cvc
Arthur03.03.2022

Tencent, one of the most prominent technology companies in China, rushed its way to becoming the number one CVC

As of December 24, 2021, Tencent had 268 investment events in 2021, nearly 100 more than the 175 in 2020.

Tencent, one of the most prominent technology companies in China, rushed its way to becoming the number one CVC with 268 investments in 2021
 

 

As of December 24, 2021, Tencent had 268 investment events in 2021, nearly 100 more than the 175 in 2020.

 

 

Tencent's investment in 2021 involved 18 industries, including games, corporate services, entertainment and media, local life, and healthcare. Its investment mainly focused on games, corporate services, and entertainment media, accounting for half of all investment events.

 

 

 

Tencent was founded in 1998 and listed on the Hong Kong Stock Exchange in 2004. Its headquarter locates in Shenzhen, China. Tencent is a world-leading Internet technology company that uses innovative products and services to improve the quality of life of people around the world. Its communication and social services connect more than 1 billion people around the world, helping them connect with others and enjoy a convenient travel, payment and entertainment life.

 

Tencent publishes a variety of electronic games and other high-quality digital content that are popular worldwide, bringing a rich interactive entertainment experience to users.

 

Tencent also provides a series of corporate services such as cloud computing, advertising, and financial technology to support partners to achieve digital transformation and promote business development.

 

 

Tencent Investment is a corporate venture capital established by Tencent. The primary mission is to invest in high-quality companies and better serve users on Tencent's open platform, focusing on online games, social networks, e-commerce and new media.

 

It has invested in more than 800 companies in the past 10 years, including more than 100 listed and unicorn companies. The investment area covers more than 20 countries and regions. It is committed to discovering entrepreneurs who provide users with long-term value and help them grow. It has offices in Beijing, Shanghai, Shenzhen and Hong Kong with a team of more than 60 people.

 

According to IT Juzi, the number of projects invested by Tencent currently ranks first among all Chinese enterprises, which is also the sum of 2nd, 3rd and 4th.

 

In 2021, 59 of China's 295 unicorn companies have Tencent investment behind them. Tencent also earned about $120 billion last year through its minority stakes in about 100 listed companies, about six times its expected 2020 profit.

 

 

Nearly half of Tencent's investments in 2021 were strategy investments, accounting for 47.6% of the entire investment event. For example, the two investments in Xiaohongshu in April and November and the investment in Xiaoguo Culture are also strategy investments.

 

Other invested companies such as Astatine Semiconductor, are artificial intelligence chip developers focusing on electronic products and AI chip related software and hardware.

 

Liangrui Technology is a quantitative trading technology service provider dedicated to providing users with financial quantitative information services, quantitative consulting services, and quantitative technology development. It focuses on financial application technology services, uses advanced technology to build the underlying structure, integrates big data, financial data analysis, quantitative strategy development, artificial intelligence, business process optimization and integration, and profoundly cultivates large investment and trading sectors (financial market, asset management). Assists large financial institutions in establishing their core pricing, trading, investment research, risk management business capabilities, and forming a new trading network.

 

 

In 2021, Tencent made 31 angel investments and series A investments, including 6 angel round investments and 25 series A investments involving 30 companies. When Tencent invests in these companies, it pays more attention to the products and the teams behind the companies.

 

Yuanxiang Weisi is a technology company aiming at the "True Internet", "committed to making the Internet fully and all-encompassing and integrating with reality." This fits very well with the current global concept of "Metaverse" and coincides with the "True Internet" concept that Ma Huateng, the founder of Tencent, once put forward.

 

Cloud Leopard Intelligence focuses on cloud computing and data centre processor chips.

 

T3 Travel uses the online car-hailing market as the entry point to jointly create smart travel services based on national information and traffic safety and cloud computing platforms. T3 travel received the highest total investment amount, 7.7 billion yuan.

 

Weisheng Network is a WeChat mini-app developer and ISV service provider. Its subsidiary WeChat Butler is the industry's first Enterprise WeChat-based third-party management platform, helping enterprises to operate their users based on Enterprise WeChat. It has served more than 150,000 companies, including more than 30,000 paying companies, and has more than 600 channel partners worldwide.

 

Hanging Mirror Security is committed to empowering information security with AI technology, focusing on advanced threat detection and defence in the life cycle of the DevSecOps software supply chain.

