Ample cash held by companies paves way for smooth market entry

Chinese Internet giants Baidu Inc, Alibaba Group Holding Ltd and Tencent Holdings Ltd are finding that investing in startups is a smoother way to enter the United States market.

"There have been 52 investments made by Chinese companies in the US from 2012 through August 2014, with an investment total of $3.6 billion," Rebecca Fannin, founder of Silicon Dragon Ventures, told China Daily.

The trio, often referred to by the acronym of BAT, "are looking to expand in the US, and buying startups with the ample cash they have is a good way for them to enter the market," Fannin said.

The companies typically invest in tech startups primarily in the mobile, gaming and e-commerce markets. That also eases entry for US startups into China's markets, Fannin said.

Alibaba, coming off a successful initial public offering, began investing in US startups last year.

Alibaba investing in US messaging startup Tango

Vibrant startups head to Haidian

American investors and venture capitalists were surprised by Alibaba's market capitalization, said Hans Tung, managing partner of GGV, during a panel discussion at Silicon Dragon Valley 2014 last week.

"Although Alibaba didn't spend lots of time talking about its investment in the US, the company is quietly finding opportunities to participate in the US market," said Eric Savitz, partner of Brunswick Group, a US-based public relations firm that supported Alibaba as it prepared to file for its IPO.

Savitz said the startup investments are a way for Alibaba to expand its US business without directly competing with American tech giants such as Amazon.com Inc and eBay Inc.

The company 1stdibs, a New York-based marketplace for luxury goods, was the first investment announced by Alibaba in 2014. In total, 1stdibs got $15 million in series C funding from Alibaba.

In March, Alibaba invested $215 million in Tango, a California-based messaging and free-calling app company.

In April, Alibaba participated in a $250 million round of series D funding for Lyft, a transportation network company in San Francisco.

Series C and D refer to stages in the venture capital funding process.

In June, Alibaba helped finance Peel, a California-based, TV-control app maker. Although the amount of funding was not disclosed, business insiders said that it was more than the previous round, which was about $5 million.

In July, Alibaba put $120 million into Kabam, a video game startup that is now worth more than $1 billion. Kabam's games could be distributed across Alibaba's mobile apps.

While Alibaba's investment activity started only last year, Tencent has completed more than 15 deals over the past three years, according to CB insights.

Tencent participated in Fab.com's $150 million funding deal. Lately, Tencent has been investing more at the seed stage in startups focused on the consumer mobile space.

Tencent-backed mobile companies include Everyme, Loom, Quiz Up developer Plain Vanilla Games, Whisper and Snapchat, reported CB Insights.

In 2013, Baidu Inc acquired mobile safety firm TrustGo for $30 million.

Fannin said that it is too early to gauge the success of the BAT trio's investments.

"Besides, this is not a typical venture capitalist investment looking primarily for a return, but a strategic investment," she said.

Compared with Google and other US companies that invest in businesses not necessarily related to their own, the three Chinese companies focus more on technology required by their current businesses or for expansion, said Wang Xiao, CEO of Innospring.

For example, when Alibaba invested in Tango, which has more than 200 million registered users, it wanted to expand its own messaging services to compete with Tencent's Wechat, which has slowly developed into an e-commerce platform.