu’s vision today is to connect people with services. Uber is an example of that.”
Plus, she needed to respond to her two rivals. As Uber set foot in China, Tencent and Alibaba were already backing two Uber clones, Didi Dache and Kuaidi Dache, respectively. Now the Chinese can hail Uber on their phones through Baidu Maps. The search engine is also hoping to leverage Uber in Baidu Wallet’s uphill battle against Alibaba’s Alipay and Tencent’s WeChat Payment. Not to be outflanked, Tencent and Alibaba merged their ride-share shops, creating a near monopoly worth $8.75 billion. And the battle rages on.
Kevin Chou could do that math. The CEO of San Francisco-based mobile-gaming startup Kabam hit the road in China for his latest funding round last spring, hopeful for access to that market. “Entering China is a pretty complicated affair,” he says. “It operates in a very different fashion than any other market in the world because of such a strong presence of the major Chinese Internet players.” For the next few months the 35-year-old Chinese-American, who cofounded his company in downtown Mountain View above a dim sum restaurant, sought out the BAT trio, among others, and ended up with five term sheets. “It’s a lot of dinners, a lot of baijiu ,” grins Chou, referring to a potent Chinese liquor.
By July Kabam had its number–a valuation that shot it past the $1 billion “unicorn” threshold–from Alibaba, which plunked down $120 million for just over a 10% stake, as well as instant credibility and relationships in China. “If you don’t know who you’re working with, you can really get yourself into trouble,” says Chou.
Alibaba, for its part, paid the premium with a clear eye on Tencent, the world’s largest gaming company, which has $7.2 billion in revenue from online gaming alone last year. The deal came with an initial commitment by Kabam to launch ten games during the next three years through Alibaba, including ones related to Hollywood blockbuster movies like Lord of the Rings , Hunger Games and Fast and Furious . Expect Alibaba to leverage its investment by using its PayPal clone, Alipay, for mobile micropayments and by promoting Kabam through the Alibaba-backed video site Youku Tudou.
0521_china-giants-kevin-chou-kabam_1200x675
Kabam CEO Kevin Chou had his pick of Chinese money and took Alibaba’s $120 million plus its promise to help him crack China’s market. (Timothy Archibald for Forbes)
“While they care about the financial returns, the amount of money they put into Kabam is a rounding error,” says Chou. “They don’t stress out anytime when there’s a small problem.” Alibaba even organizes an annual “Ali-family” party for its portfolio companies with the hope of fostering synergies. San Mateo-based ShopRunner, which raised $206 million from Alibaba in 2013, was one of the first partners of Alipay’s ePass program, which enables U.S. retailers to sell directly to Chinese consumers. “It came up afterwards, after we started to understand more about each other,” CEO Scott Thompson says. “Now it’s obvious that there’s something else we can do together, and it’s likely to be a really interesting big business at some point.”
Such synergies (and enormous valuations) make the BAT troika today’s investors of choice. Silicon Valley used to look askance at money coming from a place where the central government blocks everything from Facebook to Gmail. “When Alibaba first invested, we took it with a huge grain of salt,” says Peel’s Krishnan. Now companies like Snapchat look eagerly to China–the disappearing-message app is reportedly raising $200 million from Alibaba, which again seems to be targeting Tencent, specifically its WeChat service. No matter that Snapchat is banned in China (or that Tencent also invested in a 2013 round).
“They’re playing a global game of domination on the Internet,” says Patrick Riley, founder and CEO of search engine Ark, for which Tencent participated in a $4.2 million seed round. “It goes entirely against the reputation, what the United States thinks of Chinese companies, which is just copy-paste.” With BAT leading the trend, other tech companies, from mobile giant Xiaomi to Baidu rival Qihoo, are following in their footsteps with smaller deals. With the right bets in Silicon Valley, Chinese companies can redeploy the U.S. startups’ technology and talent for their immediate next steps: expansion into other emerging economies such as India and Brazil. Eventually they’ll grab a piece in the saturated American market.
“Everyone is competing on everything,” says Kabam’s Chou. Advantage, entrepreneurs.

forbes.

