China's XiaoMi Trumps Uber As World's Most Valuable Tech Startup

Uber's Record Smashed To Smithereens

This news comes on the back of a company announcement that it had raised an additional $1.2bn from private investors. Uber was valued at $18.2bn by private equity analysts only in June this year, a 1370% total growth from the $2.8bn price tag when it was founded in 2009.
— Business of Finance
 Uber was in June 2014, worth more than any of its peers including the fast growing Chinese mobile phone maker XiaoMi which surpassed Lenovo and LG to become the 3rd largest smartphone maker globally. This has all changed in the light-speed world of private equity and venture capital

Uber was in June 2014, worth more than any of its peers including the fast growing Chinese mobile phone maker XiaoMi which surpassed Lenovo and LG to become the 3rd largest smartphone maker globally. This has all changed in the light-speed world of private equity and venture capital

Just a few weeks back in December 2014, we covered the story of how Uber rose to become the World's then most valuable, and probably controversial, technology startup; in which we reported that Uber was valued at $41.2 billion by private investors.

However, a few days after, we reckoned that Uber might have had too much of a hangover from the media stardom after it blundered in the most obtuse fashion in the aftermath of the tragic terrorist hostage drama in the heart of Sydney's CBD.

Uber's eye watering valuations record didn't stand for long because the world now has a new contender. We at Business of Finance are a little more excited about this particular breed of startups, not because we're Asian but because we still see this landscape through a value-tinted lens.


A Chinese Company Most Of The West Haven't Even Heard Of

You may or may not have heard of the Chinese tech startup, XiaoMi. The words "XiaoMi" in mandarin is directly translated as "little rice" or "millet", an arguably cute alias in a world of tech wizardry as we bathe in the new sunlight of 2015. The company prides itself in its polish designs, simplicity, and affordability. With majority of its business conducted in Asia, XiaoMi has been enlightening us on the tremendous opportunities that endow the Asian landscape; proving that the Continent has not yet seen its heyday yet.

XiaoMi has very quickly become the darling of Chinese Enterprise, a stalwart of China's economic transformation and the unshackling of its rusted socialist chains that once seemed impervious to the butterflies of Capitalism. XiaoMi, amongst other noteworthy Chinese startups, seem to be taking the entire world by storm. Western counterparts who sneer skeptically at their primordial histories are now having a rude awakening. Day by day, China can stand prouder while strutting its stuff, all at the behest of those who had failed to recognize a new paradigm.

XiaoMi is predominately a smartphone and mobile device maker operating mainly in the consumer electronics market; a market that many analysts believe is already saturated and matured, but has never stopped innovating, eloquently proving these naysayers wrong.

 Founder and CEO of XiaoMi, and worth $9.1bn at age 45, Lei Jun's charisma and visionary thinking has grown his startup to where it is today. He still has big dreams for his firm

Founder and CEO of XiaoMi, and worth $9.1bn at age 45, Lei Jun's charisma and visionary thinking has grown his startup to where it is today. He still has big dreams for his firm

With a stranglehold in sectors where relatively affordable mobile devices reign supreme, it has enjoyed supernatural growth since launching its first smartphone in August 2011. It operates in only 15 countries, 10 of which are Asian. The private company headquartered in Beijing has more than 5,000 employers in its production & development facilities (Mainland China, Singapore, and Malaysia); it was founded in April 2010 by 45-year old businessman Lei Jun, commonly referred to as the "Steve Jobs of China". Educated guesses put Lei Jun's net-worth at $9.1bn as of 2014. He has a 77.8% ownership in XiaoMi's equity, implying that he might be worth $35bn taking into account XiaoMi's $46bn current valuation.

Besides having sort of a cult following, Lei Jun was also crowned Forbes Asia Businessman of The Year (2014) for the four-year-old company’s success in cutting costs to consumers through a disruptive online sales model and its rapid business growth.


Valued At $46bn Even Without Leaving Asia

XiaoMi has done it again. After receiving a little over $1.1bn through a stock sale in a 5th bout of funding on 29 December 2014, the mobile phone maker is now valued by private investors at $46bn; this is $4.8bn higher than Uber, the runner up. Readers might be surprised to know that it technically illegal to celebrate Christmas in China; Chinese markets were open for trading for the entire Christmas week while most others were in a winter slumber. Very few would have expected XiaoMi to break sensational news 4 days after Christmas or just 2 days before the Eve of a New Year. Real Chinese indeed.

With $1.4bn in paid up capital, XiaoMi "trades" a staggering multiple of 32.8x. However, as we mentioned in previous piece, private valuations remain a tricky affair and until a company lists publicly for trading, such valuations always need to be taken with a pinch of salt. America's Uber has a higher paid up capital of $2.8bn, twice that of XiaoMi.

Major venture capital investors of XiaoMi include All-Stars Investment (US); DST Global (US); GIC Private Limited (Singapore); IDG Capital Partners (Hong Kong); Morningside Group (Hong Kong); Qiming Venture Partners (China); Qualcomm Ventures (US); Temasek Holdings (Singapore).

XiaoMi is without question one of the most valuable tech companies in the world as the WSJ reports. It seems quite a handful of noteworthy investment names such as Singapore's very own GIC and Temasek Holdings, the former as Singapore's Sovereign Wealth Fund, are involved in XiaoMi's latest bout of funding.

The round, which could close as early as Monday, is led by All-Stars Investment, a tech investment fund run by former Morgan Stanley analyst Richard Ji, the person said. Other participants in the round include Russian investment firm DST Global and Singapore sovereign-wealth fund GIC, which are both already shareholders of Xiaomi.

Yunfeng Capital, a private-equity firm affiliated with Alibaba Group Holding Ltd. Executive Chairman Jack Ma , is also participating in the round, the source said. The person declined to say how many shares will be sold in the latest round. A Xiaomi spokesman declined to comment.

The $45 billion-plus valuation puts Xiaomi above most other Silicon Valley and Asian technology startups. Earlier this month, U.S. ride-sharing service Uber Technologies Inc. said a new round of funding valued it at $41 billion.

The surge in Xiaomi’s valuation over the past year indicates just how high expectations are as the company expands its business outside China, mainly in emerging markets where there is robust demand for inexpensive smartphones.

In its previous round of funding in August 2013, Xiaomi was valued at $10 billion.
— The WSJ

The key driver that justifies XiaoMi's $46bn valuation? Sales. And lots of them. It will come as a surprise to many readers that XiaoMi was the world's third largest smartphone maker as of 3Q14, according to data published by the International Data Corporation (IDC).

Of the 327.6 million new smartphones were shipped out from factories around the world for the 3 months ending September 2014, XiaoMi accounted for 5.3% of the total global shipments; recording 17.3 million units in 3Q14, compared to a mere 5.6 million units in 2013, a staggering 211.3% gain in volumes.

Despite concerns of a slowdown in smartphone sales, all of the top 5 smartphone makers (besides Samsung) saw YoY increases in shipments in the third quarter of 2014. Analysts had placed a greater weight on emerging markets (China, India, and South America) for marginal growth in shipments. When viewed as a whole, the global smartphone market by volume grew by 25.2% from 2013, and recorded a sequential growth of 8.7% from 2Q14.

 Although the giant smartphone marker from Korea remains the largest producer,  Samsung was the only one of the top 4 to see a decline in shipments from 3Q13 , and consequently also a decline in market share.   Volume growth of XiaoMi was tremendous , and although it still remains far behind Apple in terms of volume and value of shipments,  it has already surpassed Lenovo  which was previously China's largest smartphone maker. Data from IDC: 29 Oct. 2014

Although the giant smartphone marker from Korea remains the largest producer, Samsung was the only one of the top 4 to see a decline in shipments from 3Q13, and consequently also a decline in market share.

