Those concerned SoftBank’s Vision Fund is contributing to inflated tech valuations will perhaps not be among those most enthused by news a Chinese group has set up a rival fund with an initial $15 billion tranche. Companies developing the latest technology in the world and eager to attract investment at a healthy valuation will, on the other hand, be delighted.
The fund is named the China New Era Technology Fund and has been initiated by the state-run China Merchants Group, who will contribute 40 billion renminbi, a little over $5 billion. London-based investment specialist Centricus, who were also involved in helping structure the Vision Fund, have been enlisted to help raise the remaining 60 billion renminbi wanted for initial capitalisation. They will be assisted in that endeavour by SPF Group, a small Beijing-based fund manager.
It is believed the cornerstone of China New Era Technology Fund’s strategy will be to take positions in the most promising Chinese tech companies. However, a significant portion of capital will also be allocated to international acquisitions, possibly bringing the fund into direct competition with the Vision Fund. The $100 billion fund set up by SoftBank CEO Masayoshi Son has pumped significant capital into tech companies from Uber to Improbable, a UK start-up creating virtual worlds.
The Vision Fund’s approach is frowned upon by large sections of the venture capital and private equity sector as pushing up valuations and providing raw technology start-ups with vast resources some consider akin to financial doping. Son is infamous for offering companies several multiples of the investment they actually ask for and threatening to invest it in a major competitor on the occasions founders baulk at the offer. The concern will be another huge tech fund will inevitably mean both occasionally competing to invest in the same promising companies, potentially inflating the cost of deals even more for the rest of the industry. Sequoia Capital, the renowned Silicon Valley investor, has recently raised a $6 billion fund in an effort to compete with the Vision Fund’s financial firepower.
Western governments also have some concerns, increasingly voiced in public, over the recent surge in Chinese investment in their domestic tech companies. They believe it is a strategy that amounts to industrial espionage in a global economy where intellectual property is becoming increasingly important.
The history of China Merchant Group is perhaps a surprising one for what may become one of the world’s most influential tech investors. The conglomerate’s background goes back to the 1870s when it began life as a Qing dynasty shipping and transport operation.