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VCs unfazed by Chinese regulatory shakeups (so far)
China’s technology scene has been in the news for all the wrong reasons in recent months. In the wake of the scuttling of Ant Group’s IPO, the Chinese government has gone on a regulatory offensive against a host of technology companies. Edtech got hit. On-demand companies took incoming fire. Ride-hailing? Check. Gaming? You bet.
The result of the government fusillade against some of the best-known companies in China was falling share prices. The damage topped $1 trillion among just public Chinese companies listed abroad.
The Exchange explores startups, markets and money.
Read it every morning on Extra Crunch or get The Exchange newsletter every Saturday.
What about startups in sectors that were reformed overnight? If their public comps are any indication, even more wealth was deleted in the recent wave of crackdowns.
The Exchange was curious about the impact of the Chinese government’s actions on the venture capital market. The Chinese startup economy has produced a number of world-leading companies. Tencent and Alibaba, yes, and even Baidu have become well-known for a reason. Could regulatory changes shake up the venture model that helped grow the country’s largest tech concerns?
After we checked in on the same question this Monday, SoftBank provided a partial answer, noting yesterday that it is pausing investments in China. The Japanese teleco, conglomerate and investing powerhouse has been deploying capital at a rapid pace in recent weeks. That will slow, at least in China. Here’s the WSJ:
The regulatory initiative in China has become so unpredictable and widespread that SoftBank and its funds are planning to hold off on investing much more there until the risks become clearer, [SoftBank CEO Masayoshi Son] said at an earnings press conference in Tokyo.
Is SoftBank early to its decision to shake up its investing strategy, missing Chinese deals for some time? Or is it late? We secured data from PitchBook and Traxcn that paints a somewhat surprising picture of venture capital activity at least thus far in Q3 2021.
But first, a reminder of how well China’s venture capital market was performing as 2020 eased its way into 2021.
Before the shakeup
China had a reasonably good Q2 2021 despite the turmoil.
Sure, funding flowing into Chinese startups was down 18% compared to Q4 2020, per CB Insights, but that quarter had recorded an all-time high of $27.7 billion. With $22.8 billion raised, Q2 2021 still did better than every other quarter since Q2 2016 with the exception of Q2 2018, Q4 2020 and Q1 2021. Indeed, the ecosystem had started to cool down in late 2018 before picking up pace again at the end of 2020.
However, that’s only one way to look at the numbers. If you compare recent Chinese venture results with other regions, it underperformed. During Q2 2021, U.S. funding reached a new high of $70.4 billion, with places like Latin America, Canada and India also establishing new records.
This also means that China lost ground as to its share of global startup deal-making, and the same goes for unicorn creation. According to Tech Buzz China’s summary of CB Insights data, the U.S. accounted for 132 unicorn births between January 1 and June 16, 2021, compared with just three in China.
Slightly falling quarterly venture capital totals and a notable decline in unicorn formation does not a startup winter make. So let’s look at what’s happened more recently.
So, what about Q3?
The thesis that there would be an instantly obvious slowdown in Chinese venture capital activity is not supported by the data we secured.
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Scaling CockroachDB in the red ocean of relational databases
Most database startups avoid building relational databases, since that market is dominated by a few goliaths. Oracle, MySQL and Microsoft SQL Server have embedded themselves into the technical fabric of large- and medium-size companies going back decades. These established companies have a lot of market share and a lot of money to quash the competition.
So rather than trying to compete in the relational database market, over the past decade, many database startups focused on alternative architectures such as document-centric databases (like MongoDB), key-value stores (like Redis) and graph databases (like Neo4J). But Cockroach Labs went against conventional wisdom with CockroachDB: It intentionally competed in the relational database market with its relational database product.
While it did face an uphill battle to penetrate the market, Cockroach Labs saw a surprising benefit: It didn’t have to invent a market. All it needed to do was grab a share of a market that also happened to be growing rapidly.
Cockroach Labs has a bright future, compelling technology, a lot of money in the bank and has an experienced, technically astute executive team.
In previous parts of this EC-1, I looked at the origins of CockroachDB, presented an in-depth technical description of its product as well as an analysis of the company’s developer relations and cloud service, CockroachCloud. In this final installment, we’ll look at the future of the company, the competitive landscape within the relational database market, its ability to retain talent as it looks toward a potential IPO or acquisition, and the risks it faces.
CockroachDB’s success is not guaranteed. It has to overcome significant hurdles to secure a profitable place for itself among a set of well-established database technologies that are owned by companies with very deep pockets.
It’s not impossible, though. We’ll first look at MongoDB as an example of how a company can break through the barriers for database startups competing with incumbents.
