A Record Number Of Midas List 2020 Members Hail From China, Where Investors Seek The Next Pfizer Or Zoom

2020-04-14

In the early 2000s, James Mi was based in China, tasked with helping Google become the top search engine in that country. Those ambitions were extinguished by 2010, when Google said it couldn’t stomach Beijing’s censorship requests any longer. By then, Mi had already moved on, taking stakes in China’s consumer internet companies that today have made him one of the most successful tech investors in the world.

“In China, the consumer internet is really the most dominant area,”Mi says.“Hundreds of companies have gone out and become public companies.”

Mi cofounded Lightspeed China Partners in 2011 and made early investments in Meituan-Dianping and Pinduoduo, two e-commerce powerhouses that today have a combined market cap of more than $120 billion. He’s one of a record 22 investors on the Midas List who are either of Chinese nationality or based in China. 

As the country’s venture capital ecosystem blossoms, new startups are cropping up at a rapid pace while old bets pay off. Xiaomi, the world’s fifth biggest smartphone maker, went public in 2018; it serves as the centerpiece of deal portfolios for Richard Liu, No. 6, who moved the most on this year’s list (he dropped off the list in 2017) and No. 42 Tuck Lye Koh, the top-performing newcomer. To make the list, investors are judged by the performance of their portfolios—including IPOs, acquisitions and funding rounds—over the last five years.

 

In China, the mobile internet is king, with companies like Alibaba and DiDi Chuxing fueling Midas list wins for investors in China and abroad such as No. 40 Allen Zhu and No. 41 Scott Shleifer. “China has built a huge expertise in the mobile consumer internet,” Mi says. Now, entrepreneurs are expanding their ventures beyond national borders to Southeast Asia, Latin America and Africa.

Sequoia’s Neil Shen extends his stay at the top of the Midas list to three years thanks in part to his investments in border-breaking ByteDance. The Beijing company, which rocketed to prominence in China for news aggregator Toutiao, is also behind TikTok, the video app that has become an international sensation. Himself an internet entrepreneur—he cofounded Ctrip (now Trip.com), China’s largest online travel agency—Shen previously spearheaded investments in Alibaba and JD.com.

Fellow ex-entrepreneur Bob Xu, No. 24 cofounded education service New Oriental in the 1990s and became an inspiration behind American Dreams in China, a 2013 box office hit in China that chronicled a fictionalized version of the company’s origin story. He’s now one of China’s preeminent seed investors at ZhenFund, alongside Anna Fang, No. 91 on the list. Their firm’s 700-company portfolio spans the spectrum from agriculture tech (fresh produce e-commerce unicorn Meicai) to artificial intelligence (Yitu, Horizon Robotics). Some of their biggest wins come from internet startups—like $2 billion direct-to-consumer cosmetics brand Perfect Diary, which exploded on the platform of another company in Fang’s portfolio, social shopping app XiaoHongShu.

China’s startup dominance extends to industries beyond tech, including healthcare. Nisi Leung, head of Qiming Venture Partners’s healthcare investments, climbed to No. 33 on this year’s list thanks to a string of IPOs: vaccine-maker CanSino in March 2019, medical device manufacturer Venus MedTech in December and U.S.-based Schrödinger, which makes chemical simulation software, earlier this year. No. 14 Kathy Xu of Hong Kong and Shanghai-based Capital Today, who debuted on the Midas list last year, scored a 26x return on her investment in pharmacy chain Yifeng.

Healthcare companies in China are catching up to their American peers. “We still have a long way to go,” Leung tells Forbes, but notes that in the last decade, the industry has advanced to a point where she can invest in “the companies that will become the Medtronic’s or Pfizer’s of China.”

“I remember when I graduated from Stanford Business School [in 2001], the China healthcare sector was so primitive,” Leung says. “We actually did not have the capability to develop any diagnostic tests in China, so the virus strain had to be sent to the U.S. and Europe.” This year, she says, more than 100 companies were able to develop tests when the coronavirus broke out. CanSino is among a small group of companies working to develop a vaccine to treat COVID-19.

Other top Chinese investors include No. 13-placed JP Gan, who quit Qiming to start INCE Capital, which raised $352 million in October; No. 18 Zhen Zhang of Gaorong Capital; and No. 19 Boston-based Xiaojun Li of IDG Capital Partners. At No. 69, Qiming’s Duane Kuang is the other Chinese newcomer on the list, making his debut thanks to Xiaomi and RoboRock, which makes artificial intelligence-powered vacuum cleaners.

Dominant industries are becoming increasingly saturated, but it isn’t likely to put a stop to China’s ascent. Its venture capital apparatus continues to expand to satiate the size of the country’s $14 trillion GDP market. One emerging trend, Mi predicts, is enterprise tech, and he has the portfolio company to capture it.

In 2014, Mi led a $2.5 million Series A round on Nemo, an AI-based digital assistant in the vein of Amazon’s Alexa-equipped Echo Show. Originally intended as a consumer tech product, Nemo’s video chat function enthralled enterprise tech companies. Mi saw the opportunity, investing $5 million for its video conferencing software spinoff that has become China’s parallel to Zoom. In one week in the middle of the coronavirus outbreak in China, it added 120,000 paid customer seats. It’s now closing a funding round at a billion-dollar valuation and is slated for an IPO in China next year.

 

Share to: