PitchBook News - The bull case for Chinese tech

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The Weekend Pitch

August 29, 2021

Presented by Masterworks

The Shenzhen, China city skyline (LIAO XUN/Getty Images)

VC bulls are still in the China shop despite Beijing's tech crackdown

Investors gave Chinese companies something of a reprieve this week, despite the government's ongoing open season on tech. Shares of tech leaders like JD.com and Pinduoduo, for example, rose double-digit percentages on the back of strong sales.

But the industry isn't out of the woods yet. China recently passed a sweeping data privacy law that is likely to upend the world of consumer technology when it goes into effect this November. Consumer data-heavy companies may also be banned from going public in the US, The Wall Street Journal reported.

Meanwhile, venture capitalists in China are showing few signs of throwing in the towel. We caught up with Telstra Ventures, an Australian firm with a presence in China, to find out why.

This is The Weekend Pitch and I'm James Thorne. You can reach me at james.thorne@pitchbook.com or @jamescthorne.

Year of the ox

The bull may be Wall Street's favored symbol for growth. But in the Chinese zodiac, 2021 is the year of the ox.

Bulls become oxen once they are gelded—making them less aggressive and well-suited for farm work. In that way, the ox is an apt metaphor for the message Chinese regulators are sending to the tech industry: stop rampaging and put on the yoke.

The taming of China's tech titans is well underway. JD.com retail CEO Lei Xu this week praised the government's antitrust crackdown as a good thing for the industry's long-term prospects.

One obvious concern for investors: What effect will the wide-ranging efforts to overhaul competition, consumer protection, privacy and security have on current valuations and future growth? The worst-case scenario is that other sectors go the way of for-profit tutoring, where billions in value have reportedly vanished following Beijing's recent moves in the edtech sector.

Venture capital deal flow in China has declined from the levels seen earlier this year, but it has far from collapsed. So far in August, the Greater China region has closed 371 VC deals for a total of $6.6 billion in value—in line with the average deal count and value going back to January 2020.

Telstra Ventures, for one, has a positive outlook on the future of Chinese startups. The VC arm of Australian telecom giant Telstra has been investing in China for the past six years. It now counts three Chinese unicorns in its portfolio.

In an interview this week, Telstra managing director Mark Sherman and head of Chinese investments Chris Pu made a case for why investors should be willing to wait out the current regulatory storm. They also explained how the next decade in Chinese VC will look different from the past 20 years.

read the Q&A

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The displacement and resettlement of Afghan refugees in the US and elsewhere is one of the biggest humanitarian crises of our time. We feel a responsibility to step up.
— Brian Chesky (@bchesky) August 24, 2021

Airbnb and its charitable arm, Airbnb.org, announced on Tuesday that they will temporarily house 20,000 Afghan refugees at no cost.

The legal sparring over SPACs is heating up

(Viesturs Davidcuks/Getty Images)

An already high-profile legal showdown over SPACs is expanding into a wider battle over how to regulate blank-check companies.

The lawyers behind the suit against Bill Ackman's $4 billion SPAC may bring similar actions against as many as 50 blank-check companies, Reuters reported.

The group, which includes former SEC Commissioner Robert Jackson and Yale Law School professor John Morley, alleged that Ackman's vehicle is illegal because it is not registered as an investment company. Although he called the argument meritless, Ackman has since sought to change the structure of his massive blank-check company.

But on Friday, 49 US law firms united in support of Ackman and SPACs in general, arguing that the claim that SPACs are investment companies is "without factual or legal basis."

"Any company that temporarily holds short-term treasuries and qualifying money market funds while engaging in its primary business of seeking a business combination with one or more operating companies is not an investment company under the 1940 Act," the group of law firms wrote in a joint statement.

Did you know ...

(charles taylor/Getty Images)

... That conversational AI platforms for automated customer service are likely to capture market share from third-party chatbot integrations in the near future?

After recent tech breakthroughs, enterprise adoption of natural language processing is becoming mainstream in several applications: text classification, translation, call center automation and survey analysis.

PitchBook estimates the conversational AI market is growing a CAGR of some 75% and approaching a $5 billion market in 2021.

Natural language processing is one of the many innovations propelling a massive tide of venture funding in the AI and machine learning industry. The sector set a third consecutive quarterly record in Q2, with $31.6 billion invested globally, according to our recent Emerging Tech Research report.

Deal Flow

The median pre-money valuation for late-stage supply chain tech companies rose 94.4% year-over-year to $175 million in Q2.

The increase in late-stage valuations was largely driven by established winners in the downstream logistics and delivery spaces, including self-driving car maker Waymo and ShipBob, which provides warehousing and fulfillment services.

Our recent Emerging Tech Research report has more details on supply chain tech startups and global VC deal activity in the space.

Datapoints

In the first half of 2021, US venture-backed companies with a female founder or co-founder took in $25.12 billion, more than the total amount raised in any prior year.

While the raw numbers show a quantum leap for female founders, the difference in fundraising between companies with only female founders and those with both male and female founders has widened in recent years. And 2021 shows the biggest gap yet.

To learn more about the factors contributing to this disparity, check out our visual analysis.

Recommended reads

An interview with Susa Ventures co-founder Chad Byers on the GameStop saga, areas of fintech that could be potential hotspots for innovation, and how he turned a $250,000 investment in Robinhood into $400 million. [Forbes]

Roger Federer has won 20 Grand Slams. But the Swiss tennis superstar's biggest legacy may be his billion-dollar brand. [The New York Times]

The pandemic has helped set office workers free from the confines of their cubicles. Now a new hybrid work revolution is also transforming economies. [Bloomberg]

How social media algorithms are controlling the way we grieve the loss of loved ones. [Wired]

Young investors are turning to a whole new generation of online influencers—many without formal training—to get financial advice. [The Wall Street Journal]

Pandemic burnout has resulted in a period of high turnover among younger generations of workers. [Fortune]

This edition of The Weekend Pitch was written by James Thorne, Priyamvada Mathur and Marina Temkin. It was edited by Alexander Davis, Angela Sams, Kate Rainey and Sam Steele.

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PitchBook News - The bull case for Chinese tech

VC bulls are still in the China shop despite Beijing's tech crackdown

Year of the ox

Quote/Unquote

The legal sparring over SPACs is heating up

Did you know ...

Deal Flow

Datapoints

Recommended reads

Older messages

VC valuations data is bonkers

Health data drives startup opportunities

Charting female founders' standout year

Young fintech startups attract top VCs

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