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Tencent and Alibaba, two Chinese IT giants and two of the country's biggest buyers, have stalled after a frenzy that allowed the coin duo to secure 243 investments over the past year.
The figures, calculated by IT Juzi, a research company and investment bank China Renaissance, show how much the desire to build conglomerates by Tencent and Alibaba has led them to dominate the market traditionally held by financial sponsors – and to support investments for as much as one-third of the profits.
However, Tencent's buying spree fell sharply after reaching 70 contracts in the first quarter of 2018, about half of the year, as the "Chinese capital" began to bite.
"Tencent's thesis is that they look a little more like venture capital and are focused on [that] thus, their strategy has been further influenced by the general market downturn, "said Jeremy Choy, head of mergers and acquisitions at China Renaissance.
This could bode badly for the group. China froze commercial video game licenses last year and, although the ban was subsequently lifted, authorities still have to approve Tencent titles.
The impact on online ad sales of a weaker macroeconomic environment is also expected to increase dependence on investment returns, said David Dai, an badyst at Bernstein Research.
Most of Tencent's 149 investments were in entertainment and culture, a sector that exploded in popularity, but also saw prices skyrocket as shoppers competed for everything from sports to sports. Hollywood movies and user-generated chat videos.
"The cost of content is increasing. You always have a space where no one earns money, "said an industry executive.
Bankers are waiting for diminishing capital flows in start-up companies to exacerbate what one of the executives calls "a two-way market where rich people enrich themselves and others get more done." remote ".
China has some of the world's most valuable technology companies, including Ant Financial, Alibaba's financial services subsidiary, and ByteDance, the rapidly growing platform for video and news feeds.
Ant was valued at $ 150 billion in its last round of financing and ByteDance, backed by SoftBank, at $ 75 billion.
However, a series of small companies targeting overseas markets – an area where Chinese tech giants, with the exception of ByteDance, have made smaller breakthroughs – also attract investors, said Mr. Choy.
"China's growth is slowing down and people are feeling that it's getting harder and harder to do business because it's dominated by big guys and the environment is harder.
"India and Indonesia still have room for growth, which is why [some companies] Let's try to replicate the Chinese model in Southeast Asia, and I think this will continue to be a good area for start-ups. "
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