When life gives you Mongos, make MongoDB
Dev Ittycheria, MongoDB CEO, rings the Nasdaq Stock Market Opening Bell. Image Credits: Nasdaq, Inc
MongoDB is a good example of the risks that come with trying to invent a new database market. The company started out as a purely document-centric database at a time when that approach was the exception rather than the rule.
Web developers like document-centric databases because they address a number of common use cases in their work. For example, a document-centric database works well for storing comments to a blog post or a customer’s entire order history and profile.
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Daily Crunch: India bans PUBG and other Chinese apps
India continues to crack down on Chinese apps, Microsoft launches a deepfake detector and Google offers a personalized news podcast. This is your Daily Crunch for September 2, 2020.
The big story: India bans PUBG and other Chinese apps
The Indian government continues its purge of apps created by or linked to Chinese companies. It already banned 59 Chinese apps back in June, including TikTok.
India’s IT Ministry justified the decision as “a targeted move to ensure safety, security, and sovereignty of Indian cyberspace.” The apps banned today include search engine Baidu, business collaboration suite WeChat Work, cloud storage service Tencent Weiyun and the game Rise of Kingdoms. But PUBG is the most popular, with more than 40 million monthly active users.
The tech giants
Microsoft launches a deepfake detector tool ahead of US election — The Video Authenticator tool will provide a confidence score that a given piece of media has been artificially manipulated.
Google’s personalized audio news feature, Your News Update, comes to Google Podcasts — That means you’ll be able to get a personalized podcast of the latest headlines.
Twitch launches Watch Parties to all creators worldwide — Twitch is doubling down on becoming more than just a place for live-streamed gaming videos.
Startups, funding and venture capital
Indonesian insurtech startup PasarPolis gets $54 million Series B from investors including LeapFrog and SBI — The startup’s goal is to reach people who have never purchased insurance before with products like inexpensive “micro-policies” that cover broken device screens.
XRobotics is keeping the dream of pizza robots alive — XRobotics’ offering resembles an industrial 3D printer, in terms of size and form factor.
India’s online learning platform Unacademy raises $150 million at $1.45 billion valuation — India has a new startup unicorn.
Advice and analysis from Extra Crunch
The IPO parade continues as Wish files, Bumble targets an eventual debut — Alex Wilhelm looks at the latest IPO news, including Bumble planning to go public at a $6 to $8 billion valuation.
3 ways COVID-19 has affected the property investment market — COVID-19 has stirred up the long-settled dust on real estate investing.
Deep Science: Dog detectors, Mars mappers and AI-scrambling sweaters — Devin Coldewey kicks off a new feature in which he gets you all caught up on the most recent research papers and scientific discoveries.
(Reminder: Extra Crunch is our subscription membership program, which aims to democratize information about startups. You can sign up here.)
Everything else
‘The Mandalorian’ launches its second season on Oct. 30 — The show finished shooting its second season right before the pandemic shut down production everywhere.
GM, Ford wrap up ventilator production and shift back to auto business — Both automakers said they’d completed their contracts with the Department of Health and Human Services.
The Daily Crunch is TechCrunch’s roundup of our biggest and most important stories. If you’d like to get this delivered to your inbox every day at around 3pm Pacific, you can subscribe here.
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Where is voice tech going?
Mark Persaud is digital product manager and practice lead at Moonshot by Pactera, a digital innovation company that leads global clients through the next era of digital products with a heavy emphasis on artificial intelligence, data and continuous software delivery.
2020 has been all but normal. For businesses and brands. For innovation. For people.
The trajectory of business growth strategies, travel plans and lives have been drastically altered due to the COVID-19 pandemic, a global economic downturn with supply chain and market issues, and a fight for equality in the Black Lives Matter movement — amongst all that complicated lives and businesses already.
One of the biggest stories in emerging technology is the growth of different types of voice assistants:
- Niche assistants such as Aider that provide back-office support.
- Branded in-house assistants such as those offered by BBC and Snapchat.
- White-label solutions such as Houndify that provide lots of capabilities and configurable tool sets.
With so many assistants proliferating globally, voice will become a commodity like a website or an app. And that’s not a bad thing — at least in the name of progress. It will soon (read: over the next couple years) become table stakes for a business to have voice as an interaction channel for a lovable experience that users expect. Consider that feeling you get when you realize a business doesn’t have a website: It makes you question its validity and reputation for quality. Voice isn’t quite there yet, but it’s moving in that direction.
