Karen Zhang, Elaine Lou and Daisy Guo at The Information’s Hong Kong Subscriber Summit earlier this week, with The Information’s Shai Oster. Photo by Brent Pottinger
Despite a number of high-profile Chinese startups listing in Hong Kong this year, the U.S. still provides a compelling market for initial public offerings because of its more sophisticated investors, several Chinese entrepreneurs and investors said Monday during an onstage interview at The Information’s Subscriber Summit in Hong Kong.
Annabelle Yu Long, head of German publisher Bertelsmann’s Chinese investment arm, said her advice to CEOs of portfolio companies is to pick the place where their businesses are understood. “The maturity and sophistication of the [Hong Kong] market isn’t there yet,” she said. Ms. Long was an early investor in online car market Bitauto, in which Chinese tech giants Tencent and JD.com later invested. She also invested in Mobike, a bike rental startup that was acquired by Meituan earlier this year in a multibillion-dollar deal.
Chinese entrepreneurs and investors prefer the U.S. IPO market to Hong Kong, in part because American investors are more sophisticated, they said at The Information’s Hong Kong summit.
Although Chinese startups like smartphone maker Xiaomi and online-services app Meituan recently listed in Hong Kong, “it’s really hard for companies under $2 billion in market cap to get any institutional attention” in the city, Ms. Long said. “While I do believe Hong Kong will be a very important option for Chinese companies, it may take some time, as this year already has had its ups and downs.”
Startups listing in Hong Kong generally haven’t performed well. Xiaomi and Meituan, for example, are both trading below their IPO prices. This year, Hong Kong’s regulators changed regulations to allow dual-class listings in the hope of attracting big Chinese tech companies by making it easier for founders to retain control of the companies after an IPO.
Daisy Guo, co-founder of Tezign, a Chinese startup that connects digital marketers with brands such as Unilever and Coca-Cola, said that while an IPO is still three or four years away, she also prefers the U.S. market. “The U.S. market is open-minded. They see innovations, investors and participants, but for the Hong Kong market, we don’t know,” she said.
Investments in Chinese companies this year have focused mostly on big players, leaving smaller startups fending for themselves in a market that has become more cautious toward funding.
Karen Zhang, a principal at investment firm General Atlantic, said some Chinese startups that had approached her firm earlier this year are coming back months later seeking valuations around 30% lower than before. “The momentum was really, really high earlier this year, with a lot of companies with high expectations on valuation,” Ms. Zhang said.
Ruby Lu, a seasoned China tech investor who is now the head of a new fund called Atypical Ventures, said a correction is finally setting into the Chinese market as too much money chased after limited deals. “It’s not just Xiaomi alone. Almost everybody is going through this cleansing period, simply because it’s time.”
By Wayne Ma Nov 12, 2018 10:54 AM PST