Volume growth of XiaoMi was tremendous, and although it still remains far behind Apple in terms of volume and value of shipments, it has already surpassed Lenovo which was previously China's largest smartphone maker. Data from IDC: 29 Oct. 2014

The verdict is crystal clear: there is still room for growth in the global smartphone market. 2014 volumes have been the highest on record so far. With Apple's launch of the iPhone 6 and 6 Plus, and various other new additions from the likes of Samsung and other Asian brands including XiaoMi, subsequent releases of shipment data should cap 2014 as a great year overall.

Analysis from IDC emphasizes on emerging markets as a pillar of future sustained growth. This is precisely where XiaoMi and other Chinese brands have been focused on. Developed markets have been experiencing single-digit growth for much of 2013 and 2014, while emerging markets were the regions that saw growth exceeding 30% when viewed as a whole, data from IDC showed.

In these markets, smartphone price points are making mobile computing possible where we once expected feature phones to remain dominant. This is great news for overall volumes, but the challenge has now become how to make money on devices that are quickly becoming commodity products. Outside of Apple, many are struggling to do this. A driving force behind the record smartphone volume was the combined effort of the vendors trailing market leaders Samsung and Apple. “The next three vendors – Xiaomi, Lenovo, and LG Electronics – all posted market-beating growth and with markedly different strategies,” said Ramon Llamas, Research Manager with IDC’s Mobile Phone team. “This shows that there is still room to compete in this market, whether it be in the low end as Lenovo has done, at the high end where Xiaomi competes, or in both as LG Electronics has shown. Beyond the top five, there are a number of other vendors achieving similar results.”
— International Data Corporation
 The surge in XiaoMi's valuation puts even the most exuberant startup funding deals in the US in the rear

The surge in XiaoMi's valuation puts even the most exuberant startup funding deals in the US in the rear

While it remains slightly ambiguous on which value proposition XiaoMi operations in (low, mid, or high-end), the company's main market remains Mainland China. "It (XiaoMi) has recently broadened its reach to adjacent countries in Southeast Asia like India and Singapore, but its growth remains testament to the incredible explosion in smartphone demand that China is experiencing," writes Vlad Savov of The Verge.

 Facebook's VC funding deal in 2010 still ranks top in size at $1.5bn. Uber's deal in December 2014 came close but XiaoMi's latest round of funding came $400mn shy at $1.1bn, not that it's a bad thing

Facebook's VC funding deal in 2010 still ranks top in size at $1.5bn. Uber's deal in December 2014 came close but XiaoMi's latest round of funding came $400mn shy at $1.1bn, not that it's a bad thing

A quick look at XiaoMi's website shows that the company currently offers only 3 smartphones in its product lineup; they are namely the Redmi 1S, Redmi Note 4G, and Mi 3. Besides the frequently-revised smartphone product lineup, XiaoMi offers the Mi Band which is a fitness band; again capitalizing on the global craze over wearable technology.

The company also makes and sells portable power banks, which are basically lithium-ion cells wired in series with current passing through a smart circuit allowing users to charge their mobile devices while on the go. Having personally owned a few of XiaoMi's products, we at Business of Finance personally feel the quality that goes into the company's products, although not a level a firm like Apple provides.

XiaoMi is also known for peripherals it offers, chief of them includes MiWiFi (network router); MiTV (Internet TV); MiBox (set-top box); and an Air Purifier. Services that are integrated in its mobile devices include MIUI (XiaoMi's mobile OS); MiCloud (cloud storage); and MiTalk (messaging service).

The kicker doesn't lie solely in the quality and to a slighter extent, the polished feel, of XiaoMi's products. As mentioned earlier, China and South-East Asia (for now) remain its bellwether markets, and the targeted low to mid-end segments that lie aplenty within. For what one might logically expect a product of commensurate value to XiaoMi smartphones to offer, the company meets just that expectation while pricing products at rock bottom prices relative to the market at large.

XiaoMi ranks top in the market it operates predominately in, having surpassed industry heavyweights Apple and Samsung and homegrown rivals Lenovo and Huawei. Despite hitting home run in its domestic market, analysts are weary of the company's handicap in Western markets because of its unfavorable reputation in those regions. Critics have not minced their harsh words against the firm. Wikipedia adequately summarizes:

Due to the design of Xiaomi products being almost completely identical to the design of Apple products, the brand has been unfavorable compared to American corporation Apple Inc.. In addition, the marketing strategy of Xiaomi is at times described as riding on the back of the “cult of Apple”. Moreover, after having read a book about Steve Jobs in college, Xiaomi’s chairman and CEO, Lei Jun, has carefully cultivated a Steve Jobs image, including jeans, dark shirts, and Jobs’s style of product announcements. Given the above, he has even been categorized as a counterfeit Jobs.

The company’s strategy has been categorized as having a counterfeiting philosophy and mindset. Despite all these repeated comparisons to Apple Inc., Xiaomi maintains that it espouses a different set of principles. It may also be true that Xiaomi has die-hard fans in its domestic market. But skeptics categorize the products as non-innovative, and that any perception of innovation is good public relations. Others point out that while there are some similarities to Apple, the ability to customize the software based upon user preferences through the use of Google’s Android operating system sets Xiaomi apart.

During the Mi4 unveiling conference, the presentation slides used Apple’s iconic “one more thing...” slide; it is the only English language slide in the whole 95 minute presentation.
— Wikipedia

We still believe XiaoMi has a lot dry powder to power through with its current value proposition. It seems like this start up is poised for take off now that it has gained a little more public recognition. It hasn't yet fully explored the lucrative market of cloud computing, nor has it ventured into the endless possibilities of big data. But more importantly, the company' strategy looks focused on spreading its reach deeper into the emerging markets outside of Asia. Analysts doubt XiaoMi will open its doors to Western markets any time in the future. Russia might be in need for cheaper smartphones after reeling from its worst economic and financial crisis since the late 1990s.


Sales Doubled In 2014 to $12 Billion; But Margins Almost Nonexistent

Although a majority of privately held companies, including startups, do not reveal top and bottom line figures to the public, they do spill some (but not all) of the beans once in a blue moon. Sure enough, this past Sunday (4 January 2015), XiaoMi's very own CEO, Lei Jun, reported through social media that his firm recorded a top line of $11.97bn (74.3bn Yuan). This figure is 135% higher than 2013's as Reuters reports:

Xiaomi sold a total of just over 61 million phones in 2014, up 227 percent from a year earlier, Lei added in a post on his Sina Weibo microblog account.

The post did not give a related profit figure, although a filing last month showed that the firm was grappling with razor thin margins as it rapidly expands. A part of the business made around 347.5 million yuan net profit last year on revenue of 26.6 billion yuan and an operating margin of just 1.8 percent.

Lei added that growth in China’s smartphone market would ease in 2015 and that the firm would look to focus on innovating new products and pushing into more overseas markets.
— Reuters

As impressive as $12bn in sales seems, it is really just a drop in the bucket compared to the elephants in the room. Apple, the world's most profitable company by most measures, posted a staggering $182bn in top line sales in it most recent financial year ending September 2014. Samsung Electronics posted $208bn in revenues for its financial year ending 2013.

Of course this isn't a fair comparison by any means, but it does provide a rough context on where XiaoMi stands amidst all the pomp and hoopla it has been enjoying thus far this year. However, critics are more concerned about XiaoMi's ultra thin profit margins. Profits are what ultimately filters down to shareholders. The adage "sales means nothing without profits" is rather apt in this case. As always, startups tend to shy away from releasing profit figures mainly to keep suspense levels high and valuations aloft. We strongly believe private valuations are heavily based on the suspense factor and promises of future returns on equity. There are however always means to obtain such data.

We have discovered that like many other Chinese tech companies, XiaoMi is actually comprised of a web of offshore (ex. China) and Mainland entities, financial and non-financial. Heading the firm's corporate structure is XiaoMi Corporation which is incorporated and based in the Cayman Islands. VC and private funding from the aforementioned investors occurs through XiaoMi Corporation. This structure allows Chinese companies to circumvent tight capital restrictions imposed by the Chinese government on certain industries such as technology. For instance, Alibaba which is also incorporated in the Cayman Islands while its Chinese domestic entities hold key licenses to operate the company's online services at home.

