Sequoia will continue to invest in the U.S. and Europe. Its China business will keep its name in Chinese and be known as in English. And the India and Southeast Asia business will become .��

“It has become increasingly complex to run a decentralized global investment business,” the firm said in its announcement signed by the leaders of each of its regional funds. But more significantly, as local companies compete on a global basis, the firm is seeing more portfolio conflicts which could lead to passing on opportunities to invest in competitive sectors.��

Even within a region, the firm faces an issue with competition. Sequoia divested from due to perceived competition in payments with its portfolio company . In an interview with , the firm said the breakup is .��

‘Patient capital’

Sequoia Capital had already made a significant change to its fund structure in recent years. It announced that a single fund for its U.S. and European business would distribute to sub-funds, stating the “10-year fund cycle has become obsolete.” As part of that November 2021  announcement, months before the market correction, Sequoia restructured itself as a registered investment adviser. This new role allowed the firm to set itself up to retain stock when its private companies go public, and to invest in public companies as well as opportunities in crypto and Web3.��

In an early 2021 interview, the firm’s steward emphasized the firm’s “patient capital” approach. The firm will often wait years before it disperses shares to shareholders, he said.��

“Sometimes people don’t realize how patient we are,” Botha said “And we’ve earned this right with our LPs, to have patience with distributions.”

The regional funds have operated from the start with a “local-first” approach. The India fund was launched in 2000 and the China-based fund in 2005. Each business will become fully independent by March 31, 2024.��

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In the chart below, we plot the number of supergiant VC deals announced, by month, from 2014 through the end of January 2020. These numbers are current through mid-February 2020 and may change slightly as historical data is added to Crunchbase and/or rounds get reclassified over time as new information becomes available.

Since the dawn of the “supergiant era,” when the number of these really big deals started creeping upward worldwide in late 2013, startups in the U.S. and China have raised $100 million-plus rounds at a similar pace, despite the U.S. having a generally larger population of startups and more available investment capital overall.

However, economic volatility in China, likely exacerbated by an ongoing trade dispute with the United States, caused a dip in in-country venture investment overall, and a particularly aggressive dip in supergiant VC deal volume, at least when we last checked in in October 2019.

It seems like downward momentum has only continued into the start of the new year. According to Crunchbase data at the time of writing, January 2020 saw fewer supergiant VC deals than in any month since February 2017, almost exactly three years ago.

What’s going on?

Much like how Thanksgiving and end-of-year holidays in the U.S. introduce a certain level of seasonality to the venture capital business here, economic activity in China slows down during the Lunar New Year, which in 2020 occurred toward the end of January. A large proportion of the people living in China’s economic centers like Shanghai, Shenzhen and Beijing return home to spend time with their families.

It’s also possible that the ongoing novel coronavirus (2019-nCoV) outbreak, centered around the city of Wuhan in Hubei province, has weighed on China’s venture capital market. At the time of writing, there are over 40,000 confirmed cases of coronavirus in China, which has killed over 1,000 people in the country, according from World Health Organization, the U.S. Centers for Disease Control and Prevention, the European Centre for Disease Prevention and Control, China’s National Health Commission, and China-based DXY.com, a social media site focused on life sciences and pharmaceuticals.

In response to the outbreak, the Chinese central government decided in late January that it would extend the Lunar New Year holiday season to Feb. 2. The move was made to delay the mass migration of people back to and between Chinese cities. (Much like the days surrounding Thanksgiving are among the busiest travel days in the U.S., the days before and after the Lunar New Year holiday are China’s busiest travel season.) That is in conjunction with citywide quarantines in the virus’ apparent point of origin in Wuhan, plus other cities affected by the outbreak.

The overall economic impact of these measures to contain the virus will no doubt be the subject of study for years to come.

According to Crunchbase data at time of publishing, no supergiant rounds have been struck so far in China during the month of February. Crunchbase data lists only five rounds of any size struck so far this month. There are listed for February 2019.

The extent to which the ongoing coronavirus outbreak directly affects the Chinese venture capital market is impossible to know for sure, but it’s certainly not helping the situation.

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Another Chinese company has on the American market this week, this time it’s .

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Ehang, which makes autonomous aerial vehicles, filed paperwork with the Securities and Exchange Commission to go public on the Nasdaq. The company lists a $100 million raised in its IPO documents, a standard placeholder figure meant to help investors gauge the possible size of the offering.

As a private company, Ehang raised $52 million in known venture capital, with its most recent round being a in August 2015. Ehang is a fairly young company, as it was founded in 2014, according to Crunchbase. It also stands out in the crowd of startups we’ve seen go public this year, being a much younger company with less venture funding than others we’ve written about in 2019.

Ehang raised $10 million in its in December 2014, less than a year before its $42 million in August 2015. It counts and as investors. and are among the underwriters for the company’s IPO.

With everything we hear about companies burning through cash to make self-driving cars a reality, it’s a nice change of pace to hear about a company grinding to make self-flying planes a reality. Let’s see how they’re doing, money-wise.

Financial Results

Ehang is a nascent company with modest revenue and regular losses. It doesn’t fit the profile of companies that we’ve covered lately. Think of it more like a biotech offering. Here’s a company working on getting its product to the point of commercial viability; you can invest in that if you’d like, but it’s risk profile is a bit different than a SaaS company.

Indeed, Ehang’s F-1 filing notes that it has only delivered “38 passenger-grade AAVs for testing.” AAV is an acronym for “autonomous aerial vehicle. Aside from the three dozen testing AAVs, the company has also “developed two command-and-control centers for smart city management.”

Ehang’s F-1 filing does note that the company has “unfilled purchase orders for 28 passenger-grade AAVs.”

As you can imagine, it’s income statement doesn’t include rapid growth. The company’s revenues fell nearly 16 in the first half of 2019 compared to the same period of 2018, with just $4.7 million in revenue during the first six months of this year. Ehang’s H1 2019 net loss of $5.5 million was up 42 percent from the year-ago period.

The AAV company had $8.8 million in cash and equivalents on-hand at the end of Q2 2019. With $5.8 million in operating cash burn in the first half of 2019 you can see why the firm is raising more capital through an IPO.

Ehang raised several known rounds (Crunhbase has previously mentioned notes on its Series A and Series B). The company’s F-1 filing discloses some seed funding and a Series C that were previously unknown to external parties. (Indeed all H1 2019 cash from financing that the company secured came from its Series C, the document says.)

The company notes in its filing that it intends to use its net IPO proceeds to fund its operations (research and development and sales and marketing) “expanding production capacity,” and “developing urban air mobility solutions, such as passenger air mobility services and urban air logistics services, and ”general corporate purposes.”

We don’t see too many IPOs like this one. It harks back to , an electric car company from China that also had a limited history of product delivery and revenue generation. That one didn’t go well, with NIO’s stock losing nearly all its value after the offering. Perhaps Ehang will prove more successful.

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led the round, which also included participation from , , and “Fortune 500 companies in Asia and the United States,” according to the . The financing brings Club Factory’s to a known $220 million, according to Crunchbase data. Interestingly, its last raise was in February 2018. (I say interestingly because it’s unusual for companies to raise the same amounts in their Series Cs and Ds.)

In the fall of 2013, then 25-year-old left his job at Facebook to start Club Factory. According to the company’s , Lou “never expected to work in fashion, but a passion for great products and frustration with the lack of transparency in price, led him to build Club Factory.”

The company claims to sell “trending items” for 50 to 80 percent less than what they would go for on other popular e-commerce sites such as Wish, eBay and Amazon. It does this by letting customers shop directly from factories it finds with its patented big data technology.

In September, KrAsia that India had become Club Factory’s biggest market. According to the publication, Club Factory had “pipped Snapdeal in terms of monthly active users (MAU) to rank third behind and ,” which is based in India.

According to , Club Factory has seen more than 10x growth in the past six months for its Indian SME business largely due to its zero-commission strategy, “where the sellers are able to transfer the cost-benefit to the users.”

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The company is notable for a number of reasons, not the least of which is that it has some similarities to Crunchbase News’ parent company, Crunchbase. Each has a publishing function and provides data on private companies. There are dissimilarities as well, mind, including some key business model distinctions. But, it was fun all the same to see a company that I somewhat understand file to go public.

Let’s get to know the company, peek at its numbers, and put our finger to the wind.

Who?

According to its F-1 filing, 36Kr launched its website (36kr.com) in 2010. The company raised a in the intervening years, including and a . The company’s ���Ի��� tipped the scales a bit more.

The company’s known venture total is over $100 million; the actual tally is likely larger given that the size of . 36Kr is, therefore, well-capitalized, but not so much that it’s bent gravity. ( that 36Kr recently raised $24 million. Expect an updated F-1 in a few weeks’ time.)

As noted above, the company publishes and sports a database of private company information. According to its F-1, 36Kr “provide[s] insightful reports on companies, timely market updates, and thought-provoking editorials and commentaries,” while “offer[ing] business services, including online advertising services, enterprise value-added services and subscription services to our customers.”

Ads monetize for the firm on a “cost-per-day basis or a cost-per-advertisement basis.” Its subscription business handles “trainings and courses at fixed fees,” along with “monthly subscription packages of our paid columns to individual subscribers.” Bigger clients can buy subscription products for “fixed periods.”

Finally, 36Kr sells “enterprise value-add services.” What is that? A good question. The company defines them as “integrated marketing, offline events and consulting services” that are often charged “on a project basis.”

How does all that fit together? Here’s a graphic that attempts to make sense out of the company’s product offerings:

If that chart doesn’t make immediate sense to you, don’t worry. It’s merely evidence that you haven’t spent all of 2019 digging through SEC filings. I have, however, so let me help:

• 36Kr’s data and written work (referred to as content above) fuels its advertising business.
• Off the strength of its content and advertising model, the company sells events and consulting. In a related-but-different model, our former sister-company built an events business off of its written work, for example. There is historical precedent for this sort of company.
• 36Kr then takes all of that and layers investor subscriptions on top of its other products. The result of this final step in its model is that it takes the learnings from all its work (More services) and cycles them into its underlying “analytics capabilities” which are then leveraged back into the company’s content, starting the entire flywheel over again.

I’m not entirely sold on the self-reinforcing argument of the image. But I do think that there’s some logic to the rest of it. But more importantly, what does that look like in dollars?

Money

Like many 2019 IPOs, 36Kr is growing quickly and losing money. The firm grew its revenue from 74.4 million RMB ($10.44 million) to 201.9 million RMB ($29.4 million) from the first half of 2018 to the first half of 2019. The company’s H1 2018 revenue result came to just over two-thirds of its full-year 2018 tally.

Don’t think that 36Kr generates software-company-like margins, however. The firm’s gross margin was just 31.5 percent in the first half of 2019, down slightly from its H1 2018 result of 33.7 percent. At those gross margins, the firm’s cost structure is too large to allow 37Kr to generate operating income. Indeed, in the first half of 2019, the company’s operating loss came to 49.9 million RMB, or $7.3 million.

Unprofitability, however, is only an episodic issue for 36Kr. The company generated positive operating and net income in 2017 and 2018, though it did lose money in the first half of 2018.

The timing of 36Kr’s IPO is explained by its cash statement; the company closed out the second quarter of 2019 with just $3.8 million in cash and equivalents, though it also reported $11.4 million in short-term investments at the same time. However, the sum of the two numbers isn’t too large when stacked against the company’s H1 2019 operating cash burn of $13.8 million.

The company needs more money. And it’s turning to American markets to get it. 36Kr lists a $100 million figure on its F-1 filing for its expected raise, a placeholder figure that merely helps us place the company’s IPO size range.

So What?

If successful, I believe 36Kr will be the first venture-backed company to file to go public in America after the possible Trump administration-driven change to the listing of Chinese companies on American indices. That makes it special to some degree.

The 36Kr debut will also put another money-losing company with a dual-class share structure on to the market. If it fails to launch, companies with similar income statements could find the public markets more closed than open.

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The number of China-based technology companies listing on American exchanges was a recent market narrative. You recall the Huya IPO, the Nio deal that we never really got, and Luckin Coffee’s meteoric rise. Heck, don’t forget , , and even (more here, here, and here, respectively).

