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. This has been the underlying trend for much of the Chinese tech sector in the last two years, bringing harvest time for pre-IPO investors.

Another report by 36Kr, a Chinese news portal, applauds Hillhouse Capital and Sequoia China as the two most prolific investment groups in terms of IPO exits in 2020, seeing 27 and 25 of their portfolio firms go public respectively.

That bumper crop could keep on giving as American stock markets trend towards historical highs. Hong Kong’s bourse is also keen to accommodate the highest-growth candidates, while the STAR Market in Shanghai has made available another lucrative tech-focused listing platform for venture capital players to exit the unicorns and take profit.

Among the top 50 unicorns on our list, 16 are portfolio firms of Sequoia China. Hillhouse (an early investor in Tencent back in the early 2000s) accounted for four. 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 has invested a sizable stake in at least 16 of the top 50 Chinese unicorns, while at least 10 others are 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 of having the benefit of the financial firepower of either of the two giants as shareholders, as well their 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 the competitive landscape of China’s tech future.

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