Findings reveal that XiaoMi Hong Kong Limited, an offshore entity of its parent company XiaoMi Corporation, posted a net profit of $566mn in 2013. This is according to an internally circulated document obtained by reputable private sources. This figure is much higher than the bottom line recorded by its parent company as explained below.

In addition, from data obtained by Reuters in a 2013 company filing, XiaoMi Corporation saw $56mn (347.5mn Yuan) in net profits in 2013. That was on revenues of $4.28bn, implying a net profit margin of slightly over 1.8%. Reuters did mention that the profit figures did not reflect the entirety of the firm's business but we would assume it covered a majority of XiaoMi's busines. A 1.8% net margin will more than set off alarm bells across the heads of traditional investors, but apparently not amongst venture capitalists.

XiaoMi's Lei Jun obviosuly had much more than$46bn in mind when he revealed in an interview with Forbes Asia in November 2014, that he "made a mistake" during the genesis of his startup 4 years back, thinking that XiaoMi would be worth only $10bn. He also made public his goals to grow the firm to become the world leader in smartphones in the next 5 to 10 years, on top of reiterating his exorbitant $100bn valuation goal. Visionary or madman, we leave that to the discretion of our readers.


A Race Against Itself In An Obstacle Course As Spirits Remain High

As brazenly bold as it is in China, Xiaomi's success outside of its country as far from certain. Apart from trying to beat the competition from home grown rivalry, XiaoMi has also been leaping across many hurdles over the past year; some of which have tripped the raging dragon, impeding some of its progress outside its homeland. The company faces a series of challenges abroad including patent lawsuits filled by Ericsson, a Swedish telecommunications producer. The allegations involve XiaoMi using Ericsson's technology without paying it due royalties and has resulted in a temporary injunction banning the sale and import of XiaoMi smartphones in India, where the complaint was filed.

XiaoMi did get a some respite after the temporary injunction was lifted a little over 2 weeks ago by the High Court of Delhi in India. XiaoMi has declined to comment about this case on multiple occasions when asked.

Apart from patent wars (see Apple Inc. V. Samsung Electronics Co. Ltd.), XiaoMi lacks brand recognition outside Asia (the 15 markets which it operations in). It is not apparent if the firm is up to the task of marketing its products and services through the thick fog of tech gadgetry in today's environment. Even so, its reputation as an "Apple imitator" will likely hover over the brand like a dark cloud for a considerable time. The general attitude in the West is anti-copycat.

Through its fair share of trails and tribulation, XiaoMi as a company has portrayed itself to remain well spirited. While it has acknowledged that the smartphone market in China will start to stagnate in 2015, founder Lei Jun has briefly outlined the firm's path moving forward in an open letter posted a few days ago after New Year's Day of 2015.

Aim to go places that others haven’t dared dream of

I’d like to share a piece of good news: in the past year, we have achieved results that we are extremely proud of. In 2014, Xiaomi sold 61.12 million smartphones, an increase of 227% from the year before; and tax-inclusive sales was CNY74.3 billion, an increase of 135% from the year before. We have successfully become the first in China’s smartphone industry in terms of market share.

Xiaomi has achieved such stellar results because of the contributions of every single person in the company. Our excellent performance has also been recognised by investors — we just recently completed our latest round of funding, raising US$1.1 billion at valuation of US$45 billion. This has made Xiaomi the world’s most valuable private tech startup.

2014 is a year of important milestones for Xiaomi: From chasing other players in the industry, we are now being pursued by others. Nearing the end of last year, we even found ourselves facing a patent lawsuit, which can be considered a rite of passage for a company that is coming of age.

Currently, the level of research and imitation of Xiaomi’s model by industry peers is as detailed as studying pixels in a picture. In 2015, the smart devices playing field will become extremely competitive, especially as the growth of the smartphone industry in mainland China slows down. As industry players seek to outdo one another, the test of endurance and the robustness of each player’s overall ecosystem will determine which one eventually gets eliminated.

