China’s investments abroad have been gaining headlines as of late. Already a major player in natural resources, infrastructure, ecommerce and numerous other sectors, state-owned and public owned Chinese companies are looking to invest in Silicon Valley.
China is already home to numerous giant tech firms, however, most of these firms lack international penetration and are mostly focused on the Chinese domestic market. Now, Chinese tech giant Tencent Holdings Ltd (HKG:0700) is looking to take a major stake in Snapchat, a popular photo sharing platform. Tencent is looking to purchase as much as $200 million in the company, which is currently valued at some $4 billion dollars. Tencent Holdings Ltd (HKG:0700) also has about $5 billion dollars set aside in its cash reserves for such purchases.
China’s leading tech company, Alibaba.com Limited (HKG:1688), has also been ramping up investments in Silicon based companies. Alibaba was the lead investor for a $206 million dollar round of funding for Shop Runner Inc. Shop Runner consists of a consortium of retailers, including Dicks Sporting Goods Inc (NYSE:DKS) and RadioShack Corporation (NYSE:RSH), who have teamed together to take on Amazon by offering a similarly wide range of goods and shipping options.
Baidu looking to tap into Silicon Valley
Other companies, such as Baidu Inc (NASDAQ:BIDU), are looking to tap into Silicon Valley’s deep wealth of talent. The company opened the Institute of Deep Learning near Apple Inc. (NASDAQ:AAPL)’s campus in Cupertino in order to develop hardware and software. The Institute will be able to draw in some of the Valley’s best talent in order to develop advanced new technologies.
Chinese companies may find it difficult to invest in Silicon Valley. For one, Valley companies are often notorious for their lack of responsiveness to investors. The founders of many companies are also often very unwilling to outright sell their companies. Often, even when a founder can be persuaded to sell his or her company, shortly thereafter the company’s fortunes start to decline due to the loss of vision and drive. Chinese investors, on the other hand, tend to prefer that the companies they investment in ultimately become absorbed within the larger company.
Two, cash isn’t exactly in short supply in Silicon Valley. While much of the United States economy continues to limp along, the tech industry and other cutting edge industries continue to thrive and attract investments. With so much cash and so many VC companies already based in the Valley, many tech companies may see little need to look to China for funding. This is a far cry from politicians across Europe and the developing world who are almost desperate for an infusion of Chinese cash.
China will face many challenges in investing
Throughout 2013, Silicon Valley backed tech companies accounted for slightly more than 86% of all value of large VC backed IPOs in the United States. So gaining a foothold in Silicon Valley will be essential for gaining a foothold in the larger United States market. Still, China will face many challenges in investing in the fickle and tight knit market.
