A glance at the world’s unicorns: China overtakes US for the first time

China has surpassed the United States for the first time to become home to the world’s largest number of unicorns – privately held startups valued at $1 billion or more – raising the stakes in an escalating trade war that has spilt over into the tech sector.

Of a global tally of 494 unicorns, 206 are Chinese and 203 are American, according to the inaugural Hurun Global Unicorn List 2019 released this week.

“China and the US dominate with over 80 per cent of the world’s known unicorns, despite representing only half of the world’s GDP and a quarter of the world’s population,” said Rupert Hoogewerf, chairman and chief researcher of Shanghai-based publishing group Hurun Report, in a statement.

“The rest of the world needs to wake up to creating an environment that allows unicorns to flourish,” said Hoogewerf.

Table 1: Top countries and cities where the world’s unicorns are based

Source: Hurun Research Institute

Trade friction between China and the US has spiralled into a technology battle, with Washington blacklisting Chinese technology companies such as smartphone maker Huawei, and most recently, video surveillance supplier Hikvision, over alleged human rights violations in China’s Xinjiang province.

At the same time, the Chinese market is witnessing a plunge in startup investments at home amid rising investor caution and growing concerns over inflated startup valuations. Venture capital deals in China plummeted 77 per cent to $9.4 billion in the second quarter of 2019 compared to the same period in 2018, while the number of deals roughly halved to 692, according to market research firm Preqin.

It is also noteworthy that the ranking counts many more Chinese unicorns than other research companies, including CB Insights which recorded 99 unicorns in China in October 2019, and an earlier 2017 report from Deloitte and China Venture, which indicated that China had 98 unicorns, just behind the US (106).

China is the world’s largest unicorn hub

The top three startups on the list are all based in China. They are digital payments giant Ant Financial, which was spun out of Alibaba in 2011 and is valued at $150 billion; Bytedance, the parent company of news and information platform Jinri Toutiao and viral short video app TikTok, valued at about $75 billion; and ride-hailing giant Didi Chuxing, valued at over $50 billion.

Among cities, Beijing was ranked as the world’s unicorn capital with 82 such companies, comfortably ahead of San Francisco (55), followed by Shanghai (47), New York (25) and Hangzhou (19). As a region, Silicon Valley leads the world with 102 unicorns.

Interestingly, twenty unicorns, or 4 per cent of the total number, were incubated by large companies before being spun off and attracting outside investors.

Table 2: Unicorns spun off from large corporations

Source: Hurun Research Institute

Chinese companies took the lead in the spin-off trend. Alibaba Group, insurer Ping An and e-commerce major JD.com have each nurtured three unicorns, followed by retailer Suning (2) and internet giant NetEase (2).

“Chinese companies are far and away the most successful at spinning off unicorns, with 18 of the world’s 20 ‘spun-off’ unicorns,” said Hoogewerf.

E-commerce produced 33 unicorns in the country – the largest number of unicorns – followed by fintech (22). Media & entertainment came third with 17 unicorns, while logistics ranked fourth with 16. Artificial intelligence (AI), a buzzword in the Chinese market in recent years, recorded 15 unicorns.

Due to China’s large market size, the cumulative valuation of its fintech unicorns stood at $262 billion, roughly four times the $71-billion valuation booked by 21 fintech unicorns in the US.

Sequoia incubates most unicorns

The 494 unicorns listed on the ranking are based in 24 countries around the world and have a combined valuation of $1.7 trillion.

About one in five unicorns was backed by Sequoia, which has invested in 92 such companies. Chinese internet giant Tencent, best known for its instant messaging app WeChat, came second with investments in 46 unicorns. It was followed by SoftBank Group (42), Tiger Fund (36) and IDG (31).

“Unicorns are supposed to be hard to find, but investors like Sequoia, SoftBank and Tencent make it look easy,” said Hoogwerf.

Table 3: Most successful investors into unicorns – Top 10

Source: Hurun Research Institute

An interesting difference between China and the United States is that Chinese technology majors, such as Tencent and Alibaba, are also some of the world’s biggest investors in startups. The likes of Amazon and Google, in contrast, barely made it to the top 100 investors list.

As China and the US took the lead, India came third in unicorn incubation with 21 unicorns, followed by the UK (13) and Germany (7).

Southeast Asia boasts a total of seven unicorns, according to the report. Indonesia had the largest number of unicorns in the region, including Tencent-backed ride-hailing service Gojek, Alibaba-backed online marketplace Tokopedia, Jakarta-based online travel agency Traveloka, and Ant Financial-backed e-commerce giant Bukalapak.

Singapore came second with ride-hailing firm Grab and Alibaba-owned e-commerce company Lazada, while Philippines recorded one unicorn, property technology major Revolution Precrafted.

Table 4: Asian unicorns – Top 50

Source: Hurun Research Institute