Therefore, starting this year, we need to reset our attitude and restart our journey. We should possess the determination to fight this battle to the end, and look towards a bright future for every single one of us at Xiaomi.

1) Go back to basics when it comes to product and service. We have to consistently focus on product innovation, emphasize on making friends with our users, and strive to produce high-quality, high-performance devices with great user experience. On 4th January, we are announcing Redmi 2, and on 15th January, we will be unveiling our next flagship device. There’s no better way to start 2015 than with our newest products.

2) Strategic planning for our ecosystem. Two years ago, we started laying out our plans for an ecosystem, and to date we have made significant progress, investing in more than 20 hardware companies making smart products, and even partnering with appliance giant Midea. We want to cooperate closely with every more partners to create a more holistic ecosystem, and bring a more complete, interesting and convenient smart technology user experience for all Xiaomi fans. We believe that this ecosystem we are building will be Xiaomi’s most important competitive advantage in our rapid growth ahead.

3) Harbour dreams of expanding across the world. We have stepped beyond mainland China to seven other countries and regions, and have achieved success in these places. In India, we sold over 1 million smartphones in five months. This year, we will enter even more overseas markets. The road to success is never smooth-sailing, and it is expected that we will face even more challenges in our globalization. However, we are determined to overcome all challenges to bring our products, proudly designed and made in China, everywhere, as we believe innovation is for everyone.

Xiaomi has come a long way since we started from scratch in April 2010. Innovating through our products and our business model, we have created a miracle. From being a developer of MIUI ROM to a smartphone manufacturer, Xiaomi has now become a national brand in consumer electronics, a front-runner in smart home technology, a provider of mobile Internet content, and a platform for Internet services. We are a company that the technology industry has never seen before.

From now onwards, every step we take is writing a new chapter in the history of the industry. In the year ahead, I hope that everyone at Xiaomi will continue being sincere, passionate, humble, nimble and involved while forging ahead, to explore the possibilities in this industry and to go places that people have never even dreamed of yet!
— Official XiaoMi Translation of Lei Jun's Open Letter

While America Re-Invents The Wheel, China Backs To Basics

 China's  XiaoMi was valued at $46bn  after receiving its  5th round of funding of $1.1bn on 29 December 2014 , putting it ahead of Uber's $41.2bn valuation after the crowdsourcing tech startup raised $1.2bn in its 6th round of funding on 12 December 2014, just weeks before XiaoMi stole its spot.  Detailed here are the rest of global startups being valued above $1bn by private investors. In total, there were  49 American startups ,  4 European startups , and  9 Chinese startups  in this group of startups valued at $1bn and above

China's XiaoMi was valued at $46bn after receiving its 5th round of funding of $1.1bn on 29 December 2014, putting it ahead of Uber's $41.2bn valuation after the crowdsourcing tech startup raised $1.2bn in its 6th round of funding on 12 December 2014, just weeks before XiaoMi stole its spot.

Detailed here are the rest of global startups being valued above $1bn by private investors. In total, there were 49 American startups, 4 European startups, and 9 Chinese startups in this group of startups valued at $1bn and above

Looking across the multitude of startups on both sides of the Pacific, we notice a stark difference between the directions taken by American and Chinese startups. Tunneling our vision to technology, one thing is obvious: American startups seek to radically change or augment the way things are done; Chinese startups just do more of what has already worked.

Names like SpaceX, Uber, Tesla Motors, Spotify (Swedish), Airbnb, are synonymous with disruptive trends of the new-age. They redefine what we so conveniently call "technology". They disrupt preexisting trends, winning over hearts by offering palates of change that resonate well with the natural intrigue of humans. These alterations have come in the forms of the infinitesimal - like the way we control the lights at home; or the gargantuan - like how be listen to music and share data between devices.

These companies are only a modicum of Western startups that seek to transform how humans do things - reinventing the wheel, in short speak - and represents a potent honey pot of innovation and ingenuity. This ingenuity, colloquially dubbed as "common sense" to the layman on the street, makes us ruminate about "why didn't I think of this". They add a whole sense to the meaning of the word "value", teaching the world one example at a time, on how innovation can be monetized through infinite forms.