Popular posts from this blog

UK GENERAL ELECTIONS:Inquiry announced into memo alleging Sturgeon wants Tory election victory.

Image
Civil service instigates investigation into leaked memo from Foreign Office about supposed comments made in February Scotland’s first minister, Nicola Sturgeon, with David Cameron in her office at the Scottish parliament earlier this year. Photograph: WPA Pool/Getty A civil service inquiry into a leaked memo which claimed that Nicola Sturgeon privately wanted to see David Cameron remain in power after the general election has been instigated following calls from the First Minister. Ms Sturgeon described the allegation as “100% untrue” and accused Whitehall of “dirty tricks”.
Read more

Ebola Outbreak: Guinea Declares Emergency As Overall Deaths From Ebola Rise To 1,069

Image
Health workers take passengers' temperatures infrared digital laser thermometers at the Felix Houphouet Boigny international airport in Abidjan on Aug. 13, 2014. Ivory Coast on Monday banned air travellers from Guinea, Liberia and Sierra Leone, the three countries worst-hit by the Ebola outbreak, and ordered its flagship carrier Air Cote d'Ivoire to cease flights to and from them. Reuters/Luc Gnago Guinea, one of the worst-hit West African nations in the ongoing Ebola outbreak, announced a state of emergency Wednesday. The World Health Organization, or WHO, also  said  that four new people died in Guinea between Aug. 10 and Aug. 11. The total death count in Guinea from the latest epidemic was estimated at 377 by WHO while the number of cases reported had risen to 510. Overa
Read more

