China’s biggest tech company did not make any publicly disclosed investments in the US last year, as the increasing hostility between Washington and Beijing brought a multiyear spending spree by Chinese companies in Silicon Valley to an end.
Alibaba, the $580bn ecommerce company founded by Jack Ma, began making investments in the US in 2013, snapping up stakes in fast-growing start-ups such as Lyft and Snap before they went public.
But it is now leading the retreat, with other Chinese investors also pulling back from the US. Last year, publicly disclosed investments in US start-ups by Baidu, Alibaba and Tencent fell 84 per cent from 2018, according to an analysis by the data provider PitchBook.
BAT — a common acronym for the companies — disclosed 12 investments totalling less than $560m last year, according to the data. That was down from a peak of nearly $4.7bn in 2015. The group’s retreat from the US mirrored a broader investment slowdown worldwide, with total minority investments falling 64 per cent globally, according to PitchBook data.
The worsening climate for Chinese investors has been blamed on the increased scrutiny of deals from the Committee on Foreign Investment in the US, or Cfius, which has expanded its oversight since a reform act was passed in 2018.
“The worst thing for investors is uncertainty,” said Charles Liu, co-founder of private equity fund HAO Capital. “Many Chinese investors have decided it’s not worthwhile waiting over a year for a Cfius review that may end up with a ‘no’ and instead have abandoned doing deals in the US.”
Two years ago Cfius expanded its powers to scrutinise foreign, minority investments in US companies making “critical technology” such as semiconductors and dual-use technology that could have both civilian and military applications.
Last month, the committee formalised the rules, which cover the broad areas of “foundational” and “emerging” technologies.
A number of Chinese venture capitalists, such as Sinovation Ventures, have closed their US offices, while ZhenFund switched its focus from US founders to “sea turtles”, or Chinese entrepreneurs planning to return to China.
Two Chinese investors said they had abandoned or altered investments in US semiconductor design companies because of concerns about the deals receiving approval from Cfius.
Meanwhile, some US start-ups have sought to dilute the stakes owned by their early Chinese backers, fearing regulatory scrutiny and negative public attention.
Alibaba faced a setback in 2018 when Cfius blocked the proposed $1.2bn acquisition of US payments company MoneyGram by its Ant Financial unit. The Chinese group’s San Francisco-area head of US investments, Michael Zeisser, also departed that year and was replaced by his deputy, Peter Stern.
Mr Zeisser, who joined Alibaba in 2013, had overseen the company’s wagers on US tech companies. Those included investments in US competitors, such as the online retailer Jet.com and publicly traded Zulily.
On occasion, Alibaba has avoided disclosing funding rounds, such as its investment in the short-form video producer Quibi led by Jeffrey Katzenberg and Meg Whitman. Its non-profit Entrepreneurs Fund also gave money to US start-ups last year, such as the basketball training application HomeCourt.
Under chief executive Daniel Zhang, Alibaba has instead focused investments on areas such as India and south-east Asia that are closer to the company’s home market, one person briefed on the matter said.
Tencent has recently increased its focus on Europe, laying plans to invest at least $10bn in companies on the continent, with about a third going to German groups.
Baidu, Alibaba and Tencent declined to comment.
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