The launch of ChatGPT-3.5 in December 2022 triggered a global surge in interest in large-scale AI models, with major Chinese companies such as Baidu, Alibaba, and SenseTime following suit in 2023. By June, a flurry of general-purpose and specialized models had emerged, contributing to China’s rapidly growing AI landscape. By the end of 2023, over 300 large models had been released, leading to what the media dubbed the “Hundred-Model Battle.” As of 2024, the so-called “Six Tigers”-Zhipu AI, MiniMax, Baichuan AI, Moonshot, StepFun, and 01.AI-are dominating the field, with a valuation at over $1 billion each, and four of them exceeding 20 billion RMB ($2.7 billion), according to Chinese media outlet Caixin. These companies are also bearing the weight of expectations to become China’s  version of OpenAI.

Zhipu AI

Founded in June 2019, Zhipu AI is one of the few companies in China that predates the launch of ChatGPT. As one of the first companies to explore large language models, Zhipu AI has become a major player in the sector. The company’s leadership team boasts notable figures from China’s top academic institutions. CEO Zhang Peng, a graduate of Tsinghua University’s Computer Science Department, is joined by Chief Scientist Tang Jie, a professor at Tsinghua University, and President Wang Shaolan, a Tsinghua Innovation Leadership Doctorate holder. The company also expanded its leadership team in April 2024, with former Alibaba Cloud Vice President Chen Xuesong joining as Vice President.

 In October 2024, the company released GLM-4.0, an open-source end-to-end speech large language model capable of replicating human-like interactions and offering users the ability to adjust the tone, emotion, or dialect according to their preferences. Zhipu has also launched a wide range of other products related to large models, including various general-purpose models of different sizes, the CodeGeeX code model based on Huawei’s MindSpore framework, the CogView text-to-image model, and the VisualGLM multimodal dialogue model. In an announcement on December 31, 2024, the GLM technology team revealed plans to enter the field of inference models.

On the financial front, Zhipu AI has been a favorite among investors. In 2023, the company completed an RMB 2.5 billion ($350 million) funding round, with participation from major investors including the Social Security Fund’s Zhongguancun Innovation Fund, Meituan, Ant Group, Alibaba, Tencent, Xiaomi, Sequoia Capital, and GL Ventures. In another boost to its financial standing, the company secured a new round of RMB 3 billion ($420 million) in funding by the end of 2024.

MiniMax

MiniMax was founded in 2021- two years after its predecessor, ZhiPu. Before founding MiniMax, Yan Junjie, the company’s founder, spent over a decade in AI research and development. At MiniMax’s first offline event in August this year, Yan shared the company’s founding vision-Intelligence with Everyone, and revealed key user data: 3 billion daily AI interactions and 30 trillion tokens processed. In October 2022, MiniMax launched its first app, Glow, which quickly gained traction, surpassing 5 million users within just four months. The app was later rebranded as Xingye for the Chinese market and Talkie for international users, marking the company’s expansion into global markets. 

Another standout product is Hailuo AI, a video-generator that quickly gained international attention later, with video creators offering positive reviews. In March 2024, Alibaba led a $600 million funding round for Minimax.

Baichuan Intelligence

Baichuan Intelligence was established in March 2023, with its core team consisting of top AI talents from renowned tech companies such as Sogou, Baidu, Huawei, Microsoft, ByteDance, and Tencent. Less than 100 days after its founding, Baichuan Intelligence released two open-source, commercially usable Chinese language models, Baichuan-7B and Baichuan-13B. 

In July 2024, Chinese media outlet 36kr reported that Baichuan Intelligence completed a Series A funding round, raising a total of 5 billion yuan. Previously, in October 2023, Baichuan had announced its A1 funding round, revealing a list of investors that included tech giants Alibaba, Tencent, Xiaomi, and several top-tier investment firms.

Moonshot

Moonshot, also founded in March 2023, is led by Professor Yang Zhilin from Tsinghua University’s School of Interdisciplinary Information. The team includes talent from global tech giants such as Google, Meta, and Amazon. Unlike some of the large models currently on the market that aim for a one-size-fits-all approach, Moonshot’s large model, Kimi Chat, is more focused on long-text capabilities. For instance, its practical use can support a context of approximately 200,000 Chinese characters—2.5 times the size of Anthropic’s Claude-100k (which supports around 80,000 words) and 8 times that of OpenAI’s GPT-4-32k (which supports around 25,000 words). This potential has contributed to Moonshot’s valuation of $3 billion.

However, its success is recently overshadowed by legal disputes.

StepFun

StepFun is the latest company to officially debut among the “Six Little Tigers.” Many people only heard of Jieyue for the first time in March this year, but the company quickly rose to become a leading player in the large model sector. Its strong multimodal technology has garnered widespread attention from developers. According to statistics, in the past 10 months, Jieyue Xingchen has launched a total of 11 foundational model products, including language models, multimodal understanding models, video generation models, and speech models.

01.AI

01.AI was founded in July 2023 by Kai-Fu Lee, who held key positions at tech giants such as Apple, Silicon Graphics, Microsoft, and Google. In the first three quarters of this year, 01.AI launched two models—Yi-Lightning and Yi-Large—both of which ranked among the top on LMSYS and were the highest-ranking domestic large models. However, the core advantage of 01.AI lies not in the rankings, but in the cost of pre-training. Under the model co-building strategy, the training and deployment costs are impressively low. Founder Kai-Fu Lee stated that Yi-Lightning’s training only required 2,000 GPUs and took just one and a half months, with costs amounting to around 2% of those of Musk’s xAI.

On August 7, 2024, media reports revealed that 01.AI had completed a new funding round, raising several hundred million dollars. Investors in the round included an international strategic investor and several Southeast Asian consortiums. 01.AI has yet to comment on the funding news. Before this round, 01.AI had previously received investment from Alibaba Cloud, following which, the company’s valuation surpassed $1 billion, securing its position as a unicorn.

Correction: An earlier version of the article misidentified GL Ventures as Hillhouse Capital.

Despite their various fields and interests, members of the TechNode community agree: The theme for China tech 2021 was regulations. 

Sometimes the regulations came in waves. Sometimes the rules were new, sometimes just newly enforced. There were so many rules that, like a chronic state of pandemic alertness, regulation fatigue set in by year’s end.

There were industry-rattling rules, like the bans on crypto mining and trading in May, soon followed by the data security review that forced Didi’s US delisting. And while we were still digesting that, there was the sweeping ban on the most profitable edtech services. Mostly, though, there were fines. Tech giants like Alibaba, Meituan, and Pinduoduo faced fines large (for anti-competitive practices) and small (for illegal information releases).  

Next came the drastic limits imposed on minors’ playing hours, which could gnaw into game-makers’ profits and dent the world’s largest population of players. Meanwhile, even tech companies never previously enmeshed with virtual or augmented worlds claimed to be ready to soar into the metaverse in 2022. Already making great—frankly, surprising—advances in 2021 were several homegrown silicon chip designers and a handful of the slew of electric carmakers.

In the wake of news of tragic employee deaths and abusive working conditions, the grueling hours demanded by Big Tech got renewed official and unofficial attention in 2021 as well. It turns out that requiring employees to work six days a week, from 9 a.m. to 9 p.m–the so-called 996 workweek–violates labor laws, according to a statement the Supreme People’s Court issued in August. 

Some of the biggest companies quickly declared that they were abolishing weekend work. 

So are tech workers shouldering a lighter workload now? Is Big Tech assuming a kinder, more humane face?  TechNode’s friends and contributors are once again united and …. skeptical. On the upside, at least the ten richest tech moguls, notably PInduoduo founder Colin Huang, got whacked in their pocketbooks this year. 

Wishing you a 2022 minus 996. 

This year’s most surprising development was Didi’s forced delisting, justified by vague references to national security. It’s still unclear on what basis the Cyberspace Administration of China (CAC) believes foreign listings may result in: (1) Chinese firms transferring onshore data overseas or (2) Chinese firms being compelled to hand over data to foreign entities. My best guess is CAC believes there’s a possibility sensitive data may be requested as part of an investigation under the US Foreign Corrupt Practices Act. Whether well-founded or ill-founded, this fear has led to an overhaul of foreign listings.  

—Michael Norris, research and strategy lead, AgencyChina

The regulatory crackdown is a big one, although a long time coming. I think at this point we have become a bit desensitized to the news. I remember just how shocking the Ant Group fiasco was last year. Everyone was talking about it. Now, with everything going on in gaming, education, content, livestreaming, fintech, crypto and more, it seems like a drop in the bucket. During the latest crypto crackdown, I was surprised to see just how much mining was done in government facilities, or under government supervision, despite the May announcement to shut down the industry. 

—Eliza Gkritsi, Asia mining reporter, CoinDesk

In the semiconductor space, it is how strong industry has aligned with the government. In almost every WeChat group I am in, engineers seem to be one hundred percent behind China’s self-sufficiency goals. Whereas before they may have gone along with such drives begrudgingly, there now seems to be a true desire to work together to achieve these goals. One example where this has been a success to some extent is the silicon IP (intellectual property) space where China—through self-development, tech transfer and other means—has become much more self-reliant in CPU, interface, and GPU IP.

—Stewart Randall, director of operations, Intralink

What do you fear or hope for in 2022?

I expect China’s commercial space industry to achieve more encouraging results in 2022. As novelist Liu Cixin wrote in “The Three-Body Problem”: “The future of mankind is either to move towards interstellar civilization, or to indulge in the virtual world of VR all the year round.” Although metaverse hype swept the global tech industry in 2021, it was also fascinating that we witnessed the successful launch of NASA’s James Webb Space Telescope this past Christmas Day. Personally, I hope Chinese space companies accelerate the steps of mankind to spread themselves beyond earth.

—Lu Guanghao, director, Befor Capital

I hope industry players can work together to create a unified standard for intelligent driving functionalities when it comes to the names, definitions, and driving scenarios, among other things. In the past year, we have seen self-driving companies and electric vehicle makers hyped up automated driving technologies as a unique selling point of their products and services due to the surging demand from customers. 

However, it takes users a great amount of additional time and effort to familiarize themselves with different vehicle systems. Also, as the technology is advancing, there are no industry-wide rules and safety requirements governing the development of automated driving capabilities. 

—Liu Guoqing, founder and CEO of automotive software developer Minieye

My hope for 2022 is that our collective understanding of China’s regulatory activities steps up a gear. In 2021, too many were suckered by the temptation to ascribe a single, all-encompassing narrative to China’s regulatory thrusts. Early uncritical anchoring to a particular analytical frame left market participants blindsided by regulation that didn’t fit neatly within their mental model. If we are to have an analytical frame equipped to consider and make prudent investment decisions within the shifting sands of China’s regulatory landscape—particularly its views on competition and market irregularities—we must do better than “Well, it’s all about taking down Alibaba” or “Well, it’s all about taming the private sector” or “Well, it’s all about semiconductors” or “Well, it’s all about reducing inequality.”

—Michael Norris, research and strategy lead, AgencyChina

US efforts to decouple China from the global economy are meant to weaken and isolate China’s technology sectors to some extent, but technology really does not follow any political boundaries. For Chinese enterprises, a key initiative would be to better utilize the research and development resources from the rest of the world and be more engaged in the global innovation community. 

Meanwhile, China will grow more innovative and more resilient in its long-term development of advanced technologies and the future looks very rosy for those startups in frontier sectors in the next several years. With the launch of the Beijing Stock Exchange in November, innovative Chinese startups will have more access to raise capital at home, while more Chinese-born scientists are expected to bring their expertise home from abroad. 

—Lu Shengyun, former partner with Simon-Kucher & Partners

I fear VCs that have been surprisingly patient to date will want to see returns on their semiconductor investments here in China towards the end of 2022. A chip takes 18 months to two years to design and get to market, so if they are not seeing returns–if these chips do not sell, miss deadlines, or struggle with performance or with bugs–then we could see some semiconductor startups fail. There is a lot of competition out there: over 20,000 chip-related companies and now over 2,800 chip design companies in China. Many companies are on thin margins, if any at all.

—Stewart Randall, director of operations, Intralink

Are Chinese tech giants becoming more humane workplaces? Or more socially responsible neighbors?

As we approach the one-year anniversary of the tragic deaths of two Pinduoduo employees in the same week, I don’t believe China’s tech giants have turned the page on excessive work hours. The collaborative “Worker Lives Matter” spreadsheet, originally published in October, suggests that overwork is commonplace and confirms Pinduoduo employees have the most grueling work hours among the tech giants.

—Michael Norris, research and strategy lead, AgencyChina

They certainly want to make it look that way, but to what extent it is an accurate depiction of reality, I don’t know. I am worried that better work-life balance might actually translate into layoffs. 

—Eliza Gkritsi, Asia mining reporter, CoinDesk

Although the “996” work schedule has been banned, it does not seem that the workload on employees has been reduced. Therefore, this particular policy has meant a reduced salary (as no longer paid double on Sundays), and yet a similar total number of working hours. Hopefully, this is simply the “adjustment period” and the companies will adapt to a non-overtime work culture. But for now, there has not been a great shift. 

—Capucine Cogne, China tech-watcher in Chengdu

As we’ve seen, the Chinese government brought two big policy shifts in the country’s tech space over the past year: strengthened policy support to build its own core technology, as well as the tightened regulation against internet giants. I believe “tech for good” will be the main theme in the industry for a while in the future.

—Lu Guanghao, director, Befor Capital

TikTok owner ByteDance is the world’s largest unicorn with a market valuation of $353 billion (RMB 2.25 trillion), according to a Monday unicorn ranking list from the Hurun Research Institute. Alibaba affiliates Ant Group and Cainiao take the second and ninth spots, respectively, with valuations of $150 billion and $34 billion.

Why it matters: ByteDance, one of China’s top tech IPO candidates, has maintained growth, despite China’s tech crackdown and US sanctions this year. The firm’s valuation has more than tripled from $80 billion a year earlier. 

Details: The Hurun Research Institute released on Monday its Global Unicorn Index 2021, a ranking of startups valued at more than $1 billion and not yet listed on a stock exchange. “A unique feature of China’s startup ecosystem is the ability of big tech companies to spin off unicorns, with 49 of the world’s 50 ‘spun-off’ unicorns coming from China, such as Ant Group, spun off from Alibaba in 2014,” said Hurun Report chairman and chief researcher Rupert Hoogewerf. Based in Shanghai and Oxford, England, Hoogewerf is also known by his Chinese name, Hu Run.

• Compared to China’s tech giants, Hoogewerf said that global tech giants like Microsoft, Apple, Amazon, and Alphabet are “not as active” as their China counterparts when it comes to investing in unicorns.
• Other prominent Chinese firms that made the annual annual list include JD Technology, WeBank fintech services, fashion retailer Shein, Instagram-like lifestyle community Xiaohongshu, and drone maker DJI.
• The report listed 1,058 unicorns worldwide, double the number since 2020. Hoogewerf calls 2021 the “most successful year for startups ever.” China now counts 301 unicorns, or 28% of the global total. Most focus on e-commerce, healthcare, or artificial intelligence.
• The total value of these unicorns is $3.7 trillion, or equivalent to the GDP of Germany, according to the report. 
• The report named Sequoia Capital the most successful unicorn investor with investments in 206 unicorns in its portfolio. The US venture capital firm is followed by another US investor, Tiger Fund, and Japanese investor SoftBank. Chinese investors Tencent and Hillhouse occupy the eighth and the tenth positions, respectively, on the list. 

Context: Chinese big tech companies have faced regulatory headwinds since autumn 2020 when Beijing stepped up its crackdowns on market monopolies and cybersecurity lapses.

Baidu has announced a strategic investment in Xinchao Media, a media company that specializes in elevator ads, according to the company’s post on Bai Jiahao (in Chinese). While Baidu did not disclose the size of the new investment, other reports suggest Xinchao Media’s latest financing round led by Baidu was totaled RMB 2.1 billion and Huaxing Capital was the exclusive financial advisor on the deal.

Forming a strategic partnership with Xinchao Media is part of Baidu’s offline advertising push.

“In the age of AI, market environment along with the development of technology is pushing and renewing the vigor of offline advertising,” the Chinese search engine giant said in the post. On one hand, the growth of mobile devices and the growth of online traffic are slowing. On the other hand, the new-found potential of offline advertising is tremendous. As technology advances and the cost of display screens drops, digital outdoor ads consumption is growing at a rapid pace.

Their new advertising platform—Baidu Juping (百度聚屏)—that focuses on offline digital ads connects advertisers with media such as digital ads on public transportations, in buildings and convenient stores, or even smartphone—a multi-screen approach that aims to optimize touch point effectiveness and realize online and offline integration, according to Baidu.

The company claimed Baidu Juping now covers 31 provinces in China and has a reach of 300 million people.

Under the strategic partnership, Xinchao Media’s offline smart hardware will be integrated with Baidu’s online data to better provide customers with more precise advertising plan. As a part of Baidu’s media alliance, the company now has access to Baidu’s AI  and big data resources.

Established in Chengdu in 2007, Xinchao Media became the city’s first unicorn in 2017 with an estimated value of $1.5 billion. The company said it provides more accurate and cheaper media traffic using smart hardware and software. According to recent data provided by the company, it now covers more than 100 cities in China with a reach of 200 million.

Internet-based financial services make up the biggest category of Chinese unicorns, with entertainment services coming in second, according to a China Internet Watch (CIW) whitepaper.

