Heavy Petting

China's Smart Money Burrows Into Silicon Valley

It makes sense to have exposure to the world's original innovation hub.

It seems counterintuitive that a more pedestrian tech market like the U.S. should be drawing funds from China, where the scene is vibrant and growing at a rapid clip. Even more so when there are still buckets of money in the world's largest economy waiting to be deployed.

A demand-side model would suggest that when startups need cash to expand, they tap whatever funds they can, and with liquidity close by, there's no reason that shouldn't come from North America. But currently, it seems the supply side is dictating things, and Chinese money has the loudest voice in the trading pit.

From barely two dozen annually back in 2011, investors from China have been joining around 50 U.S. technology-financing deals per quarter over the past two years, according to data from CB Insights. What's interesting is that while the amount of Chinese money being pumped into U.S. tech has tapered off, the number of investors is headed for a new annual record.

More Money...

Despite a recent drop off, U.S. tech funding from Greater China has boomed over the past five years

Source: CB Insights

Note: Figures for 2016 are until Nov. 11.

That tells you that more and more Chinese are looking outside their home country for places to park money.

... But Even More Investors

The number of China-based investors in U.S. tech financings continues to increase

Source: CB Insights

Note: Figures for 2016 are to Nov. 14.

One reason is that startup valuations in China are a bit rich, and the U.S. is more rational. Another is that the good patriotic citizens of the Middle Kingdom are heeding President Xi Jinping's call to build the nation into a global technology powerhouse, and one way to do that is to have exposure to the world's original innovation hub.

Among investing and VC circles in the region, however, there's another narrative, and that's Beijing's targeting of the rich in the name of anti-corruption.

This brings to mind a Chinese saying: A smart rabbit has three burrows.

Right now, China has a lot of clever bunnies. And one of the most comfy burrows is Silicon Valley.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at tculpan1@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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