Voice assistant adoption and usage are still on the rise
Adoption of any new technology is key. A key inhibitor of technology is often distribution, but this has not been the case with voice. Apple, Google, and Baidu have reported hundreds of millions of devices using voice, and Amazon has 200 million users. Amazon has a slightly more difficult job since they’re not in the smartphone market, which allows for greater voice assistant distribution for Apple and Google.
Image Credits: Mark Persaud
But are people using devices? Google said recently there are 500 million monthly active users of Google Assistant. Not far behind are active Apple users with 375 million. Large numbers of people are using voice assistants, not just owning them. That’s a sign of technology gaining momentum — the technology is at a price point and within digital and personal ecosystems that make it right for user adoption. The pandemic has only exacerbated the use as Edison reported between March and April — a peak time for sheltering in place across the U.S.
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How Zhihu has become one of China’s biggest hubs for experts
Zhihu may not be as well known outside of China as WeChat or ByteDance’s Douyin, but over the past eight years, it has cultivated a reputation for being one of the country’s most trustworthy social media platforms. Originally launched as a question-and-answer site similar to Quora, Zhihu has grown to be a central hub for professional knowledge, allowing users to interact with experts and companies in a wide range of industries.
Headquartered in Beijing, Zhihu recently raised a $434 million Series F, its biggest round since 2011. The funding also brought Zhihu two important new partners: video and live-streaming app Beijing Kuaishou, which led the round, and Baidu, owner of China’s largest search engine (other participants in the round included Tencent and CapitalToday).
Launched in 2011, Zhihu (the name means “do you know”) is most frequently compared to Quora and Yahoo Answers. While it resembled those Q&A platforms at first, it has grown in scope. Now it would be more accurate to say that the platform is like a combination of Quora, LinkedIn and Medium’s subscription program.
For example, Zhihu has an invitation-only blogging platform for verified experts and since launching official accounts, it has become a channel for companies and organizations to communicate with users. A representative for Zhihu told TechCrunch that the platform had 220 million users and 30,000 official accounts as of January 2019 (for context, there are currently about 800 million Internet users in China), who have posted a total of 130 million answers so far.
The company’s growth will be closely watched since Zhihu is reportedly preparing for an initial public offering. Last November, the company hired its first chief financial officer, Sun Wei, heightening speculation. A representative for the company told TechCrunch the position was created because of Zhihu’s business development needs and that there is currently no timeline for a public listing.
At the same time, the company has also dealt with reports that its growth has slowed.
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Andrew Ng’s AI companies expand to Medellin, Colombia
After his tenure as chief scientist at Baidu, Andrew Ng, the founder of the Google Brain project and former CEO of Coursera, set up a number of different projects that all focus on making AI more approachable. These include the education startup Deeplearning.ai, the AI Fund startup studio for building AI companies and Landing.ai, which helps enterprises (and especially manufacturing companies) use AI. Today, Ng announced he has opened a second office for these projects in Medellin, Colombia.
At first, Medellin may seem like an odd choice. But today’s Medellin is very different from the one you may have seen on Narcos (and a lot safer). It’s home to a number of universities and, over the course of the last few years, it’s a hub for Colombia’s startup scene thanks to incubators like Ruta N and others.
Ng told me that he chose Medellin after looking at a wide range of cities in Europe, Asia and Latin America. Medellin, he believes, offers a strong talent pool, educational system and business ecosystem. It also helps that the Colombia government has made tech a focus in recent years.
“I see early signs of momentum for Colombia being a talent magnet both regionally and globally,” he told me. Indeed, the company was able to hire team members from Poland, Bangladesh, Egypt and Chile for its offices in Medellin, which now has just under 50 people. Over the course of the next two years, Ng plans to expand this team to between 150 and 200 employees.
It’s important, Ng argues, that we set up AI hubs outside of Silicon Valley and China, in part, because they’ll provide a different perspective. “We are able to share our AI ecosystem and Silicon Valley know-how with Medellín,” he writes in today’s announcement. “We’re equally thrilled for our Silicon Valley team to be learning from the Medellín community. Local knowledge and innovation shared with a global community is what will catapult the technology forward.”
The teams in Medellin will work on all of Ng’s projects, including four unannounced stealth portfolio companies that are looking into using AI in sectors like healthcare, education and customer support. In total, the teams in Medellin are working on about a dozen projects right now. And that’s very much Ng’s approach to AI — and for Landing.ai in particular: build lots of specialized components for various verticals that can then be generalized. “AI isn’t some piece of SaaS software that everybody can just swipe their credit card and use,” he said.
