Investments by Alibaba and Tencent in China

Chinese Startups Should Consider Tencent and Alibaba Their Allies, Not Enemies

By Hans Tung and Zara Zhang

China’s two tech giants, Alibaba and Tencent, have a combined valuation of $1 trillion. Together, the two have divvied up the vast majority of Chinese people’s time spent online (and increasingly offline as well). Out of the top 20 most used apps in China, 15 are either owned or invested in by Alibaba or Tencent, according to QuestMobile.

This has led to the perception that Chinese startups are only pawns in a game dominated by giants. Some have commentated that the realistic outcome for any Internet startup in China is to be acquired or controlled by Alibaba or Tencent, and Chinese VCs would only invest in a startup if they can see this happening. Thus, the narrative goes, the two giants are stifling innovation in China because sooner or later any entrepreneur’s company would be sold to or controlled by one of the “Ma”s (Jack Ma, chairman of Alibaba, or Pony Ma, chairman of Tencent).

We respectfully disagree. On the contrary, we would argue that Alibaba and Tencent are increasingly willing to help startups succeed by strategically investing in them. This is a vast improvement from the old days, when the giants used to directly compete against smaller players, often easily destroying them by creating in-house copycats.

As recent as the early 2010s, Tencent was notoriously known as “the king of copying.” Whether it was gaming, social, or commerce, whenever Tencent saw a promising startup on the scene, it would develop a similar product in-house and leverage its vast number of users (thanks to QQ) to crush these startups. According to a magazine article in 2010, the standard question that VCs asked founders at that time was: “What would you do if Tencent copies you?”

Then, around late 2010 early 2011, a shift started to happen. Tencent came to realize that instead of doing everything by itself, it might be better off investing in startups and helping them grow. Several factors resulted in the change. First, Tencent suffered significant backlash following a vicious battle against the Internet security company Qihoo 360 (“3Q War”) that shocked China. Tencent badly needed an image makeover.

Second, in 2008, Facebook launched Facebook Connect, allowing users to log into other websites with their Facebook credentials and move their social graph anywhere on the web. This move helped Facebook extend its influence, and impressed many Chinese tech leaders, who came to see the value of a more open Internet ecosystem.

Third, in 2011, Tencent launched WeChat, which gradually evolved into a “super app” that’s akin to an operating system. Tencent now has an ecosystem where all kinds of companies can integrate their service into, allowing it to easily direct traffic to smaller players it invests in.

Moreover, the rise of China’s other tech giant—Alibaba—made Tencent realize that it could hardly compete with Alibaba alone.

Let’s take e-commerce as an example. In 2006, Tencent launched a C2C e-commerce platform called Paipai that was similar to Alibaba’s Taobao. But even with traffic from Tencent’s QQ, Paipai was a latecomer to the market, and never caught up with Taobao. Tencent, a social and gaming king, didn’t seem to have the right genes to pull off e-commerce on its own. Tencent then tried investing in No. 3 and No. 4 players in several verticals in an effort to catapult them into category leaders (such as OkBuy/Hao Le Mai, an online shoe-seller, and Yixun, the electronics seller). But these companies had operational issues, and Tencent was not able to turn them around simply by directing traffic to their sites. Tencent eventually learned that it needs to invest in the best player in each category in order to have a chance to catch up with Alibaba in e-commerce and on-demand services. The players that Tencent invests in nowadays are not pawns, but allies. They are strong players in their own right.

In 2014, Tencent sold its e-commerce business to, and bought 15% of JD stock. Thanks to the partnership its own operational acumen, has become a formidable competitor of Alibaba’s. Its market cap has almost tripled to $72 billion since it went public in 2014.

Alibaba also realized the need to leverage smaller companies to stay competitive. However, in contrast to Tencent, which usually takes a partial ownership in companies, Alibaba often takes full control over time. The e-commerce giant wants to keep transactions on its own platform. In an effort to expand its footprint in online entertainment, transportation, and offline new retail, Alibaba has first invested in and then acquired the online video company Youku Tudou, the mapping company AutoNavi, and the browser UC Web. It also invested in the food delivery company, the bike-sharing companies Ofo and Hellobike, and the ride-sharing Kuaidi Dache (which merged into Didi Chuxing).

Now, thanks to several years of strategic investments and/or acquisitions, Alibaba and Tencent have each built its own ecosystem of companies in almost every field that matters in China’s tech scene (see chart below).

Investments by Alibaba and Tencent in China

Even after receiving investments from the giants, it is still possible for a company with a strong founder to stay relatively independent. A case in point is the ride-sharing giant Didi Chuxing, which has accepted investment from both Tencent and Alibaba. Earlier this month, Didi announced that it will offer its own bike-sharing service, despite the fact that Alibaba is a backer of two other bike-sharing companies (Ofo and Hellobike). Didi is not afraid of doing what it takes to achieve dominance in the transportation market – even at the risk of testing its relationship with Alibaba.

Similarly, Tencent, a shareholder in emerging giant Meituan-Dianping (the world’s fourth largest startup by valuation), has allowed the latter to become a “super app.” Meituan provides a myriad of services, including restaurant reviews and booking, food delivery, hotel and travel booking, and movie tickets. The company is currently expanding into ride-hailing, vacation rental, and more.

Startups in China should learn how to leverage Alibaba and Tencent to “blitzscale.” Being a useful ally to the giants does not preclude them from being strong players in their own right. Yes, startups often need to choose a “camp” from early on. But this is a vast improvement from getting copied and crushed, and never having the opportunity to fight for survival. David may not be able to beat Goliath, but he has the chance to beat everyone else by standing on Goliath’s shoulder.

Note: GGV Capital has invested in Alibaba, Didi Chuxing, Hellobike, UC Web, Youku Tudou, and Xiaopeng Motors. Hans is a personal investor in Dianping (which later merged into Meituan Dianping).

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Hans Tung is a Managing Partner at GGV Capital. A five-time Forbes Midas Lister, he has been a US/China investor for more than a decade. He was among the first Silicon Valley VCs to move to China full time, betting on the rise of the Chinese consumer internet market with companies like Xiaomi where he was an early investor and board member. His portfolio includes 3 of the top 5 shopping apps in the App Store – Wish, Poshmark and OfferUp – with Ibotta growing fast at #12. Other companies in his geographically diverse portfolio include: Airbnb, Bowery Farming, Bustle, Dirty Lemon, Function of Beauty, Giphy, LimeBike, Lively,, Peloton, Slack, Smartmi, Xiaohongshu (aka Red), Yamibuy, and more. Read his blog at

Zara Zhang is an analyst at GGV Capital. She has written for The Information, The Harvard Crimson, Harvard Magazine, among other publications. Read her blog at