The American version of innovation & enterprise, almost always leverages on the continuum of evolving technology. The comprehension of trends - the alpha and omega of trends - collectively enables them to dominate this scene. This confidence allows this breed of startups to audaciously tackle a blank canvas, or the American Dream as it's called. This is the reason why more than 60% of global tech startups have American roots. We aren't American, but we would be pretty proud of this fact if we were.

The most highly valued American startups include Uber ($41.2bn, $2,8bn equity); Airbnb ($10bn, $800mn equity); Dropbox ($10bn, $507mn equity); Snapchat ($10bn, $150mn equity).

The most highly valued European startups include Spotify ($4bn, $521mn equity, Swedish); Powa ($2.7bn, $156mn equity, UK); Adyen ($1.5bn, $266mn equity, Dutch); Delivery Hero ($1bn, $600mn equity, German).


As Chinese we understand they way Chinese businessmen think and function. Even as the world has become immensely interconnected, traditional lineages still continue to be embedded in the our business models. Juxtaposing to Western startups, Chinese startups like XiaoMi in particular, are masters at one thing: reaching out to the mass market. China remains highly industrialized, no surprise considering how China still remains the world's factory en mass.

  The most highly valued Chinese startups  include XiaoMi ($46bn, $1.4bn equity); VANCL ($3bn, $472mn equity); Dianping.com ($2bn, $569mn equity); Trendy Group ($2bn, $200mn equity).  XiaoMi is the third youngest startup of this billion-dollar group of Chinese startups

The most highly valued Chinese startups include XiaoMi ($46bn, $1.4bn equity); VANCL ($3bn, $472mn equity); Dianping.com ($2bn, $569mn equity); Trendy Group ($2bn, $200mn equity). XiaoMi is the third youngest startup of this billion-dollar group of Chinese startups

A quick glance of the highly successful e-commerce giant Alibaba and its founder Jack Ma, reveals that catering to mass markets still remains the most prolific way of doing business; and also one that is endearingly profitable if done correctly. Readers should be reminded that China is huge market in and of itself, with a population that is easily north of 1.3 billion, a lot of which have not been fully engaged in China's economic transition towards modernity. The potential is huge, just by the sheer enormity of the market, and Chinese enterprises know this.

As a result, there has been little impetus to re-invent the wheel. A lot innovation within China's own breed of startups has been directed at improving efficiencies while branching out to an ever increasing number of consumers in Asia and elsewhere. The Chinese definition of "innovation" differs greatly to the West's. Create a good product or service in collusion with the region's strategic geography, throw in smart marketing, and achieve all these at the lowest possible cost without compromising on a brand's proposition equates to success.

China is also widely known to be a factory of "copycatting". This needs no further elaboration. Weibo for instance follows the same operating principal as Twitter, it merely has Chinese speaking users in its cross hairs. RenRen is the Chinese version of Facebook, with principal differences that are few and far between. Baidu is China's most popular search engine, with too many similarities to Google's search engine business.

But who cares? It worked for China. And it's certainly working for XiaoMi. As the infographic on the right illustrates, 43.5% of all VC (venture capital) deals in 1H14 stemmed from the Asia-Pacific region with China, Hong Kong, and Singapore bagging the top spots. Value wise, 32% of all VC funding were in Asia. China bagged the second higest number of VC deals in 1H14 with 108 rounds of funding vs. America's 132.

VC.jpg

The graphic does illustrate the point we have been hammering on in this entire section - that collectively, the global dollar still sees much more value in the American/European version of enterprise and innovation as compared to the Asian iteration. Europe raised more capital than America or China during the 6 months ending June 2014. Again, no surprise here as capital and financial markets there are highly developed, and startups offer enticing value propositions.

One caveat lies in the depth and accessibility of capital markets across the geographies in our comparison. China's Politburo still imposes rather strict capital controls through its currency (Yuan) fixing, among others. European and American markets are quantum ahead in development than that of China. This is hence not an apples to apples comparison. Readers should take it for what its really worth, rather than prima facie.