Making Sense of Apple-Didi Deal, 2 China Tech Startups Plan US IPOs, ZhenFund Backs Hyperloop

[Silicon Dragon News weekly digest, week May 13, 2016]

CHINA CROSS-BORDER
Apple’s $1 billion strategic investment in Didi Chuxing (formerly Didi Kuaidi), China’s largest ride hailing app and Uber’s biggest rival in China, sees Silicon Valley cross-border investments take a huge leap. CEO Tim Cook says Apple is making the investment for strategic reasons. Cook praised Didi’s innovative developer community, and could be using Didi as a back door to expanding Apple Pay China.
The investment comes at a time when some of Apple’s services have recently been blocked by the Chinese government and iPhone sales in China are slumping.
Longer term, the investment lays the groundwork for a future alliance around self-driving technologies. Both Uber and its partner Baidu have invested in developing car technology, while Didi hasn’t entered this segment though Apple has made forays.
The funding makes any truce between Uber and Didi, each of which is spending billions per year on driver and rider promotions in China, unlikely in the foreseeable future.

Picking up the pace, China’s technology acquisitions have has surpassed the U.S. level, according to a report from Dealogic. For the first four months of 2016, China’s technology acquisitions reached a high of $65.7 billion through 45 transactions, beating the $45.6 billion total by U.S. mergers and acquisitions in technology.
The outbound deals follow a similar track: China’s outbound technology M&A reached $17.6 billion for 69 transactions in the first four months of this year, exceeding the $14.9 billion recorded by the U.S. for the entirety of last year.
The growing number of China outbound M&A deals in technology include Zhejiang-based Wanfeng Technology Group’s late March acquisition of U.S. industrial robot manufacturer Paslin for $300 million.

China has been cracking down on the returnee brigade of U.S.-listed companies that plan to de-list and go private, with an eye on possibly relisting in China where valuations are almost three times as high. In the U.S., at least 47 Chinese companies have announced plans to go private since January last year, through offers valued at a combined $43 billion. Bloomberg’s Nisha Gopalan explores some of the reasons for the recent policies in a post in BloombergGadfly.

China-based early stage seed fund Zhenfund has participated in the $80 million funding round for Hyperloop One, alongside a mix of investors including Caspian Venture Partners, EightVC, Sherpa Ventures, GE Ventures, Fast Digital, Khosla Ventures, Western Technology Investment, and France’s national railway SNCF. Hyperloop One, based in Los Angeles, develops ultra-high speed transportation services. The startup additionally has received $9.2 million in tax incentives to create a testing facility in North Las Vegas, the same location where LeEco-connected car startup Faraday Future is building its factory.

Alibaba’s financial affiliate Ant Financial has hired Douglas Feagin, a New York-based managing director at Goldman Sachs, to lead the unit’s internationalization effort as a senior VP. The hiring follows Ant Financial’s recent completion of a $4.5 billion Series B, as well as prior global investments into India’s mobile payment firm Paytm and Korea’s Internet banking firm K-bank.

Shenzhen-based technology conglomerate Kuang-Chi has launched a $300 million Israel fund in Tel Aviv, and has already made its first investment in eyesight Technologies, a local machine learning company. The new fund is indicative of the flood of technology investments coming from China into Israel: Chinese investment into Israel is growing by 50 percent annually and expected to increase. Silicon Dragon’s New York 2016 forum will delve into this topic, with a focus on “The China-NY-Israel Triangle of Investment Connections.”

China Music Corp., a Tencent-backed owner of online music streaming services Kugou and Kuwo, is preparing for a U.S. IPO in which it is expected to raise between $300 million and $600 million. These plans come as competition intensifies in China’s online music market, where hundreds of millions of smartphone users listen to music with mobile apps; and in which large players such as Tencent, Alibaba, and Baidu all operate their own music-streaming businesses.

DCM- and Sequoia-invested China Online Education Group, a Beijing-based online education platform focused on English language proficiency, has filed for a $100 million U.S. IPO. The firm claims over $50 million in gross billings in 2015, as well as 4,700 teachers by the end of 2015.

CHINA DOMESTIC
Regulators have ruled that the objectivity of Baidu, China’s top search engine, is being compromised by its profit model, which lists results solely according to their price-tag. Baidu has been ordered to change the way it displays results after an investigation into the death of a student who relied on its services to look for cancer treatments. New rules indicate that the positioning of paid-for search ads cannot be based on the highest bidder, and that the number of these ads must account for no more than 30 percent of a page of search results. If these regulations are enforced, they are likely to significantly cut into Baidu’s revenues.
The domestic controversy with Baidu comes at a time when Facebook is being accused of suppressing conservative news headlines from appearing in its trending sections.

Lenovo is launching a $500 million startup fund, its second fund, to back companies in cloud computing, big data, AI, and robotics. The fund launches alongside an incubator program that will allow some of the firm’s own units to go independent and raise funding from third-party investors.
Lenovo’s first fund was created in 2010 with $100 million, and has invested in more than 40 companies including publicly listed mobile game publishing platform iDreamSky, Silicon Valley-based online authentication startup Nok Nok Labs, and Israeli facial recognition startup Face++. Lenovo’s new fund and its startup push follows the company’s post of its first loss last year, as the global PC market shrinks.