 

 

 

Tencent also invested in 7 listed companies in 2021, namely Meituan and Hengteng Network in the local life industry, Feiyu Technology and Century Huatong in the game industry, Chinese Online in the entertainment media industry, and Rakuten in the e-commerce industry, as well as Baiao Family Interaction in the early childhood education industry.

 

For the investment in Rakuten, the two parties seek strategic cooperation in digital entertainment and e-commerce. Rakuten wants to use Tencent's communications and social platforms such as WeChat and QQ to improve its competitiveness; Tencent may wish to take this opportunity to expand its overseas business and seek new growth opportunities.

 

Baiao Family Interaction is one of the developers of Chinese children and youth web and mobile games.

 

 

In 2021, Tencent made cornerstone investments in 4 companies, of which 3 companies, including Zhihu, have already gone public.

 

Yimaitong, an academic medical exchange and information service platform for clinicians.

 

Weitai Medical is mainly engaged in the research and development, production, sales and maintenance of the third category medical devices. It is committed to the field of diabetes management medical devices.

 

Fadada is a domestic e-signature service provider that has not yet gone public. During the epidemic outbreak in early 2020, the average daily user registration on the Fadada platform was 8 times that of the same period in previous years.

 

 

Lazy Audio was acquired by Tencent at the price of 2.7 billion yuan. For Tencent, long audio is an essential part of the overall layout of the entertainment industry. Lazy Audio, established in 2012, has a large user group and high user activities. The acquisition of Lazy Audio can make good use of its vast audiobook content and traffic, quickly expanding Tencent's TME audio content pool. In addition, peers such as NetEase Cloud Music, ByteDance, and Kuaishou have also joined the battle, and the long audio market has gradually become another "fighting arena" for Internet giants.

 

 

 

Meanwhile, Tencent disinvested from the e-commerce industry. On December 23, Tencent announced that it would distribute approximately 460 million JD, the second-largest e-commerce company in China, shares as an interim dividend to Tencent shareholders. After the distribution is completed, Tencent's control of JD's equity will fall from 17% to 2.3%, and Tencent President Liu Chipping will also step down as a director of JD.

 

One reason that Tencent reduced the share of JD is to harvest a mature investment. Tencent had held JD's share for 8 years, which gave JD sufficient growth. Since Tencent first invested in JD.com in 2014, JD.com has successfully transformed from PC to mobile Internet, and GMV has grown more than 10 times. However, many believe this decision's actual trigger is the stricter antitrust law. With the new regulations, both Tencent and JD will be restrained from sharing data and channels and have fewer advantages.

 

 

Also, the e-commerce industry in China is approaching a potential peak. In 2021, the transaction volume of Double Eleven festive, the most popular shopping festive in China, grew by only 12.2% YoY, the lowest growth rate in the e-commerce industry in 12 years. On Double Eleven, the number of packages across the network was only 1.158 billion, barely higher than the 2016 figure. Increasing revenue by simply attracting new customers is becoming too expensive for e-commerce companies. Taobao and JD, therefore, have implemented the customer membership system to obtain more income from existing customers.

 

 

From 2011 to 2021, entertainment, games, and enterprise services always occupy the top 3 of all invested industries.

 

 

Since 2015, the To B track has been favoured by internet giants, and by 2021, ToB businesses were still the centre of the giants. In 2021, Tencent invested in 15 companies multiple times (≥2 times) within a year, of which 6 were enterprise services companies. Tencent has a wide range of layouts regarding investment company types, such as education SaaS, medical SaaS, marketing solution providers.

 

In the To B field, Tencent mainly focuses on "connection". Ma Huateng has publicly stated that the basic logic of Tencent's investment is that except for communication, social networking and content, everything else is handed over to partners. "In the past, there were indeed a lot of worries. Out of instinct, we wanted to do many things ourselves. Now we are really half-life, and we hand over the other half-life to our partners."

 

The direct result of this strategy is that Tencent is determined to use capital to release traffic resources and create more value. Because partners have become an important part of Tencent's empire, no company is more intense than Tencent in terms of investment.

 

In 2021, in developing its own core business, Tencent invested in a large number of related companies to strengthen its barrier.

 

For example, based on WeChat and Enterprise WeChat, Tencent has invested in Wechat Butler, a WeChat mini-program developer and ISV service provider; Weimeng, a WeChat marketing and promotion service platform; and Enterprise Domain Mathematics, an Enterprise WeChat-based customer marketing and management company to help customers achieve digital transformation.