Over 15% of all unicorns fall within the category “Internet Finance.” Seven of China’s top 20 unicorns provide financial services. These include Ant Financial, OneConnect, JD Finance, and WeBank.

In line with the number of unicorns providing financial services on the internet, 70% of mobile internet users make use of online payment systems. These payments totaled RMB 55 trillion in 2017 and are expected to increase to RMB 90 trillion by 2019. Additionally, almost 17% of internet users made use of financial planning services in 2017, a 3.2 percentage point increase compared to 2016.

The second most populated category is entertainment (11.7%), followed by automotive (10.4%), intelligent hardware (6.5%), online medical care (3.9%), and artificial intelligence (3.4%).

Read more: Study of 151 Chinese unicorns shows Beijing #1 city for startups

While artificial intelligence unicorns aren’t as numerous as those in other categories, China hopes to be a world leader in AI technology by 2030. Chinese AI and facial recognition company SenseTime recently became the world’s most valuable AI startup. The company was valued at $3 billion after it raised $600 million from Alibaba and other investors.

The whitepaper also mentioned the geographical distribution of unicorns across China. 41.6% are based in Beijing while 23.4% are located in Shanghai. 35% of all startups come from other cities in China.

China is home to an ever-growing number of unicorns. In March 2018, China’s Ministry of Technology said that the total value of Chinese unicorns exceeded $628 billion. It also said online finance giant Ant Financial was the most valuable unicorn in the country.  The company was followed by Didi Chuxing and Xiaomi.

Editor’s note: A version of this post first appeared on WalktheChat’s website. WalktheChat specializes in helping foreign organizations access the Chinese market through WeChat, the largest social network on the mainland.

A unicorn is a privately held startup company valued at over $1 billion. Although the term was coined in order to express the rarity of such companies, they are getting more common, especially in China.

Let’s study unicorns in one of their most common habitats.

Some of the highlights:

• The largest concentration of Chinese unicorns is located in Beijing (66 out of 151)
• Internet services are the largest and fastest growing industry for unicorn companies
• Almost 35% of Chinese unicorns are less than 4 years old
• Almost 40% of them are headed by post-80’s generation or younger leaders
• Main investors in Chinese unicorn companies are Sequoia Capital, Tencent, and IDG

 43% of Chinese unicorns are located in Beijing

Most Chinese unicorns are located in large Tier 1 cities. Beijing is the outstanding leader with 66 unicorn companies, followed by Shanghai (with “only” 38 of them).

Beijing & Hangzhou have the highest aggregated unicorn valuation

In terms of valuations, Beijing companies also tend to be more valuable than their peers. Beijing has less than twice as many unicorns as Shanghai, but more than 3 times the aggregated valuation of those in Shanghai.

Hangzhou, as a 2nd tier city, is showing great potential for startups. With 16 unicorns, the aggregated valuations reach RMB680 billion, ranking it second overall, and above Shanghai. It’s mostly due to Ant Financial, the super unicorn that is valued over RMB400 billion.

Internet Services is the largest category for unicorns

Unsurprisingly, internet services is the most common industry in which Chinese unicorn companies operate, followed by e-commerce and online finance. It’s also the one from which most new unicorns are coming.

In terms of valuation, internet services, online finance, and culture & entertainment account for most of the valuation. Put together, these three industries make up 60% of all Chinese unicorn valuations.

The top 10 super unicorns are valued over RMB100+ billion

The top-10 unicorns are some of the most famous companies in China, including Ant Financial (the financial arm of Alibaba that operates Alipay), ride-hailing company Didi Chuxing (which recently acquired the Chinese operations of Uber) and the startup Xiaomi.

60% of Chinese unicorn companies were founded in the last 6 years

A significant amount of unicorns are young companies: 35% of them are less than 4 years old, and 60% of them less than 6 years old.

The top VC funded 40 unicorns!

Some venture capitalists have been doing particularly well at identifying Chinese unicorn companies. Sequoia Capital leads the way, with investment in 40 Chinese unicorns, followed by Tencent with stakes in 22 companies and IDG who invested in 22 unicorn companies in China.

39.1% of China’s unicorn founders are younger than 38

Unicorn leadership is relatively young, with 39.1% of leaders born after 1980, an impressively young top-management for multi-billion dollar companies.

Hong Kong’s Vitasoy was born out of necessity. Dr. Kwee Seong Lo, the company’s founder, learned of the nutritional value of soy milk following a visit to Shanghai. Upon his return to Hong Kong, he started manufacturing and distributing the high protein drink to combat malnutrition in the city.

Lo’s story is not an isolated one. From Vitasoy’s soy milk to Chow Sang Sang’s jewelry, there are many examples of the dynamism of the city’s early entrepreneurs. Fast forward almost 80 years, and the spirit not only remains but is driving the city’s thriving startup scene.

“I think Hong Kong has always been the perfect environment for entrepreneurship,” said Terence Kwok, founder and CEO at Tink Labs. He explains that entrepreneurship in its broadest sense, not just in its association with technology companies, has always been part of the city’s culture.

“We have some of the greatest textile companies. We have some of the greatest hotel groups and restaurants. From regulation to taxes, to being a bridge between China and the West, it has always been the perfect place,” he said.

Kwok, speaking at the 2018 Internet Economy Summit held in Hong Kong last week, joined a panel discussion of founders from four of the city’s unicorns. Joining him were GOGOVAN co-founder and CEO Steven Lam, WeLab founder and CEO Simon Loong, and SenseTime co-founder Xu Bing.

The discussion, entitled “The Path to Unicorn: The Dialogue,” aimed to demystify the journey from seed to $1 billion valuation. And, in doing so, highlighted the opportunities Hong Kong provides for building a successful business.

“When we started, not really a lot of people talked about startups. When we talked about startups people thought we were silly,” said Lam, CEO of on-demand transportation company GOGOVAN.

