Portfolio of Chinese tech company is approaching value of Softbank’s Vision Fund
The Chinese company has board seats on more than 400 of those companies, according to one person close to Tencent, with 30 per cent to 40 per cent of its investments outside China.
Its investment portfolio is roughly twice as big as its main Chinese rival Alibaba and dwarfs those of US peers such as Facebook and Google and Tencent has no intention of slowing down, even after a record deal spree in 2018.
Tencent’s investment drive is underpinned by a number of factors, said analysts and people close to the company, from building out the company’s social media and payment platforms, to global expansion.
Deals are also in the DNA of its executives. Before joining Tencent, Mr Lau was an M&A banker at Goldman Sachs and James Mitchell, his chief strategy officer, worked as an equity analyst at the US bank.
“When you put a basketball player in the room, you know what they’re going to do,” shrugged one venture capital investor. “If you hire Goldman Sachs bankers, you know what they are going to do.”
Rather than wholesale acquisitions, Tencent prefers to buy minority stakes in companies whose products can bolt on to its WeChat and WeChat Pay platforms. One tech lawyer described the process as “feeding the empire”.
Targets are often receptive: Tencent offers them the chance to reach more than a billion users. To achieve scale, they need either the Shenzhen-based company or its eastern Chinese rival Alibaba, especially in areas such as ecommerce. “It’s almost impossible to succeed in China retail without Alibaba or Tencent,” said James Root, Hong Kong-based partner at Bain & Co.
Tencent has taken high-profile stakes in Tesla, the social media app Snap, the Finnish mobile games maker Supercell, the Indian ride-sharing app Ola, and Epic Games, the developer of Fortnite. One person close to Tencent said the company wants to learn from co-investors such as Google and Walmart.
It also wants to stay on top of any emerging trends, and its investment team is looking at everything from UK fintech companies to South Korean games developers, the person added.
“How is the internet developing? How do we develop knowledge of users? What is driving users’ use? What are the common traits?” said the person.
“Basically, Tencent doesn’t want to miss the clues. It’s so easy to do that and be surprised by something new and radical. TikTok [the Chinese short video app] was a bit of a [wake-up call].”
While investing in the US is conventionally seen as difficult for Chinese companies, because of scrutiny from the Committee on Foreign Investment in the US, Europe is more fragmented, has tougher data privacy regulations and fewer large tech targets.
Tencent’s hunting grounds in south-east Asia and India are also becoming more tightly regulated, a worrying development for a company that is looking beyond China because of the cooling support for tech in its home country.
Mr Lau gave a hint of the extent to which investments are powering the $420bn giant when he revealed that the total market capitalisation of companies in which it holds stakes in excess of 5 per cent now exceeds $500bn.
Given its 17-20 per cent stakes in some of its biggest investees, such as food delivery group Meituan Dianping and ecommerce group Pinduoduo, that implies a portfolio value of more than $70bn, according to Bernstein Research — approaching the size of Softbank’s far higher profile Vision Fund.
That has not escaped the notice of critics who view investments as an admission of defeat and proof that Tencent no longer has ambitious dreams. In ecommerce, for example, Tencent acquired stakes in JD.com and other players after failing to launch its own standalone player.
It is a view that was dismissed by Mr Lau: “I personally think that if we want to control everything and want to do everything ourselves, this is not a dream,” he told delegates. “This is a delusion.”