Despite the Chinese government’s tightening of regulations on the information technology (IT) industry last year, venture capital investment in China was the largest ever at $130.6 billion (about 157 trillion won), Bloomberg reported on the 9th (local time). According to Preqin, a global research firm, this is an increase of about 50% from $86.7 billion a year ago.
Venture capital investors stopped investing in startups when China imposed extensive regulations in the technology sector last summer, but the startup ecosystem resumed operation in a few weeks, Bloomberg said. The news agency pointed out that it is surprising, considering that leading companies such as Alibaba, Tencent, Byte Dance, and vehicle caller Didi have been hit hard. According to this, Chinese founders and venture capital moved rapidly to find new opportunities. It turned its head from the Internet business and moved to state-of-the-art core technologies such as semiconductors, robotics, and corporate software. Last year, funds flowing into the biotechnology sector amounted to $14.1 billion, up 10 times from 2016. “Investors’ desire for the Chinese technology sector is still active,” said Zhang Jingjing, a lawyer at KWM, a law firm in Hong Kong. “More and more funds are flowing into high-tech startups.”
China is still far behind Silicon Valley in the U.S. in overall venture investment. The investment in Silicon Valley was $296.6 billion, a record high last year, more than double that of China. However, in certain basic technologies, China has already overtaken the United States. For example, according to Preqin, China’s semiconductor sector attracted $8.8 billion in investment last year, which was more than six times the $1.3 billion U.S. companies received. The Chinese government said it will allocate more resources to basic research in its five-year economic plan. This change is aimed at achieving the priority of reducing dependence on U.S. technology amid the US-China conflict.
“The Chinese government is very aware of the importance of innovation for China’s future,” said Alicia Garcia Herrero, chief economist at Natixis, an investment bank. “Investment in deep technology is key.” Deep Tech, which is the base technology and original technology, is a comprehensive term for technologies that do not focus on services to end users, including artificial intelligence, robotics, blockchain, biotechnology, and quantum computing.
Some point out that there is a risk of overheating as funds flock to these areas at a time when areas considered safe investment destinations have been reduced due to regulations from the Chinese authorities.
Angelo Wi, founder of startup Fix Moving, struggled to attract investors to the capital-intensive and time-consuming self-driving technology business, but the situation has changed completely since authorities regulated Internet companies last year. “There has been a breakthrough change in investors’ move to deep-tech,” he said adding, “If it was a question mark whether they would succeed in raising funds in 2020, this year is not a problem. The question is how much value will be evaluated when raising funds”, he said.
Founded by Li Kaifu, a former Google executive, Technology Venture Capital Synovation Ventures plans to invest all of its investment in deep tech and biotechnology this year. The company’s investment in the sector was only 10% of the total in 2010.
Gary Liskel, who founded Chiming Venture Partners, also said deep-tech startups accounted for 40% of the company’s total investment, up from 10% in 2010. “All venture companies do this now”, he said.
Starting this year, large companies are moving rapidly as the holding company’s corporate venture capital (CVC) system has been implemented. As the establishment of CVC begins in earnest, it is predicted that venture and startup investments and mergers and acquisitions (M&A) will increase significantly, especially among large companies that are active in open innovation.
According to related industries and others on the 11th, GS Group recently established “GS Ventures,” the first CVC among holding companies in South Korea. It is in the form of a subsidiary in which GS, a holding company, fully invested 10 billion won in capital and owns a 100% stake.
Until now, general holding companies in Korea have not been able to have CVC, a financial investment company, as an affiliate in accordance with the principle of separation of financial and industrial capital. All existing CVCs were created by companies without holding companies or were established separately by affiliates other than holding companies. Samsung Venture Investment, POSCO Technology Investment, Naver Spring Camp, and Kakao Ventures are CVC operated by large companies that do not have holding companies.
CVC, which was established separately by affiliates other than holding companies, is representative of Lotte Ventures (Hotel Lotte), Kolon Investment (Kolon China (HK) Company), Timewise Investment (C&I Leisure Industry), and Signite Partners (Shinsegae International). Among the financial holding companies, Nonghyup and Korea Investment Finance have NH Venture Investment and Korea Investment Partners, respectively.
GS Group Korea held a general meeting of promoters at GS Tower in Gangnam-gu, Seoul on the 7th to establish a CVC company called “GS Ventures” and appointed Vice President Joon-nyeong Huh as the first CEO of GS Ventures. Holding companies in Korea have not been able to be affiliated with companies for financial purposes, but the implementation of the revised Fair Trade Act on December 30 last year enabled the establishment of financial companies for venture investment.
GS Ventures plans to invest mainly in domestic startups in new growth fields such as bio-climate change response, resource circulation and distribution, and new energy. First of all, the company plans to focus on investing in startups in the initial establishment and attracting funds, and to cooperate with GS and its affiliates in the subsequent stages.
GS Ventures plans to form an investment and risk management professional manpower and form a fund after obtaining permission from the Financial Services Commission to become a financial company specializing in new technology businesses. The fund created by GS Ventures will also create synergy by participating as investors by group holding companies and affiliates.
The new CEO Huh is considered an investment expert in charge of mergers and acquisitions at Mirae Asset Global Investment Division and UBS New York headquarters. Recently, he served as a native “unicorn” hyperconnect CFO and succeeded in selling it at a value of 1.9 trillion won.
GS is also investing in overseas innovative startups, such as launching GS Futures, a CVC overseas subsidiary in San Francisco in July 2020. With the establishment of GS Ventures, GS Group will be able to engage in professional investment activities with CVC subsidiaries in Korea and abroad, respectively.
Starting with the establishment of GS Ventures, the establishment of CVC by domestic holding companies is expected to accelerate the revitalization of the domestic venture ecosystem and cooperation of new growth of large companies.
Sam Kim
Asia Journal