Sandhurst's sheikhs: Why do so many Gulf royals receive military training in the UK? A parade outside the building at Sandhurst Continue reading the main story In today's Magazine The death list that names 5,000 victims Is this woman an apostate? Voices from a WW1 prison camp The Swiss selfie scandal Generations of foreign royals - particularly from the Middle East - have learned to be military leaders at the UK's Sandhurst officer training academy. But is that still a good idea, asks Matthew Teller. Since 1812, the Royal Military Academy Sandhurst, on the Surrey/Berkshire border, has been where the British Army trains its officers. It has a gruelling 44-week course testing the physical and intellectual skills of officer cadets and imbuing them with the values of the British Army. Alongside would-be British officers, Sandhurst has a tradition of drawing cadets from overseas. Many of the elite families of the Middle East have sent their sons and daughters. Perhaps the most notable was King Hussein of Jordan. Continue reading the main story Find out more Matthew Teller presents Sandhurst and the Sheikhs, a Whistledown production for BBC Radio 4, on Wednesday 27 August 2014 at 11:00 BST It will be available on iPlayer shortly after broadcast Four reigning Arab monarchs are graduates of Sandhurst and its affiliated colleges - King Abdullah of Jordan, King Hamad of Bahrain, Sheikh Tamim, Emir of Qatar, and Sultan Qaboos of Oman. Past monarchs include Sheikh Saad, Emir of Kuwait, and Sheikh Hamad, Emir of Qatar. Sandhurst's links have continued from the time when Britain was the major colonial power in the Gulf. "One thing the British were excellent at was consolidating their rule through spectacle," says Habiba Hamid, former foreign policy strategist to the rulers of Dubai and Abu Dhabi. "Pomp, ceremony, displays of military might, shock and awe - they all originate from the British military relationship." Sheikh Hamad Bin Isa Al Khalifa, King Abdullah, Sultan Qaboos Sandhurst alumni: King Hamad of Bahrain, King Abdullah of Jordan and Sultan Qaboos of Oman It's a place where future leaders get to know each other, says Michael Stephens, deputy director of the Royal United Services Institute, Qatar. And Sandhurst gives the UK influence in the Gulf. "The [UK] gets the kind of attention from Gulf policy elites that countries of our size, like France and others, don't get. It gives us the ability to punch above our weight. "You have people who've spent time in Britain, they have… connections to their mates, their teachers. Familiarity in politics is very beneficial in the Gulf context." "For British people who are drifting around the world, as I did as a soldier," says Brigadier Peter Sincock, former defence attache to Saudi Arabia, "you find people who were at Sandhurst and you have an immediate rapport. I think that's very helpful, for example, in the field of military sales." The Emir of Dubai Mohammad bin Rashid Al Maktoum with his son after his Passing Out Parade at Sandhurst in 2006 Sheikh Mohammad bin Rashid Al Maktoum, Emir of Dubai, with his son in uniform at Sandhurst in 2006 Her Majesty The Queen's Representative His Highness Sheikh Hamad bin Khalifa Al-Thani, The Emir of Qatar inspects soldiers during the 144th Sovereign's Parade held at The Royal Military Academy Sandhurst on April 8, 2004 in Camberley, England. Some 470 Officer cadets took part of which 219 were commissioned into the British Army Hamad bin Khalifa Al-Thani, the Emir of Qatar until 2013, inspects soldiers at Sandhurst in 2004 Emotion doesn't always deliver. In 2013, despite the personal intervention of David Cameron, the UAE decided against buying the UK's Typhoon fighter jets. But elsewhere fellow feeling is paying dividends. "The Gulf monarchies have become important sources of capital," says Jane Kinninmont, deputy head of the Middle East/North Africa programme at the foreign affairs think tank Chatham House. "So you see the tallest building in London being financed by the Qataris, you see UK infrastructure and oilfield development being financed by the UAE. There's a desire - it can even seem like a desperation - to keep them onside for trade reasons." British policy in the Gulf is primarily "mercantile", says Dr Kristian Coates Ulrichsen, of the Baker Institute in Houston, Texas. Concerns over human rights and reform are secondary. The Shard at dusk The Shard was funded by Qatari investors In 2012 Sandhurst accepted a £15m donation from the UAE for a new accommodation block, named the Zayed Building after that country's founding ruler. In March 2013, Sandhurst's Mons Hall - a sports centre - was reopened as the King Hamad Hall, following a £3m donation from the monarch of Bahrain, who was educated at one of Sandhurst's affiliated colleges. The renaming proved controversial, partly because of the perceived slight towards the 1,600 British casualties at the Battle of Mons in August 1914 - and partly because of how Hamad and his government have dealt with political protest in Bahrain over the last three years. A critic might note that the third term of Sandhurst's Officer Commissioning Course covers counter-insurgency techniques and ways to manage public disorder. Since tension between Bahrain's majority Shia population and minority Sunni ruling elite boiled over in 2011, more than 80 civilians have died at the hands of the security forces, according to opposition estimates, though the government disputes the figures. Thirteen police officers have also lost their lives in the clashes. "The king has always felt that Sandhurst was a great