The city has seen its number of homegrown startups rise drastically in the past few years. And perceptions have changed. According to data from Invest HK, there were 1925 startups in Hong Kong in 2016, a year-on-year increase of 24%. The city also has the 5th fastest growing startup ecosystem in the world.

Lam notes that when he founded GOGOVAN in 2013, there were only 900 applications to the city’s Cyberport Creative Micro Fund (CCMF). Five years on,“thousands and thousands of applications are flowing into the microfund, not including the incubation program.”

But for other companies, it is not just access to funding, changing views, and increased adoption of mobile technologies that are important. The city’s regulatory structures also determine the rate at which they grow.

“Fintech requires a few other pillars in order to be successful,” said WeLab’s Simon Loong. “What we saw in the past couple of years is government and financial industry support.”

Hong Kong has been a global financial hub for years. To remain so is even written into the city’s Basic Law. To stay competitive, regulators need to give fintech companies room to grow. The government set up several regulatory sandboxes, hoping to drive development in the sector.

And it’s not just fintech companies that are benefiting from the city’s regulatory structures. The metropolis is attracting increasing numbers of investors, and this is pushing founders to start companies.

“I noticed that a number of the top investors are actually in the same building,” said SenseTime co-founder Xu Bing. The company, which provides AI-powered facial recognition technology,  recently closed a round of funding worth $600 million. It is now the most valuable AI firm in the world. “Almost all the top investors are gathering here in Hong Kong, so it’s easier to talk to them about our ideas, our philosophy, what we want to do, and what values we want to create.”

For unicorns like SenseTime, academic prowess plays a significant role in their success. According to Xu, Hong Kong is the perfect city to recruit researchers and scientists dealing with AI.

“Deep learning started back in 2011 [and] is now the driving force behind AI”, said Xu. “Between 2011 and 2013 there were totally 29 papers in the world that were using deep learning to solve computer vision. Half of them were published in Hong Kong.” This is why the company is setting up a core research center in the city, hoping to attract even more AI talent.

Despite the city’s many advantages, it’s by no means a startup’s panacea. “I think one of the problems that we had in fintech was there is a lot of finance talent but not a lot of tech talent in the past,” said Loong.

The city’s proximity to one of Mainland China’s tech centers solved this problem. “Hong Kong has a very deep pool of finance talents, Shenzhen has a very deep pool of tech and software development talent. Our solution was [to] combine the best of the two,” he said.

This lack of tech skills correlates to the rate of experimentation by companies in the city, according to Xu. He notes that during the Mainland’s rapid development in the past ten years, Hong Kong has mostly been left behind. “The mainland is still more open to AI. They are willing to apply more technologies to do upgrades,” he said. “Technology companies should leverage more of China’s resources.”

With Mainland China on the city’s doorstep, Hong Kong startups are uniquely positioned to utilize its vast pool of technical talent and enter its massive market. When the city was handed back to China in 1997, it made up around 18% of the country’s GDP. That number fell to 3% in 2017 due to China’s enormous economic growth.

The founders are well aware of this. While Hong Kong provides an exciting testing ground for new platforms, it is a relatively small market, something that they implore startups to consider.

“Hong Kong, especially for the internet economy, is a relatively small population,” said Kwok. “Hence, from day one there needs to be, not necessarily a global view or a global path, but at least an ambition for achieving that, otherwise it’s going to be quite difficult,” he said.

China’s Ministry of Science and Technology has announced the 2017 China Unicorn Enterprise Development Report (in Chinese) and the Zhongguancun Unicorn Enterprise Development Report. 164 companies have made the top unicorn list, with a total valuation of $628.4 billion. Ant Financial took the crown with a valuation at $75 billion. Didi Chuxing and Xiaomi were placed second and third with $56 billion and $46 billion valuation, respectively. Other unicorns in the top ten are Alibaba Cloud, Meituan-Dianping, CATL (宁德时代),  Jinri Toutiao, Cainiao, Lufax (陆金所), Jiedaibao, many of which had a big jump in valuation in the past year. iQiyi, Shenzhou Zhuanche, ofo, and many other big-name startups have also made the list.

To no surprise, most unicorns come one of the five categories: e-commerce, internet finance, health, culture and entertainment, and logistics. And over 84% of the unicorns come from Beijing, Shanghai, Hangzhou, and Shenzhen.

Alibaba invested in most unicorns in 2017 among Chinese tech behemoths with a total of 29 startups making the list, followed by Tencent (26), Xiaomi (12), Baidu (8) and JD.com (4).

Sequoia Capital invested in 35 unicorns last year thereby winning the title of 2017’s “Best unicorn investor.” IDG, Matrix Partners China, and Qiming Venture Partners have also invested in a number of unicorns.

There are also a couple of “former unicorns” who went public last year and have graduated from the list, including China’s first online-only insurer Zhong An Online Property and Casualty Insurance, China’s e-book seller Zhangyue, and financing and loan services Rong360.

Other honorable mentions are WeBank, Ping An Healthcare, and Technology—gearing up for an IPO this year—Koubei, JD Finance, Ele.me, and automakers including WM Motor and NIO are among those who have reached the $5 billion valuation mark.

China’s internet industry has developed at a phenomenal speed. A recent report (in Chinese) by the Boston Consulting Group (BCG) together with the research divisions from Alibaba, Baidu and Didi reveals just how fast Chinese unicorns, or internet companies that have a valuation of over $1 billion, have grown compared to their American counterparts.

They could soon be leaving the American internet companies in the dust.

“China speed”

The internet economy’s rise in China—or “China speed” as the report called it—has astonished the world over. China’s online users have reached 710 million, more than that of India and the US combined. Its online spending hit $9.67 trillion, having grown at a compound rate of 32% during the past five years and is only slightly less than that of the US. China now equals the US for the number of companies in the top 10 internet companies in the world by market capitalization.

