At a time when unicorns – venture-backed firms with valuations in excess of $1 billion – are in decline, China appears to be bucking the trend.
In January it had given the world two out of three new unicorns that had entered this club globally this year, and four months on, the country seems well set to establish itself as the top market for minting unicorns.
Now, six out of the nine non-US firms that have been added to the unicorn club this year so far are from China.
So far in 2017, there have been 13 tech startups that have been added to the global unicorn club, and off these only four are in the US.
This implies, a total of nine non-US based unicorns were added to the list in 2017, and as of last week and they include: Avaloq Group (Switzerland), ReNew Power Ventures (India), BrewDog (United Kingdom) and the Chinese companies: NetEase Cloud, Toutiao, NIO, Ofo, URWork, and Zhihu, according to CB Insights data that was released last week.
NetEase Cloud, an app to stream music and download songs that raised $108 million bringing its valuation to $1.16 billion and BrewDog, a Scotland-based brewery, which is valued at $1.15 billion got added to the list last week.
Moreover, soon China’s unicorn list could add Hong Kong based Tink Labs Ltd. The company leases phones to tourists and is looking to raise $40 million from investors that will take its target valuation to $1 billion, according to a Bloomberg report. Last year, the 25 year old Terence Kwok founded Tink Labs raised $125 million and has all eyes on it as when it becomes, it will be the first unicorn from Hong Kong.
Looking at the clout Chinese firms are building in the billion dollar plus group, it is not a surprise that the most highly-valued private companies outside of the US are also led by firms from that country. Among these, Chinese electronics company Xiaomi valued at about $46 billion leads the group, being only second to Uber which is valued at $68 billion. According to the CB Insights data, the top five most highly valued private companies outside of the US are based in China. After Xiaomi, those companies are: Didi Chuxing valued at $33.8 billion, China Internet Plus (Meituan Dianping) valued at $18 billion, Lu.com which is valued at 18.5 billion, and Toutiao which is worth $11 billion.
It is worth noting that US that was home to the majority of Unicorns till five years back, is witnessing a decline in the share of the Unicorns it mints each year since 2013. Among the non-US firms that are valued at over $1 billion most are from China.
“In 2013, over 70 per cent of the companies that achieved unicorn status that year were US-based. Each year since 2013, the share of new US-based unicorns added to the global unicorn club has gone down. In 2016, 42 per cent of the companies added to the club were US-based vs. 58 per cent from outside the US,” according to the report from CB Insights.
A total of 15 companies including US-based firms have made an entry to the unicorn list this year.
China’s Unicorns mostly driven by innovation
According to a report from China’s Ministry of Science and Technology, China in 2016 had $131 billion worth of private startups and most of the new companies and Unicorns were innovation-driven tech businesses.
While the country boasts of unicorns from 16 cities in China, most of its startups that are valued at over a billion dollars, are from Beijing, Shanghai, Shenzhen, and Hangzhou. China’s unicorns, most of them were founded after 2014 are largely focussed on four areas — e-commerce, culture and entertainment, internet finance, and transportation, according to a report Development of China’s Unicorn Enterprises in 2016.
For example investments in fintech — the new, digital way of providing financial services — in China surged to $8.8 billion between July 2015 to June 2016, an indication that China is becoming a global fintech hub. The country’s fintech industry is also leading by huge margins in Asia-Pacific with segments like payments and insurance already beyond the tipping point, said a report last year by DBS and EY — The Rise of FinTech in China.
Vishal Harnal of 500 Startups had told DEALSTREETASIA last month that the most likely candidates to emerge as unicorns from the region will be in the consumer lending and payments space. “Keep your eyes peeled on these, especially consumer lending. Rising middle class incomes, poor access to credit through traditional FIs and increasing velocity of mobile connectivity and online purchases will make these companies rise to the top,” he had said.
China also has the most number of private companies valued at $1 billion plus outside of the US, at 46 total. Rounding out the top three most unicorn-rich countries are India and the UK, respectively.
Unicorns outside US and China
With regard to India, another big market outside US that has been giving unicorns, all attention has been grabbed by an upcoming deal to merge e-commerce portal Snapdeal and another market player Flipkart. SoftBank is looking to salvage what it can in a deal that may see the Japanese investor buying some holding of Tiger Global Management (Flipkart’s investor) in Flipkart and pump more cash into the company, according to market reports.
Meanwhile, Snapdeal that was once valued at $6.5 billion may not be among the top three unicorns in terms of valuation. Flipkart, earlier this month raised $1.4 billion in investment from Tencent, eBay, and Microsoft that has valued it at $11.6 billion.
Among the three unicorns form India, cab hailing application Ola which is trying to raise fresh capital currently, had a downround from its largest investor Softbank in November that lowered the company’s valuation to about $3 billion from earlier $4.5 billion.
To take stock — the global unicorn club is comprised of 189 private companies that are each valued at $1 billion as of April this year. Collectively, this cohort of the world’s most valuable private enterprises is worth approximately $659 billion.
Thirty-seven percent of all companies (current and past unicorns) that achieved a $1 billion plus valuation in 2014 were based outside the US. The following year, 53 per cent of all the companies that reached unicorn status that year were based outside of the US. Last year, that number increased again to 58 per cent but in 2017, there have been 11 companies added to the global unicorn club, 8 are based outside of the US.
Though the lion’s share of that value is held by companies that are located in the US. In fact, 52 per cent of the world’s unicorn companies are located in the US, and US unicorns comprise 53 per cent of the cumulative valuation of the global unicorn club.
At present, there are two unicorns in Africa: Africa Internet Group and Promasidor Holdings. Two in South America: LifeMiles and Decolar, and three in the Middle East: ironSource and Infinidat in Israel, and Careem in the United Arab Emirates.