 

Based on Tencent Cloud, Tencent has invested in Yunbao Smart, a leading start-up company focusing on cloud computing and data centre processing chips and solutions, and Cloud Migration Security, which focuses on middle-end solution service providers;

 

In addition, Tencent has also invested in several data processing service providers, training institution service providers, online trading platforms, logistics solution providers.

 

Among the invested companies, WeChat mini-app developer Wechat Butler received two investments from Tencent, with a total amount of more than 200 million yuan. Lixiao Cloud System also received two investments from Tencent, with more than 20 million US dollars.

 

In allocating the investment amount, Tencent is still a big spender. The most significant investment was invested in Weimeng, with an investment amount of US$600 million, equivalent to RMB 3.889 billion, accounting for 22% of the released total investment amount. Tencent is using the most considerable sum of money for the construction of its business territory.

 

Under the general policy of "connection", on the one hand, it has carried out a forward-looking layout, and on the other hand, it has moved towards the hinterland of Alibaba.

 

Unlike the price subsidy war on the C-side, capital investment can immediately seize the share. The B-side requires more patience, so the investment returns of Tencent in 2021 may not be seen in the short term.

 

 

Tencent invested the most in gaming, 59 gaming companies during the year, even though the game industry in China is facing more strict than ever regulations.

 

The "2021 Chinese Game Industry Report" shows that in 2021, the sales revenue of the Chinese game market was 296.5 billion yuan, a YoY increase of 6.40%. Although the sales revenue still maintains a growth trend, due to the weakening of the stimulus effect of the 'Zhai' economy (indoor lifestyle), the decrease in the number of popular games, and the increase in game R&D and operating costs, the growth rate has decreased by nearly 15% compared to last year.

 

According to the game media GameLook, 755 new game version numbers were released in 2021. This number only represents the release of version numbers for 7 months because, since July 22, all new version number has been suspended. There is still no sign of a new version number being issued. Therefore, the total number of game version numbers in 2021 declined significantly compared with the past two years. Compared with the 1,405 game version numbers issued in 2020, the total number of version numbers in 2021 has decreased by 46.26%, and the total number of version numbers has been declining for four consecutive years since 2018.

 

In addition to the hard limit of the version number, in 2021, the game industry also ushered in the strictest anti-addiction regulations for minors in history. The State Press and Publication Administration stipulated that in addition to strictly implementing the real-name registration of online games, it also requires all online game companies not to provide game services to minors outside of 20:00 to 21:00 on Fridays, Saturdays, Sundays and statutory holidays.

 

Under the policy pressure of the version number and the new anti-addiction rules for minors, many game companies can no longer survive. Relevant data shows that a total of 847 game companies collapsed in 2021.

 

But Tencent has made remarkable achievements in the face of adversity. It has taken its opportunities, bucking the trend and investing in hundreds of game companies within a year. Tencent, the most resilient player, chose to hunt for the bottom of the industry at this time and further expand wildly.

 

Data agency Niko Partners analyst Daniel Ahmad pointed out that, as of 2021 December 18, Tencent had acquired and invested in more than 100 game companies, which means one investment every three days. Among the 342 domestic and foreign investment and financing mergers and acquisitions in 2021 organized by the game media "Game Spinning Top", Tencent also led with an absolute advantage of 102 investments. From a global perspective, there has never been a company that can invest in hundreds of game companies in one year.

 

 

According to Sensor Tower, a total of 8 games generated more than $1 billion revenue in 2021. Among them, "Honor of Kings" and "PUBG Mobile" produced by Tencent tied for the first place, and the global revenue of both games reached $2.8 billion. Compared with the last year, it increased by 14.7% and 9% respectively.

 

 

"Genshin Impact" ranked third with 1.8 billion US dollars. The loss of "Genshin Impact" made Tencent heavily invested in the anime industry. The game media "Game Tea House" pointed out that 80% of Tencent's investment in domestic game companies in 2020 began after October, when "Genshin Impact" killed the Quartet.

 

After 2020, Tencent has mainly deployed various game subdivisions through strategic investment. The anime industry or second dimension has become Tencent's key investment in the game field. From 2020 to 2021, Tencent has invested in more than 20 companies with R&D business related to game products associated with the second dimension. The second dimension is the field that leading game companies focus on.

 

In 2021, based on content and games, Tencent has also invested in Suihua Technology, an innovator and leader in content production and live broadcast; Ubitus, a cloud game technology and service provider; and Molecular Interactive, a social marketing communication service provider and IP incubation.

 

 

Source: Tencent, 36Kr, IT Juzi, Sensor Tower, CNG, Qichacha, GameLook, Niko Partners