Chinese unicorns, which played a big part in driving the market, are growing very fast. They take on average a shorter time than American ones to reach $1 billion valuations. Chinese unicorns take 4 years on average to reach this status, while American unicorns take 7 years. The percentage of Chinese unicorns that reached the $1 billion valuation within 2 years was around 46%, while that percentage for US unicorns was 9%.

American unicorns’ combined market capitalization is still larger than that of China by a few percentage points. However, the US has 112 unicorns while China has 63. As Chinese unicorns grow in number and market capitalization, their combined market capitalization could soon overtake their US counterparts.The Chinese internet ecology has allowed a few companies to dominate the Chinese market, while the market penetration of any one single American internet company does not generally exceed 50%.

However, that does not mean there is less competition in China. Below the top tier, hundreds and thousands of new Chinese internet startups vie for survival in the latest business model flavor of the day—for example, discount and coupon e-commerce (a la Groupon), P2P online lending, and live streaming.

For the discount and coupon e-commerce sector that was hot between 2008 and 2014, companies entering into this sector peaked at over 5000 for China. In the US, that number never exceeded 650.

For the P2P online lending industry, at one point around 2015, there were over 3000 lending companies competing in this market in China. In the US, there were less than 100 companies that entered this market.

The live streaming industry is still gaining traction and the latest figure for companies offering live streaming is close to 300 in China, while that number in the US is less than 50.

How did China’s internet economy rise so high so quickly?

The report attributed the fast rise of China’s internet economy to three factors: the boom in the economy, transparency in the industry and “leapfrogging”.

Booming economy

China’s economic growth has produced a young consumer class with higher spending power and fast adoption of internet technology. China’s population is 1.3 billion, with an average age of 33 and the portion of those under 40 make up 65% of the population or 850 million people. For the US, that number is 160 million.

The large quantity of M2 or the amount of currency in the economy has provided the capital needed for the internet companies to scale up and mature. The compounded growth rate for China’s M2 was at 16% during the past 10 years, reaching RMB 152 trillion in 2016. While that growth rate for the US was 6%, and its M2 reached RMB 89 trillion in 2016.

Transparency in the internet industry

Information pertaining to internet companies are readily available on the internet. This facilitates fast communication of the latest trends and opportunities. The report cited the case of Groupon which was launched in November 2008 in the US and broke even within half a year. Chinese companies quickly followed to capitalize on this business model and within two years, nearly 5000 such companies emerged.

Open source resources are another factor that has helped the development of the Chinese internet economy. There are many resources available online that startups and its developers can use for free or little cost. Google’s Android has been a huge help for Chinese smartphone manufacturers. Xiaomi was able to engineer a smartphone from scratch within one year.

“Leapfrogging”

In developed countries, the advances brought by the internet were incremental as industries were improving upon an already strong foundation.

In China, many of the markets disrupted by the internet were not mature and had gaps or demands that needed to be fulfilled. Internet companies addressed those pain points and successfully leapfrogged. Some even become the market leaders in their respective fields, such as Alibaba in the finance sector.

Some more numbers to take away from the report:

• Yu’ebao, a personal finance service from Alibaba affiliate Ant Financial, has reached $165.6 billion in its assets under management or AuM in the latest figures from April 2017. It has surpassed JPMorgan Chase to become the world’s largest money market fund.
• In 2016, China’s mobile payment transactions surpassed $8.5 trillion. This is more than 70 times than that of the US
• In 2015, China’s online P2P lending industry was roughly worth $66.9 billion, four times higher than that of the US
• In 2013, Alibaba’s retail e-commerce transactions reached $248 billion, larger than the combined total of eBay and Amazon.

Contrary to its name, 500 Startups has invested in over 1800 startups since its inception in 2010. With an investment strategy that emphasizes little bets, the venture capital firm and startup accelerator has made investments in companies in over 60 countries including Credit Karma, Twilio, GrabTaxi, Talkdesk, and Udemy.

Founding Partner Dave McClure was in Beijing for this year’s Global Mobile Internet Conference where he spoke about cross-border investment, creating great companies, and investment trends in Silicon Valley. While there, TechNode got a chance to catch up with him to talk about how he got into angel investing, his unique mix of marketing and engineering, as well as future prospects for 500 Startups in China.

What got you into investing?

I’ve been in Silicon Valley for close to 30 years and got to know some people who were angel investors and VCs in the business. I hung out with Josh Kopelman at First Round and Brad Feld and Fred Wilson and some other folks. When I was at PayPal, from 2001 to 2004, Reed Hoffman was investing in a lot of companies, so I was kind of trying to follow in their footsteps, even though I had a little bit less of a checkbook to work with. I started doing investing around 2004, I had gotten a little bit of money back from the PayPal IPO and started using that to do angel investments. I did that for about 4 years, on the side kind of as a hobby. Even before that, I had been doing some advising and consulting for startups so I was already pretty interested in that topic.

Your education background is mostly engineering, but then for PayPal, you did mostly marketing. Previously you’ve talked a lot about startups not focusing enough on marketing. Could you explain that a little bit?

There are not many people that make that transition. It was kind of out of necessity. I had started out as a programmer; I started doing consulting for database development and client-server development back in the early 90s. Eventually, that grew into a small consulting business and I had to figure how to run the business, how to do sales, and how to stop doing the day-to-day programming as the company got bigger. Turns out I actually enjoyed that process. It was combining those two areas: doing education and marketing for the developer community was how I got the job at PayPal and then that skill set, the combination of engineering, programming, and marketing skill sets was how I got into a lot of deals. Investors would refer me because I knew the marketing for the developer side and software developers had come to trust me because I was a programmer.

So as I started to get know more about startups and investing, it seemed like that those were the two primary skillsets: you have people building stuff and you have people selling stuff. Both were important.

Where does 500 Startups fit in the venture capital ecosystem?

We’re pretty early stage, usually 100k checks, but sometimes as small as 25k or as large as 250k. Usually, we’re one of the first investors in the company. We run accelerator programs in California and that accounts for about half of our investment. We also do seed-stage investment in companies all over the world. We may follow on in A and B rounds, but we’re not generally leading in those rounds.

When do you usually exit?

When a company exits. We have the opportunity to sell secondary sometimes, but that’s usually only companies that get to 200-500 million USD [in valuation]. Most of the time we’re in it until the company dies, gets acquired, or goes public.

Does that mean you give startups more focus?

I think there is a misconception that exits happen because you’re paying attention. Exits happen because companies get acquired. You, as an investor, may or may not have much impact on that equation. We tend to see our smaller exits happen in 2-3 years, medium sized in 4-5 years, larger exits typically take 6-10 years. It is not uncommon to see VC funds extend beyond the 10-year lifecycle. We are only 7 years in now on our first fund and just started to see some of our bigger companies exit last year. There’s still a lot more coming in the next few years.

How do you see unicorns? When you’re looking at companies, is the ultimate goal to become a unicorn?

Well, yes and no. Some of our biggest wins are going to come from those companies, but they happen very infrequently. For us, we’re looking at the 50x-100x outcome 1-2% of the time. Originally, we weren’t really modeling for that but now we’ve seen those outcomes and it does look like it’s happening about 2% of the time, plus or minus. Similarly, we see 100+ million exits 5-10% of the time. On a weighted basis, those two might be equivalent in aggregate value. We see a lot of small exits that might be 1-5x, but we see 10, 15, maybe even 20% of our portfolio with those. In a perfect world, we might get a 1x return on each of those 3 categories, 2% that do 50x, 5% that do 20x, and then 20% that do 5x. We certainly like the unicorn stuff when it happens, but we do make money from medium- and small-sized wins at scale.

That’s a pretty important part of the equation: figuring out how we get better at making the small exits happen and hopefully getting larger than small exits. We’ve started looking at building supporting practices in M&A and working with founders to find exits for them. Right now, the activity is kind of centered around US$ 50 million exits, but that could go up to US$ 100 million.

Are there specific verticals or industries that you look at?

We do a lot of everything, but we end up focusing more on e-commerce, SaaS, and fintech. In general, we do a lot of consumer and business-facing services because we get to use online marketing techniques to get to those folks. That’s not saying we don’t do larger enterprise software and SaaS. Our first fund is going to do very well mostly due to the SaaS companies in that portfolio. The unifying thing across our investments is that we usually do something with software.

What about China? What are you paying attention to here?

China is a little complicated for us. We’re not as active in China as we are in other markets. This is a very competitive market and it has a lot of potential. It has big, big companies that can get started here. I think that’s why you see higher valuation prices here. It’s a high-risk, high-payoff environment, so if you pick that math right, you can make a lot of money. But it is sometimes challenging when you’re coming in at valuations that are substantially higher than we’re used to seeing in other companies.

I think gradually, over time we’ll be able to attract some more deal flow and be able to manage valuations and prices. We tend to take a long view on China. That doesn’t happen overnight, so 3-5 years to figure out what we want.

We’ve been in China for 5 years but only done 10-15 investments in mainland China and another 10 investments in areas like Hong Kong and Taipei. We’ve actually raised a fair amount of capital from China. One of the reasons we’re here is to bring investor dollars to the US. But, we’re always trying to figure out the strategy and get better at investing in Chinese companies.

Which industries are most interesting you in China right now?

I think education and healthcare are two of the areas we think will have a lot of growth over the next 10 years and maybe there are cross-border opportunities that we can take advantage of. Fintech, payments infrastructure, credit scoring infrastructure, and lending infrastructure, but that’s already dominated by players in the sector. Alibaba and Ant Financial are definitely formidable.

You mentioned raising money from China. Are there specific areas that these investors want to see their money go into?

I think China is very curious about a lot of things going on in the US as well as Israel, India, and a few other places. In the US, we’re trying to give our LPs a broad sense of what’s going on in the market and then introduce them to specific verticals that might be relevant to their business. For some of our LPs that are corporate, there are very specific industry sectors and categories that they’re interested in. We have a lot of businesses looking at fintech and lending. That’s an area where we have a good amount of expertise.

Is there anything in China that you wish was back in Valley?

WeChat integration in payments is a big success story here. I think you’re seeing Facebook trying to copy that with Messenger. Apple is supposedly launching payments again. They’re rumored to be looking at a company like Venmo to handle cash payments.

I think the manufacturing base here is pretty exciting. If we had that back in the US, that would be great. I guess the closest thing would be Mexico and we do have investments there.

The ability to point in a direction and have things happen quickly is one the advantages of having a very engaged government here. We don’t have the same ability for the government to take action in the US. When the Chinese government thinks something positive, they really go after it, whether that be the stock market, real estate, or innovation.

The word “unicorn” was first coined by Aileen Lee of Cowboy Ventures in 2013 to refer to startups valued at $1 billion by private or public markets. They were supposed to a select group of rare and mythical creatures. Since then, however, it has expanded quickly with Chinese companies providing their fair share. Here we compile for you a list of unicorn startups coming from China’s emerging sectors.

URWork, co-working

• Valuation 1.02 B USD
• Date joined: 1/18/2017

As one of the leaders in China’ booming co-working space, URWork became the first unicorn company in the sector in January this year after receiving a 400 million RMB (58 million USD) series B at a valuation of 7 billion RMB (1.02 billion USD).

The company was founded in April 2015 by Mao Daqing, former vice president of Chinese real estate conglomerate Vanke Co., Ltd. In addition to providing the physical spaces, the shared-office-space startup is actively constructing an ecosystem that involves all kinds of supporting services, such as financial assistant platform, human resources services, startup acceleration program, and space design.

Data from real estate service JLL shows that the number of co-working spaces in China has grown rapidly this year, with currently over 500 sites in Shanghai and Beijing alone compared to just a few in 2015. Other major players in the field include Soho 3Q, naked Hub, People Squared, Sandbox, and SimplyWork.

Zhihu, knowledge sharing

• Valuation: 1B USD
• Date Joined: 1/12/2017

China is embracing a transition from free knowledge to paid knowledge and the shift is creating the first unicorn in the sector with China’s Q&A platform Zhihu.

Zhihu, the go-to place for Chinese internet users who want to seek expert insights into various areas, received a 100 million USD D round at a valuation of 1 billion USD this month.

The startup is among a series of companies that’s capitalizing on the rising knowledge sharing trend in China. Zhihu’s competitors include Fenda, the knowledge sharing service developed by science networking platform Guokr, and Baidu Zhidao.

iCarbonX, biotech

• Valuation: 1B USD
• Date joined: 4/12/2016

China’s biotech market is on the cusp of its boom thanks to huge market size and support from the government. iCarbonX, a biotech startup raised a 1 billion RMB (about $154 million USD) round of series A funding with a valuation of $1 billion USD last April.

The company is building a big data-driven health platform, capable of processing a wide variety of health-related data, including genetic data and data from smart hardware devices.

UBTECH Robotics, robotics

• Valuation: 1B USD
• Date joined: 7/26/2016

Founded in 2012, UBTECH Robotics is engaged in the research, development, and commercialization of humanoid robots for education and entertainment sectors.

As the startup behind bipedal entertainment robots Alpha 2, the company got a ton of free publicity last year after their performance at CCTV’s annual gala, China’s most-watched TV show, and being booked in the Guinness Book of World Records for the “most robots dancing simultaneously”.

Guazi, used car trading

• Valuation: 1B USD
• Date joined: 3/12/2016

Guazi.com was established by China’s answer to Craigslist, Ganji.com, which later merged with rival online classifieds site 58.com. The used car trading platform was then spun-off from the consortium to facilitate faster growth. The startup got 200 million USD financing round last year at 1 billion USD valuation.

Second-hand car trading is one of the traditional industries Chinese internet companies are poised to disrupt. The rising market has attracted a slew of players includes Cheyipai, Youxinpai, and Renrenche.

Image credit: URWork, Zhihu, iCarbonX

Chinese co-working office space URWork is moving a step further to catch up with its U.S. peer WeWork, at least in valuation. The company announced today the completion of 400 million RMB (58 million USD) series B at a valuation of 7 billion RMB (1.02 billion USD), our sister site TechNode Chinese is reporting.

The valuation may still not comparable to WeWork’s whopping 16 billion USD mark, but it already boosts the company to China’s first co-working unicorn.

Investors of the round include Tianhong Asset Management, a fund management affiliate of Alibaba’s Ant Financial, Junfa Group, Shanghai Chuanghehui, an alumni of renowned business schools, Tianming Shuangchuang Technology and Dahong Group, adding to a top-notch current investor roster that includes reputable VCs like Sequoia Capital China, ZhenFund, and Sinovation Ventures.

As of present, the co-working company has raised six rounds of funding with total venture fundraising of over 1.2 billion RMB (175 million USD).

URWork was founded in April 2015 by Mao Daqing, former vice president of Chinese real estate conglomerate Vanke Co., Ltd. In addition to providing the physical spaces, the shared-office-space startup is actively constructing an ecosystem that involves all kinds of supporting services, such as, financial assistant platform, human resources services, startup acceleration program, and space design.

Operating in twelve Chinese cities serving 15,000 users, the firm is poised to accelerate its oversea expansion that started in second half of 2016 in Singapore, London, New York, and Taiwan.

The new funding is earmarked for opening more spaces domestically and overseas, facilitating business cooperation among member companies, improving and standardizing supporting services, and adopting mobile and smart hardware devices in the spaces, according to a company statement.

Thanks to a series factors like the rise of the millennial workforce and government support, China is recording a boom of co-working spaces in the recent years. Capital flows in the sector to capitalize on the market boom. Upcoming co-working startup nakedHub received new funding at the end of last year for overseas expansion.

While Chinese co-working startups are busy with globalization plans, their foreign counterparts are targeting China. WeWork launched its first space in Shanghai last year after sealing a 430 million USD pay packet to fuel their Asia expansion. Australia’s largest startup hub Fishburners is also entering China.

China’s Quora-like Q&A service Zhihu announced today the completion of a 100 million USD series D, our sister site TechNode Chinese is reporting. The funding would boost the startup to unicorn status with a valuation of over 1 billion USD, according to Kaifu Lee, renowned Chinese startup guru and early-stage backer of the company.

Investors of the round include Capital Today, a reputable VC firm that has invested in NetEase, JD, and Meituan-Dianping, as well as several current investors like Tencent, Sogou, SAIF Partners, Qiming Venture Partners, and Sinovation Ventures.

Launched in December 2010, Zhihu is the go-to place for Chinese internet users who want to seek expert insights into various areas. Originally started as an invitation-only Q&A platform for tech-savvy and entrepreneurial minds, it opened registration in 2013 to everyone. Since then, its topics have diversified to cover popular topics from movies, games, and culture, as well as IT and finance.

As of January this year, Zhihu has 65 million registered users with 18.5 million daily active users. The site has received over 6 million questions and 23 million answers in 2016, according to data from the company.

2016 was a crucial transition for Zhihu: they were able to monetize through the launch of new services, including institutional accounts, ads, cooperation with book stores, and Zhihu Live, a service which allows users to join live one-on-one sessions with topic experts for a fee.

However, the company is facing fierce competition in the knowledge-sharing sector from both old rivals like Baidu Zhidao and up comer Fenda. How to commercialize the product without hurting user and community experience remains a big challenge for the company.

After receiving a 1 million RMB angel round from Sinovation Ventures (formerly known as Innovation Works) in January 2011, Zhihu raised a 8 million USD series A from Qiming Venture Partners and Sinovation Ventures in November of the same year. In June 2014, the startup booked a 22 million USD series B from SAIF Partners and Qiming Venture Partners. In November 2015, Tencent led a 55 million USD series C that valued the company at 300 million USD.