“We’ve Invested in 160 Unicorns” Tencent President Talks Investment 2020

Matthew Brennan Uncategorized

“To date, Tencent has invested in more than 800 companies, of which more than 70 have been listed, and more than 160 have become unicorns (market or private valuation of US $1 billion+).”

Tencent Investment held its annual IF (Insight & Forecast) conference in Beijing earlier this month. Tencent President Martin Lau shared his thoughts with the more than 500 Tencent investee companies and partners present at the closed-door event where he disclosed the latest achievements of Tencent Investment:

  Jan 2020 Jan 2019   Year on Year Increase
Total companies invested 800+ 700+ 14%
Of which are now listed companies 70 63 11%
Of which now hold unicorn status 160 122 31%
Above: Martin Lau addresses the audience (Pic: Tencent Investments)

He further divulged that of the more than 800 companies Tencent had invested in, 15 companies had generated returns of more than $1 billion, 6 companies had generated returns of more than $5 billion, and 1 company had generated returns of more than $10 billion.

A likely list of candidates for those $5 billion+ returns:

Company Field Initial Investment Ownership Stake Latest Valuation
Meituan Dianping Food delivery / O2O Services 2016 18% $72.5 B (2020)
JD Ecommerce 2014 18% $56.4 B (2020)
Pinduoduo Ecommerce 2017 30.9% $40.4 B (2020)  
SEA Group Gaming / Ecommerce Pre 2013 39.7% $20.9 B (2020)  
Epic Games Gaming 2012 40% $15B (2018)
WeBank Financial Services 2014 30% $21B (2018)
Didi Mobility 2012 Unclear $62 B (2019)

Lau reaffirmed investment as one of Tencent’s core strategies and core businesses with a primary goal and core logic is to create value, specifically user value. He pounded home multiple times the cheesy but memorable message that Tencent follows the “user first, invested company second, Tencent third” principle.

Unsurprisingly he also took the opportunity to repeat several of Tencent’s core investment value propositions to entrepreneurs (i.e. we won’t control you but we’re not silent investors either, we have lots of resources and synergies to offer). He also took note to call out perceived bad practices in the industry. Softbank wasn’t named, but it’s not hard to work out who he was referring to in the below part of the speech:

“many investors, or some entrepreneurs, are hoping to raise a lot of money, get a lot of subsidies, and constantly use the power of capital to crush their competitors, it’s easy to sink into such mistaken practices.

We believe that the development of an enterprise is a long-distance race. Funding and traffic are only the raw materials in this process. The most important thing is the physical fitness, skills, and willpower of the enterprise. These are the core capabilities of the enterprise. It is these capabilities that we hope to build for the invested companies.”

Above: Martin Lau addresses the audience (Pic: Tencent Investments)

At another point he chose to emphasize the less visible, behind the scenes help that Tencent has provided many of their biggest investee companies.

“For example, when JD.com wanted create an experience for mobile, when Didi upgraded its technical architecture, when Meituan merged with Dianping but faced a severe subsidy war, and when Meituan expanded its food delivery business, Tencent provided critical help.

In terms of overseas companies, when Epic Games was transitioning from console to mobile games, when SEA (Garena) was transitioning from an agent into an independent games developer later developing into e-commerce, we also provided much help. We think help at this critical moment is crucial.”

Looking forward Lau let people know where Tencent’s attention will lie in terms of new investments:

“With the development of Tencent’s mini-program ecosystem and payment platform, we will invest more attention in transactional platforms and smart retail in the future.”

WeChat mini programs have become a favorite vehicle for startups in China to acquire users providing Tencent early and deep insight into the startups which are gaining traction.

Lau’s prognosis for the macro environment in 2020:

“Looking ahead, perhaps we will still face various uncertainties, and the market environment in 2020 may also be volatile.”

Faced with a coronavirus outbreak, a fragile truce in the US-China trade war and continuing doubts on the strength of China’s macroeconomy, “2020 may also be volatile” might be putting it lightly.

Full Version (Translation)

Below is my translation of the full presentation transcript:

As you can see, the overall market situation has changed significantly over the past year. At the last IF conference I told you that we will face great challenges. The financing environment in 2019 has indeed become very difficult. Many well-known startups and even unicorns have encountered financing problems, some even had to shut down. This is relatively rare in the history of internet development, but it did happen last year.

Indeed, we have always felt that an overheated financing environment is not actually the best environment for startups. To directly face challenges within a risk-controllable environment is the best way for a startup to develop and toughen themselves.

Fortunately, even in such a difficult environment as last year, many startups invested by Tencent embraced this opportunity to toughen themselves. Not only did they survive, they also strengthened themselves further.

Under the harsh operating environment and the shortage of funds, these startups have faced difficulties and made great progress in product capabilities, organizational efficiency, human resource and organizational capabilities. As an investor, in the past challenging year, Tencent has also kept its promise and provided strong support to the invested enterprises.

As of now, Tencent has invested in more than 800 companies, of which more than 70 have been listed, and more than 160 are unicorn companies with a market value or valuation of more than 1 billion US dollars. Through investment, Tencent has established a relationship with a huge ecosystem, which contains all trades and professions, which makes us proud, but also makes us feel responsible.

Many people ask, why does Tencent make investments, what value can it bring, and what are the principles of Tencent’s investments? I have said before publicly that investment is one of Tencent’s core strategies and one of its core businesses. The primary goal of Tencent Investment is to create value through the process and to share most of that value out, leaving only a small part for Tencent ourselves.

Therefore, the core logic of Tencent’s investment is to create value, and the primary goal of creating value is to create user value. Therefore, Tencent follows the principles of user first, investee second, and Tencent third. Why is this the order?

