Where VC Funding is going in China? Sectors where VC funding is going? What do you need to know about partnering or investing in a Chinese Fintech company?

1. We Nurture Innovators!
Deep Dive into VC Funding in China
Carman Chan
Founder and Managing Partner, Click Ventures

2. Setting the stage
Table of Content
1) Where VC Funding is going in China
2) Sectors where VC funding is going
a) High level of where funding went by sector
b) Sector deep dive
i) Fintech
ii) Social Commerce
iii) AI
iv) Media
v) Electric Vehicle
3) What do you need to know about partnering or investing in a Chinese fintech company
a) Risks
b) Where opportunities still lie

3. Section 1
Where VC Funding is Going

4. By City- using startup valuation as a gauge
Where VC Funding is going in China
Source: China Money Network, 36 Kr
Some high level facts:
● Hangzhou overtook Shanghai in
terms of valuation of startups
● Beijing and Shanghai still remain cities
with the most number of unicorn as
well as PE/VCs present
○ Beijing- 6,000+
○ Shanghai- 5,600+

5. Our observation is that these 4 tech hubs have different focuses
Where VC Funding is going in China
Source: 深圳晚报
Beijing- Close to policy makers, strong talent pools Shanghai- VCs go there for Fintech/Gaming/Entertainment
Hangzhou- E-commerce (due to Alibaba) Shenzhen- Hardware capital of the world
Notable tech companiesNotable VCs
1,393
VC deals
year to date
Notable VCs Notable tech companies
785
VC deals
year to date
Notable tech companies
Many ex-employees from
Alibaba or Ant Financial
leaving the companies to start
their own businesses
Notable tech companies
554
VC deals
year to date
22
Unicorns in
the city as of
July 2018

6. Section 2a
Sectors where VC funding is going

7. VC funding goes into Business and Financial Services (including fintechs), Consumer Services
(including New Retail) and Information Technology (including AI)
High level sector view of VC Funding
Source: Dow Jones Venture Capital Report, up to Q3 2018
Landmark Deals
Business and
Financial Services
Consumer
Services
Information
Technology
Definitions:
Business and Financial Services- Fintech/B2B payments
Consumer Services- Shopping facilitators/bike sharing
Information Technology- AI/Electronics/Computer Hardware
Total VC funding up to
Q3 2018:
US$107B
Raised US$45.2B
across 652 deals
Raised US$29.3B
in year to date
across 880 deals
Raised US$14.5B
across 653 deals
Ant Financial- Online Payment;
US$14B Series C
SenseTime- Artificial Intelligence
US$1B Series D
Ele.me- Food Delivery
US$3B Funding round
Megvii- Artificial Intelligence
US$600M Series D

8. Other interesting sectors to highlight
High level sector view of VC Funding
Source, SCMP, 36 Kr
National policy- Made in China 2025
Electric
Vehicle
● Xiaopeng Motors raised US$596M in its most recent round despite
inability to deliver EVs at scale
Pinduoduo recently got listed in NYSE
Social
Commerce
● XiaohongShu raised US$300M in Series D led by Alibaba
Short Videos (vertical social media)
are taking the China Media industry by
storm
Media
● Kuaishou, raised US$1B in the recent funding round
● Douyin has more download in app-store than
Facebook/Whatsapp/Youtube in Q1 2018

9. Section 2b
Sectors deep dive
Why are VCs pouring money into these
sectors?
Who are the major players?

10. Payment is a key area of growth in Fintech
Why Fintech
Source, KPMG Fintech Pulse Report, China Internet Network Information Center
9.6% of Chinese adults on a credit card in 2014 only-
China skipped the credit card generation
98% of the population is on mobile
96% of consumers from the mainland mentioned
they used "mobile payment app" in the past six months
US$17T was the volume of mobile payment in
2017, (larger than the China GDP).
Fun Fact about Payment in China
There was a Robber robbed three stores and got caught and found out that
he only got RMB160...
Why are VC funding entering this segment?
1) Opportunities around payment
2) Opportunities around Credit- Personal and SME
credits
Some related figures to explain the rise of payment

11. Wealth of data create opportunity for credits
Why Fintech (cont’d)
Source, KPMG Fintech Pulse Report, China Daily, Caixin Global
38.8% of SMEs or more have trouble raising funds
from traditional channels
30% or higher interest rate on top of central bank
benchmark rate when SME extends credit from
traditional banks
Why are VC funding entering this segment?
1) Opportunities around payment
2) Opportunities around Credit- Personal and SME
credits
Some facts around the opportunity of credits
RMB 250B worth of loans issued to 100,000+ SMEsSMEs
Traditional
Financial
Institutions
Illustrative example of JD Finance
Launched Big Dipper for banks and financial
institutions to leverage JD’s retail credit system

12. China fintech landscape
Who is in Fintech
Source, China Internet Report, Forbes
● The space is dominated by the BATJ
and Ping An, the largest insurance
company in the world
● These players sit on a wealth of data
that can be leveraged for financial
services such as lending and wealth
management products.

13. Social+ is a major driving force behind VC’s interest in the space
Why Social Commerce
Source, Coreinsight Research, GGV
Social + is the concept of adding social
element to e-commerce
● Influencer marketing (XiaoHongShu)
● Team purchase among friends’ circle
facilitated by communication tools
such as Wechat (Pinduoduo)
Social+ works well in non-Tier 1 cities:
● Users tend to have more time to
engage socially
● PInduoduo has 60% of its users in 3rd
tier cities or belowThe Potential:
50% of rural villages in China will have
e-commerce capabilities by 2020
~6X y-o-y growth in MAU

14. China social commerce landscape
Who is in Social Commerce
Source, Emarketer, 鲸准
443M is the number of smartphone-based online shoppers that these
social commerce player tap into in 2018
US$150Bis the social commerce market size in 2020
24Mmerchants will be selling on such platforms in 2 years time
The market is still in its earlier stages but growing quickly:
48% of social commerce players that recently raised funding is still
at or before Series A
Just in Q1 2018 the capital raised in social commerce is already close
to the level of the entirety of 2017

15. China wants to be the AI Superpower by 2030
China’s State Council released its roadmap to
create a US$148B AI industry
● Also announcing the AI National Team
Why AI
2030
2018
2017
Government has strong AI ambition
>4X deficit in number of
AI companies compared to US
China is catching up quick-
“A lot of these companies are
created in the last 2-4 years”
Kai-fu Lee, Sinovation Ventures
China’s AI has lots of potential to grow
Source, Techrepublic, Techcrunch
Spending US$2.1B to build an AI
industrial park in the suburbs of Beijing
Be the world leader in the field by 2030

16. Rich resources that Chinese AI startups can tap into
Why AI (cont’d)
Source, SCMP, Crunchbase
● Government mandate for these 4 companies to build
Open innovation platform
● The technologies and resources of the platforms will be
open to everyone, which will benefit the entire industry
Smart Cities
Healthcare
Autonomous Driving
Voice Intelligence
The AI National Team Proliferation of Data
Data is the fuel for AI development and China has lots
of them compare to other countries…
50X more mobile payments than US that AI
algorithms can tap into in China
1.3B+face data records on Chinese citizens
from the Ministry of Public Security’s database that
Megavii is allowed to tap into
Fun fact: A few criminals were caught recently
after they went to see concerts! Chinese people
has different interpretation about privacy!