UNITED STATES +
New crowdfunding rules are overriding a long-standing SEC requirement that investors backing private companies must be “accredited,” meaning that they must make at least $200,000 a year and have a net worth of $1 million or more. Startups raising money through online crowdfunding portals will now be able to sell shares to people regardless of their wealth or income as long as the founders have submitted annual financial reports to the SEC. Non-tech entrepreneurs who have trouble attracting venture capital are considered the most likely to take advantage of the option.

In other funding news, corporate venture groups have poured more than $2.5 billion into startups via 228 deals in the first quarter of 2016. This accounts for nearly one-quarter of all venture deals and is the highest percentage since the third quarter of 2008, according to a report from the National Venture Capital Association and PwC. The trend is pushed along by the convergence of tech startups reshaping brick-and-mortar industries and large companies delving into digital services. Read more in this piece by Jon Swartz of USA Today.

PayPal co-founder Peter Thiel is on the ballet in California as a Republican delegate for Donald Trump in the San Francisco-based 12^th congressional district. The move comes as a shock to many in the tech community, which has been accused of being left-leaning. However, some argue that the alignment is in line with many of Thiel’s well-documented extreme libertarianism and his stances on deregulating market, stemming immigration, and lowering taxes.

In five years of operation, 500 Startups has made over 1,500 investments, built an on-the-ground team in 21 countries, and launched several geographically focused funds. PitchBook takes a look at some of the notable accelerator alumni, including players such as Southeast Asia’s Grab (formerly GrabTaxi).

INDIA
Bangalore-based logistics management platform Locus has raised $2.75 million in Series A funding led by Exfinity Venture Partners, with participation from BeeNext (VC firm founded by Japanese e-commerce entrepreneur Teruhide Sato), Blume Ventures, Rajesh Ranavat (MD of Fung Capital), and existing investors. Locus, which helps local companies manage deliveries, will be using the new funding to strength its technology and expand its team.

Sequoia Capital, SAIF Partners and Aspada have joined Creation Investments in a $25 million Series B funding round for Capital Float, a Bangalore-based online lending platform for small businesses. The startup claims to have made loans totaling more than $60 million to small businesses in more than 40 Indian cities over the past two years.

JAPAN
Soracom, a Tokyo-based startup that provides a communication platform for connected device developers, has raised $22 million in Series B funding from World Innovation Lab, Infinity Venture Partners and other investors. The money will be used to enter the U.S. and other markets.

SoftBank (whose parent company, SoftBank Group, is an existing shareholder in Alibaba) has teamed up with China’s Alibaba to form a cloud-computing joint venture in Japan. The resulting “SB Cloud Corporation” will lead to a new data center that provides competitive and enhanced public cloud computing services from Alibaba Cloud. The new center follows the establishment of data centers located in the U.S., including in Silicon Valley.

SOUTH KOREA
Idincu cofounder Kelvin Dongho Kim, a finalist in the inaugural Forbes Asia 30 Under 30 list, has handed over the CEO role to an experienced professional and started a new business. His startup, Korea Credit Data (KCD), aims to be become the sole reliable source for 3 million SMEs in Korea, using machine learning to improve risk predictions for defaults and thereby helping financial institutions to manage loan underwriting.

In partnership with Seoul-based accelerators SparkLabs, DEV Korea, ActnerLab and Shift, the national government has created an accelerator for startups from around the world. The K-Startup Grand Challenge seeks to encourage more businesses to set up in Korea, beginning with a batch of 40 startups hosted in a new $160 million startup campus near Seoul this summer.

AUSTRALIA
Graphic design software startup Canva is rolling out its platform in six new languages, and has plans to add another 10 languages by the end of 2016. Though the app was offered only in English over the past three years, its user base has grown to more than 100 million users across 170 countries, with three designs created on the platform every second.

ISRAEL
Accel Partners has led the $12 million Series B round of E8 Storage, an Israel-based enterprise startup, with earlier backers Magma Venture Partners and Vertex Venture Capital joining. The startup, which builds flash architecture to improve performance and reduce latency in data centers, plans to double its R&D team in Israel as well as hire a new U.S.-based sales and marketing team.

SOUTH AFRICA
Naspers is opening a Naspers Ventures unit that will operate largely out of San Francisco. Though the firm typically focuses on less developed markets such as India, Latin America and Africa, its new emphasis on the U.S. follows the trend of consumer needs being transformed by tech. Naspers Ventures will begin by investing off the balance sheet of Naspers, a 100-year-old, 30,000-person company based in Cape Town.

UNITED KINGDOM
Google Ventures led the $15 million Series B funding round for Weaveworks, a London-based provider of networking and monitoring solutions for containers and microservices. Existing backer Accel invested as well.

Since its launch in San Francisco six years ago, Uber has deployed its ride-hailing platform in 400 cities around the world. In London, a young Scottish banker named Richard Howard was the startup’s first employee. Sam Knight of The Guardian writes about the London team’s growth, hard decisions, and hustle as the number of active riders in London increased from 5,000 in the winter of 2012 to today’s 1.7 million—or half the number of people who take the Tube each day. Read Knight’s report here.

— Silicon Dragon weekly digest by contributor Ying-Ying Lu