Andrew Ng will also join us for our first TechCrunch Sessions: Enterprise event in San Francisco on September 5 to talk about Landing.ai and the future of AI in general. You can find more information about the event (and buy tickets) here.
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TikTok-parent is getting into mobile search
China’s ByteDance, which owns popular video sharing app TikTok, is already working to enter the smartphone business and the music streaming space. It appears the world’s most valued startup also has ambitions about developing its own search engine. Kind of.
A company spokesperson told TechCrunch on Thursday that it has introduced a search function in ByteDance’s Toutiao news app.
“The function is in line with Toutiao’s mission of ‘information creates value.’ Users can try the function in the app and provide feedback and suggestions on the new function,” the spokesperson said.
The search function gleans information from both content on Toutiao as well as the entire world wide web, TechCrunch understands.
From the looks of it, ByteDance’s current search functionality is more alike WeChat’s in-app search function than local giant Baidu’s or Google’s offering.
On WeChat, when a person looks up a keyword, they see news articles about that topic, followed by mentions of it from their friends. This is followed by random articles about the subject. When a user clicks on any of these article or news links, WeChat serves them the page through its in-app browser, giving them no option to leave the walled-garden.
The idea is to change the way people think about — and use — a search engine altogether. And in China, where apps such as WeChat and TikTok have gained gigantic reach on mobile, it seems logical to add all new functionalities within those apps.
ByteDance’s interest in a search engine became public on Wednesday after it published a recruitment post on its WeChat account. The startup said its “search engine” is aimed at “hundreds of millions of mobile users in China.”
“We will build a universal search engine with a better user experience from 0 to 1. Only you don’t want to search, there is no [info] you can’t find, because we can search the whole network,” the company said in the post.
According to the description in the listing, ByteDance has already hired people from other search engines such as Google, Baidu, Bing and 360.
An analysis of LinkedIn listings by TechCrunch found more than 100 people from Google, Microsoft and Baidu, many of whom worked around search divisions at the previous companies, have joined ByteDance in recent quarters.
ByteDance following Tencent’s WeChat model to create its alternate search business may add more worries to Baidu, which currently holds more than 75% of the search engine market in China, according to third-party web service StatCounter Global Stat. Microsoft’s Bing is also operational in the country, though its market share remains in the low-single digits. Google currently does not offer its search feature in China — though it has attempted to change that in recent months to no luck.
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The need-to-know takeaways from VidCon 2019
VidCon, the annual summit in Anaheim, CA for social media stars and their fans to meet each other drew over 75,000 attendees over last week and this past weekend. A small subset of those where entertainment and tech executives convening to share best practices and strike deals.
Of the wide range of topics discussed in the industry-only sessions and casual conversation, five trends stuck out to me as takeaways for Extra Crunch members: the prominence of TikTok, the strong presence of Chinese tech companies in general, the contemplation of deep fakes, curiosity around virtual influencers, and the widespread interest in developing consumer product startups around top content creators.
Newer platforms take center stage
Photo by Jerod Harris/Getty Images
TikTok, the Chinese social video app (owned by Bytedance) that exploded onto the US market this past year, was the biggest conversation topic. Executives and talent managers were curious to see where it will go over the next year more than they were convinced that it is changing the industry in any fundamental way.
TikTok influencers were a major presence on the stages and taking selfies with fans on the conference floor. I overheard tweens saying “there are so many TikTokers here” throughout the conference. Meanwhile, TikTok’s US GM Vanessa Pappas held a session where she argued the app’s focus on building community among people who don’t already know each other (rather than being centered on your existing friendships) is a fundamental differentiator.
Kathleen Grace, CEO of production company New Form, noted that Tik Tok’s emphasis on visuals and music instead of spoken or written word makes it distinctly democratic in convening users across countries on equal footing.
Esports was also a big presence across the conference floor with teens lined up to compete at numerous simultaneous competitions. Twitch’s Mike Aragon and Jana Werner outlined Twitch’s expansion in content verticals adjacent to gaming like anime, sports, news, and “creative content’ as the first chapter in expanding the format of interactive live-streams across all verticals. They also emphasized the diversity of revenue streams Twitch enables creators to leverage: ads, tipping, monthly patronage, Twitch Prime, and Bounty Board (which connects brands and live streamers).
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Andrew Ng to talk about how AI will transform business at TC Sessions: Enterprise
When it comes to applying AI to the world around us, Andrew Ng has few if any peers. We are delighted to announce that the renowned founder, investor, AI expert and Stanford professor will join us onstage at the TechCrunch Sessions: Enterprise show on September 5 at the Yerba Buena Center in San Francisco.
