Tencent endures a ‘cold winter’ this year with fewer investments

This article is co-written by Iris Deng.

Chinese internet giant Tencent Holdings, one of the most active investors in the technology world, has significantly scaled down on investments this year after a bullish investing spree in 2018.

Photo credit: piotrkt / 123RF

As a tech rout spread through the world this year, the Shenzhen-based company put money into 108 deals globally, 33% fewer than the 162 deals in 2018, according to Chinese research firm IT Juzi, whose data is widely cited by both local and overseas media. Tencent also invested less than half the amount of money in total this year – 34.3 billion yuan (US$4.9 billion) compared to 72.7 billion yuan (US$10.4 billion) in 2018.

Tencent’s shrinking investments are in line with China’s overall decline of venture capital activity this year, amid the country’s economic slowdown and uncertainties about the ongoing US-China trade war. In 2019, Chinese companies raised US$35.6 billion over 2,047 rounds of funding from January to mid-November, compared to US$93.4 billion from 2,795 rounds over the same period in 2018, according to Crunchbase in November.

This follows earlier indications that Tencent was moderating its investment strategy after what the company’s president, Martin Lau, has called its “best year” in 2018.

In February, Lau launched a robust defense of the company’s practice of taking stakes in hundreds of companies in response to an online essay questioning whether the company was “losing its dream” by driving growth through investments rather than original innovation.

Speaking at a company event, Lau said investment was part of the Chinese internet giant’s core strategy. “Investing allows us to focus on the most important, the platform business, and make it the best,” he said, adding that Tencent invests in companies with a variety of expertise which helps it collaborate with a larger ecosystem, exposing it to opportunities in new areas.

But after a bumper crop of good investments in 2018 – 16 of the companies it backed went public, including anime site Bilibili, music-streaming service Spotify, and game-centric livestreaming platform Huya – “it turned sharply downward from a hot summer to a cold winter,” Lau said.

“I think we are facing bigger challenges in 2019 in the short term,” he added, although he stated emphatically that the company would not reduce its level of investment.

But by August, Tencent chief strategy officer James Mitchell confirmed that the company’s investments had “slowed quite notably” in the first half of the year.

“The amount of capital we’re deploying into investments has decelerated after an unusually rapid pace in the first half of 2018 when we were investing in smart retail and game broadcast sites,” Mitchell said in a conference call with analysts. “Overall, we will continue to invest at a more measured pace than at the beginning of last year.”

In 2019, Tencent’s invested in companies ranging from health care to finance and ecommerce. One-fifth of its investments were in enterprise services, reflecting the company’s pivot towards a greater focus on industrial internet since last year. Early this year, Tencent led investments into Chinese ecommerce service provider Youzan and Bangalore-based digital banking company NiYO.

While the company has announced its intention to diversify away from a heavy reliance on video games, social media, and entertainment, it also continued to invest in Chinese game-streaming platform Xiaoxiang Huyu this year and completed a deal to invest in San Francisco-based discussion website Reddit.