Users first, basically all companies will put this principle first in company standards, because this is really very important, so our investments are no exception. The user is the root of everything. This is why Tencent exists and why all startups in this room exist. Only companies that can continue to create user value will have continued vitality.

The main reason why Tencent can help the investees in the “user first” aspect is that Tencent itself is a practitioner of this principle. From the first day of its establishment, Tencent has taken user value and user experience as the company’s most fundamental values. Therefore, we believe that Tencent has the ability to help the investees do the right thing and make this a persistent long-term culture.

Of course, help can also be divided into “correct” and “incorrect” kinds. Tencent has many platforms to provide the right kind of help for the invested enterprises. It is here that Tencent’s biggest contribution to the invested company can be made. We can maintain and develop a fair, open, and viable platform, allowing the invested company to reach and serve users.

For example, Tencent’s social platform, invested companies can reach hundreds of millions of users through this platform. When they have good services and products, they can reach more users, because user-to-user communication will generate great word-of-mouth amplification. effect. Another example is the Tencent payment platform. The investee can rely on this platform to build a business model that conforms to its own principles. Tencent’s content platform allows content creators to better acquire users.

All of the above can bring value to the invested enterprises. We are also convinced that companies which create user value will be the best partners of Tencent. For Tencent, we will continue to listen to the opinions of the invested companies, improve these platforms, and work with the invested companies to create services that are valuable to users.

What needs to be emphasized is that not jeopardizing the user experience, violating user privacy, and not breaking the fairness and openness of the platform are the prerequisites for all cooperation. When we continue to interact positively with the investee companies, we can help them build and consolidate their core capabilities in the most correct way.

The reason we put the invested companies in front of Tencent is because we will not ask the invested company to do things that are only advantageous for ourselves with no benefit for them. At the same time, we do not have the idea of ​​controlling each other. As investors, what we value most is the founders and teams. We are investing in ideas, not resources. If investors turn their investment targets into resources, they are putting the cart before the horse.

Secondly, we greatly pay attention to the core capabilities of the enterprise. We hope that the investees have a clear positioning for creating value, have strong product capabilities, technical capabilities and strategic capabilities, have high-efficiency and strong organizational supply chain capabilities and talent building capabilities.

You may be wondering why I did not mention funding capacity and traffic. In fact, many investors, or some entrepreneurs, are hoping to raise a lot of money, get a lot of subsidies, and constantly use the power of capital to crush their competitors, it’s easy to sink into such mistaken practices.

We believe that the development of an enterprise is a long-distance race. Funding and traffic are only the raw materials in this process. The most important thing is the physical fitness, skills, and willpower of the enterprise. These are the core capabilities of the enterprise. It is these capabilities that we hope to build for the invested companies.

What Tencent has created for the invested companies is to actively provide resources and help when they need to make the most critical strategic choices, and they will never give up. Why is Tencent able to do this? Because we have gone through more than 20 years, and accompanied more than 800 invested companies to grow together. Therefore, when these companies need to make strategic choices, Tencent can provide practical experience and help.

For example, when JD.com wanted create an experience for mobile, when Didi upgraded its technical architecture, when Meituan merged with Dianping but faced a severe subsidy war, and when Meituan expanded its food delivery business, Tencent provided critical help.

In terms of overseas companies, when Epic Games was transitioning from console to mobile games, when SEA (Garena) was transitioning from an agent into an independent games developer later developing into e-commerce, we also provided much help. We think help at this critical moment is crucial.

At the same time, we are constantly improving the value-added service system for the invested enterprises. On the one hand, we encourage the investees and Tencent’s internal business lines generate organic business cooperation, which may be upstream and downstream collaboration, horizontal cooperation, or might be through Tencent’s open platform capabilities.

On the other hand, we hope to carry out more scientific and technological empowerment and better provide the technical capabilities accumulated over a long time to the invested enterprises. In organizational capacity building, management capacity building and management consulting, we have also formed a professional team to empower the investee companies.

All in all, we hope to really bring more value to the investee companies.

The reason why Tencent ranks itself third is because we have always felt that as long as users and investees are better, Tencent will naturally be better. A good company can not only generate more interaction with Tencent strategically, but also bring an increasingly higher return on investment for Tencent.

Of the more than 800 companies we invested in, 15 companies generated returns of more than $ 1 billion, 6 companies generated returns of more than $ 5 billion, and 1 company generated returns of more than $ 10 billion. Maybe everyone will be interested in who these companies are, but what I am looking forward to is when everyone here will be on that list in the future.

In fact, investment has also greatly helped Tencent’s own development, allowing us to choose only to do certain things, rather than fail trying to do everything.

In areas where Tencent chooses not to venture, we can work closely with the best team in the industry; in fields where Tencent does choose to compete, we can focus on making the product as good possible and our interactions with the investee. Therefore, investment makes Tencent’s overall strategy clearer, and also allowed us to gain more partners.

Finally, I would like to say that in the future, we will continue to increase our investment capacity building and further expand our investment areas. In the past, our traditional investment fields focused on game content and cutting-edge technology. With the development of Tencent’s mini-program ecosystem and payment platform, we will invest more attention in transactional platforms and smart retail in the future.

With regard to industrial internet, we are constantly thinking about how to use technology to help all professions and we focus on the development of vertical industries. At the same time, we will increase investment overseas, and we hope to show Tencent’s power more on the world stage and conduct more exchanges and cooperation with overseas entrepreneurs.

Looking ahead, perhaps we will still face various uncertainties, and the market environment in 2020 may also be volatile. I hope that everyone will maintain a good attitude. When the environment is bad, don’t lose confidence; and when the environment is good, don’t be too optimistic.

In the end, please believe that Tencent Investment will adhere to the principle of “customers first, invested companies second, and Tencent third”. Tencent Investments will always accompany entrepreneurs in moving forward.