AI promises to transform the $500 billion enterprise world like nothing since the cloud and SaaS. Hundreds of startups are already seizing the AI moment in areas like recruiting, marketing and communications and customer experience. The oceans of data required to power AI are becoming dramatically more valuable, which in turn is fueling the rise of new data platforms, another big topic of the show.
Last year, Ng launched the $175 million AI Fund, backed by big names like Sequoia, NEA, Greylock and SoftBank. The fund’s goal is to develop new AI businesses in a studio model and spin them out when they are ready for prime time. The first of that fund’s cohort is Landing AI, which also launched last year and aims to “empower companies to jumpstart AI and realize practical value.” It’s a wave businesses will want to catch if Ng is anywhere near right in his conviction that AI will generate $13 trillion in GDP growth globally in the next 20 years. You heard that right.
At TC Sessions: Enterprise, TechCrunch’s editors will ask Ng to detail how he believes AI will unfold in the enterprise world and bring big productivity gains to business.
As the former chief scientist at Baidu and the founding lead of Google Brain, Ng led the AI transformation of two of the world’s leading technology companies. Dr. Ng is the co-founder of Coursera, an online learning platform, and founder of deeplearning.ai, an AI education platform. Dr. Ng is also an adjunct professor at Stanford University’s Computer Science Department and holds degrees from Carnegie Mellon University, MIT and the University of California, Berkeley.
Early Bird tickets to see Andrew at TC Sessions: Enterprise are on sale for just $249 when you book here; but hurry, prices go up by $100 soon! Students, grab your discounted tickets for just $75 here.
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Image recognition, mini apps, QR codes: how China uses tech to sort its waste
China’s war on garbage is as digitally savvy as the country itself. Think QR codes attached to trash bags that allow a municipal government to trace exactly where its trash comes from.
On July 1, the world’s most populated city (Shanghai) began a compulsory garbage-sorting program. Under the new regulations (in Chinese), households and companies must classify their wastes into four categories and dump them in designated places at certain times. Noncompliance can lead to fines. Companies and properties that don’t comply risk having their credit rating lowered.
The strict regime became the talk of the city’s more than 24 million residents, who criticized the program’s inflexibility and confusing waste categorization. Gratefully, China’s tech startups are here to help.
For instance, China’s biggest internet companies responded with new search features that help people identify which wastes are “wet” (compostable), “dry,, “toxic,” or “recyclable.” Not even the most environmentally conscious person can get all the answers right. Like, which bin does the newspaper you just used to pick up dog poop belong to? Simply pull up a mini app on WeChat, Baidu or Alipay and enter the keyword. The tech firms will give you the answer and why.
A WeChat mini program that lets users learn the category of cash
Alipay, Alibaba’s electronics payment affiliate, claims its garbage-sorting mini app added one million users in just three days. The lite app, which is available without download inside the e-wallet with one billion users, has so far indexed more than 4,000 types of rubbish. Its database is still growing, and soon it will save people from typing by using image recognition to classify trash when they snap a photo of it. Alibaba’s answer to Alexa Tmall Genie can already answer (in Chinese) the question “what kind of trash is a wet wipe?” and more.
If people are too busy or lazy to hit the collection schedule, well, startups are offering valet trash service at the doorstep. A third-party developer helped Alipay build a recycling mini app (“垃圾分类回收平台”) and is now collecting garbage from 8,000 apartment complexes across 11 cities. To date, two million people have sold recyclable material through its platform.
Ele.me, Alibaba’s food delivery arm, added trash pickup to its list of valet services its fleets offer on top of “apologize to the girlfriend” and dog walking.
Alibaba’s food delivery & local service platform https://t.co/Yh95Bt0DPG just rolled out a “throw out the trash” service for $2. The delivery guy can also “apologize to the girlfriend” on your behalf among other things #DigitalEconomyinChina $BABA pic.twitter.com/C2ey1ePDvJ
— Krystal Hu (@readkrystalhu) June 24, 2019
Besides helping households, companies are also building software to make property managers’ lives easier. Some residential complexes in Shanghai began using QR codes to trace the origin of garbage, state-owned media outlet Xinhua reported. Each household is asked to attach a unique QR code to their trash bags, which will be scanned for sources and classification when they arrive at the waste management station.
Workers at a waste management station in Shanghai scan codes on trash bags to check their source (Screenshot from Xinhua feature)
This way, regulators in the region know exactly which family has produced the trash — although the city’s current garbage regulations do not require real-name tracking — and those who correctly categorized receive a small reward of 0.1 yuan, or 1.45 cents, per day, according to another report (in Chinese) from Xinhua.
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