Pando

Source: Xiaomi raising a new mega round of funding, passing Uber in valuation again

By Sarah Lacy , written on September 4, 2015

From The Venture Capital Desk

Pando has heard that Chinese smartphone maker Xiaomi is reportedly raising a new mega round of funding -- and if my source is accurate -- it’s passing Uber in valuation again.

The price? As high as $60 billion.

If that valuation is accurate, this is a pivotal moment in the global startup landscape for a few reasons. In fact, that these negotiations are happening at all makes it a pivotal moment, regardless of the valuation. 

The first reason is kinda comical: Chinese entrepreneurs just keep fucking with Uber. Not only is Didi Kuaidi all but about to checkmate Uber’s Chinese domination plans-- with its near 80% market share, huge cash trove, WeChat smackdown and no doubt more coming-- but now a totally different Chinese tech company is reportedly once again taking the top private company valuation spot.

The second is symbolic: While emerging markets have produced several $1 billion-plus Internet and software companies, there are very few device companies that come out of them, except very low-end, copycat devices. Xiaomi’s smartphones may be a comparative bargain, but they are sophisticated, tying together hardware, software and an app store in a way few other companies of this scale have.

Much of the global tech entrepreneur world is just hoping their home-turf audience accesses them via Apple or Android or even Microsoft devices. Xiaomi’s founder Lei Jun was far more ambitious.

The third is strategic: Lei is a kingpin of the Chinese tech scene. Even in the earliest days of building Xiaomi he was funding, co-founding, and mentoring other smaller up-and-coming entrepreneurs. (Some of whom became leaders of significant businesses.) The more Xiaomi succeeds, the more it creates yet another fiercely independent, swaggering Chinese tech titan with enormous resources at his disposal. This matters because tech titans in China aren’t merely Steve Jobs and Mark Zuckerberg-- they are also John Doerr, Marc Andreessen, and Mike Moritz all rolled in one. Chinese corporates represent one-third of all the country’s VC dollars.

A valuation like this isn’t just of note because it’s surpassed Uber. According to the Wall Street Journal, Facebook is the only other venture backed company to ever receive a private market valuation at $50 billion or more. And Uber and Xiaomi have done it far faster. Some of this has to do with the overheated market and culture of “private IPOs” we’re seeing in the market-- a trend Facebook helped start, but one which has gained considerably more steam in the years since Facebook went public. But it’s still notable that we have two now. And one is in the US, the other in China.

The US is only now waking up to the ecosystem that China has become. It has huge amounts of money. It has a track record of success. It has a massive, massive domestic market that for cultural and geopolitical reasons few from the outside can penetrate. Lei Jun won by understanding the market, and taking advantage of white spaces where the government blocked the Android store. It is one of the only places in the world that has the full ecosystem stack. That stack may not quite compare to the Valley, but because of the cultural moat and government sensitivities, it doesn’t have to. It just has to be good enough. And China long ago passed good enough.

An excellent entrepreneur in a market like that is kinda like… an excellent entrepreneur in a market with the advantages of the US. And make no mistake-- this isn’t just a China protectionism thing. Lei Jun is a great entrepreneur. Almost four years ago when I first interviewed Lei Jun on stage at TechCrunch Disrupt Beijing, he detailed a plan to sell smart phones at rock bottom prices, lock up the market, and then build value selling more software, apps and services over those phones. He has done exactly that.

Today, China has the local market and a level of local cash and acquirers that even a sophisticated entrepreneurial market like Israel lacks. It has the sophistication, experience and ecosystem that other massive markets like Russia, Brazil, Indonesia, and India lack.

Sure, China is experiencing lots of risks right now in its economy and financial markets, and for China that means there could be political risks as well. But the top tech multinationals are cash rich enough to weather it long term.

A question is starting to dawn on some of the more powerful leaders in the Valley which hasn’t dawned before: Why should we assume that a US tech company will be the one to dominate any category in China exactly?

The US has long considered the world its birthright when it comes to IT. But it’s starting to look like -- of all Valley giants-- Facebook may be the one who had it right: Don’t try with China, because it’s just not our market. Sure, it’s a huge market. Maybe even the biggest tech market in the world, in certain sectors. But the rest of the world is still a pretty huge place.