17. Chinese AI startups are well funded; computer vision companies are most sought after
Who is in AI
Source, China Internet Report, Crunchbase
= Computer vision startups
Number of Deals
Total Funding volume for
computer vision startups

18. VCs back media startups for their strong engagement metrics and monetization potential
Why media
Source: TrustData
Media startups have found a new way to engage its
audience- Short Videos
84%y-o-y growth daily using frequency
8 times daily engagement
175M short video app users in rural China
1.6B Daily Active Users of short video
platforms
Advertisers have found short videos to be a useful channel to
conduct influencer marketing:
Example:
Adidas used Douyin in starting Jan 2018- in 1 month
accumulated 1M+ fans with video top views at 100M+

19. Who is in media
快手 has dominance in
non-Tier 1 cities
抖音 and 西瓜 are different
● 抖音 has 85% of its users
below 24 years old.
● 西瓜 has more PGC and OGC
content
Owned by Toutiao
Source: 中国产业信息网
Toutiao moved quickly into the short video space

20. VCs see the strong demand for electric vehicles in China
Why Electric Vehicle
Source: Forbes
2M electric and gasoline-electric
hybrid vehicles in sales by 2020
● Manufacturers need to at least
have one electric vehicle produced
by 2019
Supportive national policy- Made in China 2020
Strong Market Demand for EVs- sales of EVs in China reached 770Kunits last year
Accounts for >50% of EVs sold globally
The current EV market is heavily subsidized
and will change in near future:
● Total government subsidies on the purchase of an EV
with a range of > 250km has been ~US$10K to make
EVs affordable
○ Local governments spent US$7.7 billion on EV
subsidies in 2017
● In 2019 the government is introducing the ‘Credit
system’ for Fuel Burning Cars
○ This effectively shifting the financial burden to
automakers
Potential Red Flag

21. According to Nikkei Asian Review, there are close to 300+electric car ventures in China
Source: Nikkei Asian Review, PE Daily
Notable EV Startups at a glance
EV startups in China
Who is in Electric Vehicle

22. Section 3a
What do YOU need to know about partnering or
investing in a Chinese fintech company-
The Risk

23. Our observation is that China has been on a clampdown on P2P lending
Note of Caution to those going into P2P
Potential Red Flag
As many as 118 P2P lending firm failed
in China just in July 2018
This brings the cumulative count of failed
P2P lending startups to a staggering
4334 companies since 2013
Source: Bloomberg

24. Section 3b
What do YOU need to know about partnering or
investing in a Chinese fintech company-
The Opportunities

25. B2B Fintech Suite
Providing a technology architecture to
traditional financial institutions
Now serving 100 banks, 60+ insurance
companies, and 40+ asset management
firms and security brokers
PICC Health Insurance uses it to speed up
policy processing time by a few thousand
times, daily reporting time from 4 hours to 6
minutes and cut product launch time by 80%
Opportunity- Examples of traditional financial institutions using fintech’s aid
Partnership with banks/lending institutions
E-Credit LIne
Attracts outside capital providers such as
EZbob that leverage the data on Alibaba’s
ecommerce platform to provide credit to
SMEs
~5 minutes is the time needed to
UK-based businesses to apply and get
funded
£50-120Kcredit available for up to 6-15
months
JD FInance Microcredit
Partners with banks and financial
institutions to leverage on
JD.com’s vast amount of data
Extend credit/loans with much
more informed decision
Partnership with banks/lending institutions
Export tech stack to banks/lending
institutions
Source: Forbes, Coinjournal
Domestic International

26. Hop on the outbound Chinese tourist bandwagon
Partnership with outbound Chinese Fintech
1) Being China Fintech’s on-the-ground
partner can be a key trend to help
them offer localized services
2) China fintech is becoming a
technology exporter to its overseas
partner- tap into their technology
The Opportunities
Example of Partnerships in SEA
Enters Indonesia through joint venture with
two Indonesian partners
Joint venture with Indonesia’s
Elang Mahkota Teknologi to roll
out a mobile payment service
Helping Indonesian banks to improve
their debt collection systems through
their technologySource: Economic Times, SCMP

27. The End- Thanks for listening!
Reach out at:
carman@clickventures.vc