Who are the biggest backers of the unicorn herd?

The composition of the unicorn list can change quickly when the stock market heats up, opening up prime opportunities for early investors to take profits. That has been the underlying trend for much of the Chinese tech sector in the last two years, bringing harvest time for pre-IPO investors. But a change of mood from Chinese regulators in the summer of 2021 has created new uncertainty for the unicorns and their shareholders after Didi – the ride-hailing giant – was punished by cyberspace bosses for its supposedly lax data security. Restrictions on downloads of the Didi app to new customers, as well as warnings about closer scrutiny of its data management protocols, saw Didi’s shares tumble in New York only a few days after their debut on the bourse.

The question is whether Didi’s experience could be repeated, leaving other unicorns more exposed to a newly harsh regulatory environment. That would then impact on companies like Hillhouse Capital and Sequoia China, two of the most prolific investment groups in terms of IPO exits in 2020, when 27 and 25 of their portfolio firms went public respectively. 

Perhaps the storm around Didi will subside and IPO candidates from China will return to the American stock markets, bringing lucrative paydays for sponsors and investors. More likely is that Shanghai and Hong Kong start to pick up more of  the banner listings as the venture capital players push their unicorns towards a profitable exit.

Of the top 50 unicorns on our list, a large proportion are portfolio firms of Sequoia China. Hillhouse (an early investor in Tencent back in the early 2000s) accounted for a smaller group. But neither firm classes as the biggest players in their own game if tech giants Alibaba and Tencent are counted as private equity firms in their own right. Tencent had a sizeable stake in at least 16 of the top 50 Chinese unicorns earlier this year, while 10 others were affiliates or portfolio firms of Alibaba.

That’s why analysts in China have long described Alibaba and Tencent as the country’s two biggest players in venture capital and private equity (remember the latter’s 5% stake in Tesla?).

Some unicorn founders have complained that the duopoly is too dominant, setting too many of the terms across a wide range of sectors, and often prepared to act in a predatory way to prevent the emergence of potential challengers. But there are also advantages in the financial firepower of both the two giants as shareholders, as well their commercial reach across so many sectors. This is what happened when Tencent masterminded consolidations in creating the undisputed leaders in online publishing (China Literature) and eSports broadcasting (Huya-Douyu), for instance.

With the ‘Big Four’ of Tencent, Alibaba, Hillhouse and Sequoia China not always content to be passive investors, the quartet enjoys an outsized influence in shaping China’s tech future.


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