Tencent’s Accelerated Pace of Private Company Investments

After our deep dives into Alibaba and Rakuten which showed the Asian firms focus on going global, we decided to take a look at another Asia-based titan and chief Alibaba competitor, Tencent. By looking at financing data we hope to gain insight into what the company has invested in over the years and how their investment history may indicate their strategy moving forward.

For those unfamiliar, Tencent is the world’s fourth largest internet company with a market cap totaling over $150B. In recent years the company has invested in multiple notable startups including still hot Snapchat and no longer hot Fab.

As its competitors get more active, Tencent’s investments have picked up pace, with 10 investments already in the first half of 2014 and a total of 40 investments since 2011.

Gaming & Social Investments Drive Virtual Goods Business

Since 2008 Tencent has invested across a variety of sub-industries, however the gaming sub-industry has been the most active, seeing 6 deals totaling $874.4M including investments in Riot Games’ $9M series C (who Tencent went on to acquire for $472M in 2011), Plain Vanilla Games’ series A and B rounds, and most recently CJ Games’ $500M corporate minority investment. These gaming investments come as no surprise as Tencent is currently China’s largest online game company and derives a large portion of its revenue from virtual goods purchases, a popular monetization strategy among gaming startups.

The massive investment in CJ Games, a company that provides online and mobile gaming services to over 35m members, comes as Tencent and Alibaba compete against each other across multiple domains, and aim to continue to expand their mobile internet presences.

In regards to mobile, the industry saw the most deals as sub-industries such as Data & Document Management (Contacts+, Everyme), Application & Data Integration (CyanogenMod, VROOT), and Photo (Snapchat, Waddle) all were among popular focus areas within mobile.

Social was the second most invested in sub-industry. Select investments include Cloudary’s $110M funding round, WhoSay’s $12M series C, and most recently, ephemeral app WhisperText’s $36M series C in which Tencent invested alongside Lightspeed Venture Partners, Sequoia Capital, Shasta Ventures, and Thrive Capital.

See below for a look at the top sub-industries by # of investments since 2008. While Gaming wins for the most investments, Tencent is looking in a variety of areas for investment.

US and China Remain Focus

Tencent, like its main competitor Alibaba, has concentrated the majority of their investments in the US and China, with 51% of deals going to the United States (California led with 16 of 22 US deals) and 40% going to China-based companies. (We have previously detailed the US investments for Tencent vs. Alibaba.)

Since then, the company has participated in the previously-mentioned WhisperText’s $36M Series C, Weebly’s $35M series C, and Amplitude’s $1.97M Seed round. Other notable US deals since 2008 include Epic Games’ $330M corporate minority investment, Fab.com’s $150M series D, and Snapchat’s $60M series B.

Local investments in China have seen a focus on a wide range of eCommerce plays as Tencent continues to compete with Alibaba (and to some degree Rakuten) for consumer dollars and mindshare. These investments include 17u’s $82M private equity round, group buying website FTuan’s $60M series C, as well as China’s largest online direct sales company, JingDong’s March 2014 $214.7M corporate minority investment that preceded its May 2014 IPO which valued the company at $28.6B.

For investments outside the US and China, Tencent has invested in the aforementioned CJ Games ($500M corporate minority) and KakaoTalk ($63M investment) of South Korea, Russian internet holding company Digital Sky Technologies ($300M corporate minority), and Indian entertainment and talent-based social network ibibo ($12.8M corporate minority investment as part of MiH India Deal).

Overall, the investments show a focused desire to expand on both a markets and industry front. In regards to mobile, South Korea has the second-highest smartphone penetration of any country in the world, a key market moving forward for Tencent. It’s DST investment also could be a way for the company to diversify its exposure towards Russia and other international technology companies, as DST, who just recently launched a new fund, owns many web properties, and invests in late-stage technology startups worldwide.

If you enjoyed this analysis, check out our teardowns of Rakuten and Alibaba for a closer look at some of Tencent’s top competitors. All of the investment and M&A data for these Asian mega-corporations is available on CB Insights. Login or create a free account below.