Chinese entrepreneurs fly to the top on BAT wings
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Chinese entrepreneurs fly to the top on BAT wings

A line from forgettable 90s’ superhero flick Batman Forever just became relevant to Chinese startups: “Riddle me this, riddle me that, who’s afraid of the big bad BAT.” Uttered by the villainous Riddler (ably played by Jim Carrey) the quote is not in reference to Baidu, Alibaba, and Tencent – the ruling triumvirate of the Chinese internet – but nowadays, it may as well be. Because if you’re a new tech venture in the country and you want to make it big, you have almost no option but to take money from one of these multi-billion dollar giants.

Over the past five years, the BAT stocks have soared

graph 0908 BAT

SOURCE: Yahoo Finance

Really, it’s more AT than BAT, in this regard. While all three of these big beasts wield incredible influence, it is Tencent and Alibaba that are competing to own the next generation of tech successes (run by Pony Ma and Jack Ma, respectively – presumably, no relation). While we might think we’re used to this kind of corporate jockeying, it’s on another level in China.

According to McKinsey, America’s technology giants make around 5% of all domestic venture capital investments. In China, Tencent and Alibaba make almost 50% of all domestic venture capital investments. In six years, Tencent alone has racked up 600 stakeholdings – and Alibaba’s Jack Ma has said (without a trace of irony) that he hopes to one day see 200 of China’s top 500 companies being run by former Alibaba employees. Between them, these two companies have invested in roughly half of China’s 124 “unicorns” (startups worth $1 billion or more).

The reason for Tencent and Alibaba’s incredible reach is simple: they have the deepest pockets (each company is worth around the $500 billion mark) and they make the biggest impact. For example, taken together, their mobile payments platforms (Tencent’s WeChat social platform, and Alibaba’s Alipay digital wallet) account for 94% of all mobile transactions.

The question for entrepreneurs (and investors) is: am I with them, or against them?

Disclosure

Dominion holds all three BAT stocks in its Global Trends Managed Fund.


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