While projects involving online consumption are losing their appeal, chips and the industrial internet are the new darlings of the CVC world. On November 3, 2021, Tencent debuted three self-developed chips targeting AI computing, video processing and high-performance networks. Tang Daosheng, executive vice president of Tencent, revealed that the company will make long-term investments in chips for the core infrastructure of the industrial internet.
On December 31, 2021, Tencent invested in AI semiconductor company Zhiaixin Semiconductor. Before that, it participated in several rounds of early-stage financing of chip manufacturer Enflame and the A-round financing of graphics processor makers Moore Threads.
ByteDance has made similar investments. In November 2021, it invested in Shenzhenbased Guangzhou Semiconductor that was established in January 2020 with a focus on augmented reality (AR) goggle technology. Since 2021, ByteDance has made investments in technology startups engaged in AI and chips, including Stream Computing, Moore Threads, Runic Technology and RiVAI Technologies.
Xiaomi, a smart manufacturing company, is marching in the same direction. It became a shareholder in Wuhan Jiachen Electronic Technology, a designer of integrated circuits and sensors. It has also invested in over 50 semiconductor companies via its investment arm Changjiang Industrial Fund and submitted over 730 chip-related patent applications.
Xu Ke, vice director of the digital economy and law innovation research center of the University of International Business and Economics, told NewsChina that anti-monopoly opposes M&As that snuff out potential competitors. But when internet companies make capital investments, often these are unconnected to their existing business and are solely aimed at business expansion. Xu believes this kind of investment that results in cross-field competition among internet companies encourages competition and serves as a driving force behind Chinese companies.
A person engaged in venture investment told NewsChina on condition of anonymity that if leading internet companies slow CVC investment, the overall market will become more rational. Startups will no longer have to take sides between Alibaba and Tencent, nor will they be able to use being purchased by internet giants as their end game. An entrepreneur in consumer goods told NewsChina that as the flow of investment into trendy fields is constricted, leading startups can no longer corner capital resources, and this will help the development of smaller companies.
Meanwhile, more and more companies are establishing independent CVC entities. Huawei, China’s telecommunications giant, for example, established Habo Investments in 2019. Habo registered as a private fund manager on January 14. It will allow the company to roll out private equity products and equity investments in the future. With 3 billion yuan ($470.2m) in registered capital, Habo has already invested in over 60 companies, mainly semiconductor manufacturers.
In August 2021, ByteDance changed the name of its equity investment arm based in Tianjin from Tianjin ByteDance Equity Investment Management Limited to Tianjin ByteDance Private Equity Management Ltd to emphasize its nature of private fund management. It can still make investments through this company in the future. It is a limited partner (LP, a third-party investor in a private equity fund who only needs to commit to the capital they invest) of venture capital institutions such as BA Capital and XVC. Other internet companies like Meituan, Tencent, Xiaomi and Alibaba are all limited partners of venture capital institutions.
A person in the strategic investment department in an internet company told NewsChina that she received several inquiries from headhunters as soon as ByteDance confirmed it would halt its investment arm. She also found that some securities companies and private equity companies noted in their recruitment ads that candidates with CVC experience were welcome.
“The biggest change we can see is that the companies might directly operate equity investment institutions using their own capital or seek investors by applying to be fund managers or limited partners of venture investment institutions,” said a CVC employee from an internet company. He noted that as both CVC and venture capital are in the early stages in China, adjustments are normal. Besides, except for the few internet giants that can realize monopolies through buyouts or investment, most companies will continue making rational investment decisions, and this seems to have good prospects.