place," says Sincock, chairman of the Bahrain Society, which promotes friendship between the UK and Bahrain. "Something like 20 of his immediate family have been there as cadets. He didn't really understand why there was such an outcry." David Cameron and King Hamad David Cameron meeting King Hamad in 2012... A protester is held back by police ... while protesters nearby opposed the Bahrain ruler's human rights record Crispin Black, a Sandhurst graduate and former instructor, says the academy should not have taken the money. "Everywhere you look there's a memorial to something, a building or a plaque that serves as a touchstone that takes you right to the heart of British military history. Calling this hall 'King Hamad Hall' ain't gonna do that." Sandhurst gave a written response to the criticism. "All donations to Sandhurst are in compliance with the UK's domestic and international legal obligations and our values as a nation. Over the years donations like this have saved the UK taxpayer a considerable amount of money." But what happens when Sandhurst's friends become enemies? In 2001, then-prime minister Tony Blair visited Damascus, marking a warming of relations between the UK and Syria. Shortly after, in 2003, Sandhurst was training officers from the Syrian armed forces. Now, of course, Syria is an international pariah. Journalist Michael Cockerell has written about Libyan dictator Colonel Gaddafi's time at the Army School of Education in Beaconsfield in 1966: "Three years [later], Gaddafi followed a tradition of foreign officers trained by the British Army. He made use of his newfound knowledge to seize political power in his own country." Ahmed Ali Sandhurst-trained Ahmed Ali was a key player in the Egyptian military's removal of Islamist President Mohammed Morsi That tradition persists. In the 1990s Egyptian colonel Ahmed Ali attended Sandhurst. In 2013 he was one of the key figures in the Egyptian military's removal of Islamist President Mohammed Morsi, now rewarded by a post in President Sisi's inner circle of advisers. In the late 1990s there were moves by the British government under Tony Blair to end Sandhurst's training of overseas cadets. Major-General Arthur Denaro, Middle East adviser to the defence secretary and commandant at Sandhurst in the late 1990s, describes the idea as part of the "ethical foreign policy" advocated by the late Robin Cook, then-foreign secretary. Tony Blair and Robin Cook Tony Blair and Robin Cook at one point planned to end Sandhurst's training of overseas cadets The funeral of King Hussein in 1999 appears to have scuppered the plan. "Coming to that funeral were the heads of state of almost every country in the world - and our prime minister was there, Tony Blair," says Major-General Denaro. "He happened to see me talking to heads of state - the Sultan of Brunei, the Sultan of Oman, the Bahrainis, the Saudis - and he said 'How do you know all these guys?' The answer was because they went to Sandhurst." Today, Sandhurst has reportedly trained more officer cadets from the UAE than from any other country bar the UK. The May 2014 intake included 72 overseas cadets, around 40% of whom were from the Middle East. "In the future," says Maryam al-Khawaja, acting president of the Bahrain Centre for Human Rights, "people will look back at how much Britain messed up in the [Middle East] because they wanted to sell more Typhoon jets to Bahrain, rather than stand behind the values of human rights and democracy." "It's one thing saying we're inculcating benign values, but that's not happening," says Habiba Hamid. Sandhurst is "a relic of the colonial past. They're not [teaching] the civic values we ought to find in democratically elected leaders." line Who else went to Sandhurst? Princes William and Harry, Winston Churchill, Ian Fleming, Katie Hopkins, Antony Beevor, James Blunt, Josh Lewsey, Devon Harris (From left to right) Princes William and Harry Sir Winston Churchill Ian Fleming, creator of James Bond (but did not complete training) Katie Hopkins, reality TV star Antony Beevor, historian James Blunt, singer-songwriter Josh Lewsey, World Cup-winning England rugby player Devon Harris, member of Jamaica's first bobsleigh team line Sandhurst says that "building international relations through military exchanges and education is a key pillar of the UK's international engagement strategy". Sandhurst may be marvellous for the UK, a country where the army is subservient to government, but it is also delivering militarily-trained officers to Middle Eastern monarchies where, often, armies seem to exist to defend not the nation but the ruling family.

Image
Generations of foreign royals - particularly from the Middle East - have learned to be military leaders at the UK's Sandhurst officer training academy. But is that still a good idea, asks Matthew Teller. Since 1812, the Royal Military Academy Sandhurst, on the Surrey/Berkshire border, has been where the British Army trains its officers. It has a gruelling 44-week course testing the physical and intellectual skills of officer cadets and imbuing them with the values of the British Army. Alongside would-be British officers, Sandhurst has a tradition of drawing cadets from overseas. Many of the elite families of the Middle East have sent their sons and daughters. Perhaps the most notable was King Hussein of Jordan. Four reigning Arab monarchs are graduates of Sandhurst and its affiliated colleges - King Abdullah of Jordan, King Hamad of Bahrain, Sheikh Tamim, Emir of Qatar, and Sultan Qaboos of Oman. Past monarchs include Sheikh S
Read more