From Bloomberg, Nov. 15:
Big checks have empowered startups to put off their IPOs. But now they’re buying growth.
When unicorns start setting up their own venture-capital funds, you know the tech world is getting frothy.
In June, Singapore-based ride-hailing app GrabTaxi Holdings Pte launched Grab Ventures, shortly after its Indonesian rival Go-Jek Indonesia PT set up its own Go-Ventures. Onetime unicorn Meituan Dianping — the Chinese food-delivery firm that just completed its $4.2 billion IPO in Hong Kong — raised a $302 million fund in July for its DragonBall Capital fund.
What are unicorns doing in the venture-capital world when they still need plenty of their own financing? Just in the past few months, Grab has raised $2 billion to double down on its expansion into Indonesia and Go-Jek is close to adding another $1.5 billion to its war chest. As for Meituan, its loss-making service helped burn through $1.2 billion for the year ending June.
These days, even private equity funds, fearful of missing out, have emerged in the venture world. KKR & Co. is co-investing with SoftBank Group Corp. in Beijing Bytedance Technology Co., a deal that would value the parent of news aggregator Toutiao and video sensation Tik Tok at $75 billion. If there’s one lesson from the past decade it’s that tech investors win: Since 2009, the Nasdaq Composite Index outperformed the S&P 500 Index by 250 percentage points.
These generous checks are pushing back IPO timelines — and as they mature, unicorns are being forced to buy growth.
For young startups, having Meituan or Grab as an early investor is a prestigious talking point. But it doesn’t mean these stakes come cheap — in China, at least.
*See also the FT's David Keohane on circularity or 2014's "Strange Loops and Dollar Denominated Assets with an Especial Look at Gold"
As liquidity in China’s private-funds industry starts to dry up, there are still plenty of angel investors out there. To encourage innovation, the Ministry of Finance stipulated in May that early-stage venture-capital firms can deduct up to 70 percent of their investment for future capital-gains taxes. As a result, more than 50 percent of VCs in China are A- and pre-A rounds, and these funds account for almost 20 percent of capital raised. ...MORE
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