Chinese VCs make their mark

Despite being relative newcomers to venture capital investing, at least one American financial media outlet thinks the Chinese are very proficient at providing funding for startups in exchange for equity.

Forbes magazine released its annual Midas List of the best dealmakers in venture capital (VC) and the Chinese were prominent in the 2019 rankings. Produced in partnership with TrueBridge Capital Partners, the list recognizes investors who've built leading portfolios by making bigger and bolder bets.

Before companies like Alibaba and Amazon were well known, they needed capital to quickly expand their operations. In stepped VC investors who provided funding at a critical time in return for a piece of the company.

While the rewards in the VC game can be substantial, so are the risks.

Neil Shen, founding and managing partner of Sequoia China, was ranked first on the list this year. He was joined by a record number of Chinese investors — 21 in all out of 100, including highly-ranked newcomer Kathy Xu (Xu Xin).

Xu is one of 12 women on the 2019 Midas List, another record. In 2018, 14 investors from China appeared on the list and in 2017 there were 10.

Forbes Associate Editor Alex Konrad said Chinese VC investors enjoyed a record year on the Midas List due to the large size of China's leading technology companies.

"Alibaba continued to have the greatest impact in terms of financial performance while Meituan-Dianping, Toutiao (and parent Bytedance), DiDi Chuxing, Pinduoduo and JD.com were all also top-10 drivers. That's six of the top 10 companies behind the list based in China in 2019," noted Konrad.

Shen's ascent to the top of the Midas List last year marked the first time that a Chinese national had reached the top.  

"While some investors like GGV Capital partner Jenny Lee invest in both (the US and China), most of the China-based members made the list due to investments made primarily in China," said Konrad.

"China's strong performance on the Midas List demonstrates that the country is continuing to produce a number of high-growth and highly-valued companies. While sometimes unknown in the US, these businesses can become globally significant, such as with Bytedance, the owner of popular app TikTok (known as Douyin in China), and they generate returns any venture capitalist would desire," added Konrad.

Vivian Lin Thurston is a partner and portfolio manager with William Blair in Chicago and also serves as board chairman of the Chinese Finance Association of America (CFAA), an organization she helped to start in 2009.

CFAA serves as a bridge for educational and professional exchanges between finance professionals in China and the US.

"China has one of the most vibrant venture capital and startup markets in the world," Thurston said, noting that the country's thriving technology, internet and e-commerce industries offer a fertile investment environment.

It's not just the possibility of making a lot of money that is luring young Chinese into the investment arena, according to Thurston.

"The financial industry can have a lot of impact and not just on the economies of the US and China but the whole world. Young Chinese are also interested in the intellectual as well as the financial rewards that financial services can provide," she said.

Thurston is not surprised that the Chinese on the list made most of their profit from companies in China.

"China's economy is very attractive because of its size and its growth potential," Thurston said. "Even though (China's) headline growth has slowed, the quality of growth has improved. As the country continues to transform from an economy based on fixed assets to one that emphasizes domestic consumption, China will remain an exciting investment opportunity."

The Midas List ranks investors by their portfolio companies that have gone public or been acquired for at least $200 million over the previous five years, or that have raised additional funding of at least $400 million or more.

Forbes and TrueBridge put a premium on newer exits, as well as early-stage returns. A data-driven list, Midas is produced after reviewing the submissions of hundreds of partners across dozens of firms each year, according to Forbes.