This flurry of deal making comes against a recent crackdown by Chinese authorities to tighten restrictions on capital outflows and control "irrational" outbound investment by Chinese firms. Such restrictions are threatening completion of a $1 billion purchase by Chinese conglomerate Dalian Wanda Group of Dick Clark Productions in Los Angeles. Meanwhile, U.S. alarms about potential security and economic risks over Chinese takeovers of American companies have been heightened during the recent presidential election.
For the founders of U.S. tech start-ups, getting cozy with Chinese acquirers and investors can make good business sense. With a Chinese investor, their business gains a competitive edge in the exceedingly difficult-to-penetrate China market. Getting funds from China's leading tech companies can help U.S. companies gain an entry point to China, an immediate on-the-ground presence and strategic insights such as how to best customize products for the local Chinese market.
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Moreover, founders of U.S. tech start-ups can get favorable terms from the Chinese corporate investors, which are known to pay more to invest in American start-ups compared with Sand Hill Road venture capitalists. The Chinese buyers are in effect "paying a tuition" to get insights into the U.S. market, points out Jay Eum, co-founder and managing director of TransLink Capital in Silicon Valley.
China's e-commerce leader, Alibaba, by the visionary Jack Ma, has been particularly active in investing in U.S. start-ups. In recent years Alibaba has led a $793 million financing round in virtual reality start-up Magic Leap, $200 million in social media company Snap, $215 million in mobile messaging app Tango, $250 million in ride-sharing app Lyft, $50 million in remote-control app Peel, $120 million in mobile gaming start-up Kabam in July, $50 million in app search engine Quixey and $206 million in subscription service ShopRunner.
Not to be outdone, Baidu has invested $30 million in mobile safety firm TrustGo and $10 million in mapping company Indoor Atlas. Meanwhile, Tencent invested $400 million in game developer Riot Games and another $400 million in Epic Games, in addition to co-investing with Alibaba in Lyft. Besides its groundbreaking investment in SoFi, Renren has invested in a series of U.S. fintech start-ups, leading a $31 million lead investment in crowdfunding real estate site Fundrise in 2014 and leading a $40 million investment in U.S.-based stock-trading outfit Motif in 2015.