Investors seek new openings as China tech matures – AVCJ Forum

Industry participants told the AVCJ Forum that a trend toward ever-larger funds and investment rounds in China is creating concerns about the valuations of next-generation technology start-ups.

However, Tony Zhang, a partner at Jeneration Capital, said that the increased competition did not reduce his confidence in the sector. He noted that the emergence of a highly liquid market coincided with other signs of maturity such as more data-based decision making in deals and a transition away from copycat business models.

"The mega funds and mega deals are a natural phenomenon of market development, but in Jeneration, we don't play in those rounds, which we call consensus rounds," Zhang said, adding that Chinese technology start-ups were likely to stay private longer in the future, demanding more later-stage capital.

"In the mid-stage, we're actually a beneficiary of mega-rounds and funds because they can provide us an exit channel and a fresh look on some new underwriting frameworks for when we're doing investments."

Victor Ai, a managing director focused on new-economy investments at China Everbright, observed that artificial intelligence (AI), in particular, was showing some signs of becoming a bubble since a vast majority of companies in the segment have revenue of less than RMB1 billion ($144 million), including some valued at more than $1 billion.

Ai said that the best way to leverage growth in AI and related fields was to focus on the disruption of traditional industries such as logistics and agriculture, where China's leading technology conglomerates are all but absent.

"There are a lot of champions in the internet-plus area and it's so hard for a start-up company to grow and become the next Baidu," he said, noting that his firm's approach was to avoid direct competition with China's internet giants Baidu, Alibaba Group and Tencent Holdings, known collectively as BAT.

"In the traditional industries, BAT doesn't have any advantage. The people who control those industries have a lot of opportunities. As long as they can use AI and other new technologies, they're on the same starting line as BAT."

Gordon Ding, a managing director at Warburg Pincus, said the challenge for AI was finding commercial use-cases and clients willing to pay for them. He cited security related facial recognition as the current trend but projected future uptake in areas including education and mobility.

Ding also noted that software-as-a-service (SaaS) investment opportunities were likely to be more prevalent in enterprise-related markets than in the telecommunications, media, and technology segments that are already well serviced by BAT.

"Based on our investment experience in the US, we will see new enterprise opportunity arriving in China, but it could be different," he said. "In the US, people focus on the pure SaaS model. In China, it could be more full-stack services, not only providing software but also content and other things that can disrupt a whole traditional industry.  That's very exciting from our perspective."

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• Topics
• Greater China
• Technology
• GPs
• China
• Jeneration Capital
• China Everbright
• Warburg Pincus Asia
• artificial intelligence
• AVCJ Events