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Looking back through our coverage is good reminder that a swath of China-based tech and venture-backed shops chose the U.S. markets.

Individually, of course, the debuts have been a varied mix of success and failure. Normal stuff. Today, however, there is a sharp, downward trend to most of the companies in question and the why isn’t good news. :

Trump administration officials are discussing ways to limit U.S. investors’ portfolio flows into China in a move that would have repercussions for billions of dollars in investment pegged to major indexes, according to people familiar with the internal deliberations.

The same report goes on to note that the current American government is also discussing “delisting Chinese companies from U.S. stock exchanges and limiting Americans’ exposure to the Chinese market through government pension funds.” The moves, in aggregate, could put negative pressure on China-based companies listed on American exchanges.

It’s Friday, so I’m going to avoid the usual throat-clearing. This is probably pretty stupid. The Chinese government is anti-democratic, increasingly autocratic, opposed to religious freedom, and is currently erasing an entire culture in Xinjiang. But that doesn’t mean that closing economic ties between our respective capital markets will make those situations any better. Indeed, it probably makes them worse; isolating a rival power isn’t a way to influence its actions if it has access to other markets.

Trade wars were said to be easy to win. Instead, we’re now seeing American investors take hits to their portfolios as the current administration looks to find leverage to summon even a small win.

The moves will limit the listing-pace of China-based companies on U.S. exchanges, making our domestic capital markets more provincial and less global. Meanwhile, the. Consider today, therefore, a coda of sorts on the boom in Chinese tech and venture-backed listings here in the United States.

Viva la self-inflicted wounds.

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The round comes nearly two and a half years after the company raised a $200 million from Tencent Holdings at a post-money valuation of $1 billion, according to its Crunchbase profile.

58.com, which is described by as the country’s “largest online marketplace,” will remain Zhuanshuan’s majority shareholder, according to the release. 58.com is listed on the NYSE, having gone public in 2013.

Founded in 2015, Zhuanzhuan’s “platform records more than 10 million user transactions annually,” according to . It’s been described by some as an “online flea market” in the industry since it features only secondhand goods.

Zhuanzhuan CEO Huang Wei said “in an open letter” he hoped “the cash injection would help the company ‘survive’ a challenging business cycle and intense competition,” reported .

Indeed, the popularity of secondhand marketplaces continues to increase globally. In the United States, luxury consignment platform is an example of a company in the space that went public this year after reporting revenue of $207.4 million in 2018, up 55 percent compared to 2017. In April, we reported on how another fashion resale marketplace was reportedly eyeing an IPO that could take place as early as this fall.

The Zhuanzhuan raise touches on several trends that we’re tracking at Crunchbase News. Namely the decline in China’s share of supergiant ($100 million and larger) rounds, and the growth of supersized early-stage rounds. By managing to be a tectonic Series B, Zhuanzhuan’s latest capital raise is downright interesting.

As is the context the company provided for its round. This new money isn’t merely for expansion or hiring, but instead will help Zhuanzhuan “survive.” As China’s economy slows alongside the United States’ own, we may see more rounds of a similar nature with a similar explanation.

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The five-year-old e-commerce company became a unicorn last September after raising $200 million in a round led by Tencent Holdings and that valued the company at $1.1 billion, according to . Yijiupi also secured $100 million from . The financing brings the company’s over its lifetime to nearly $600 million. Other backers include and .

The digital retailer sells liquor and wine to offline retailers and convenience stores. But it’s diversifying as of late.

According to , Yijiupi has launched “a new website that has two separate channels-’alcohol, beverage and packaged food’ and ‘grocery and snacks.’ ”

As of last September, according to , the startup was operating in 83 Chinese cities. At that time, the publication reported that Yijiupi was aiming to hit a GMV (gross merchandise volume) of RMB 20 billion (or about US$ 2.83 billion) by the end of last year, up “from its more than RMB 12 billion (US$ 1.7 billion) figure in 2017.”

Overall, online retail sales in China have continued to exceed, and grow faster than, those in the United States, according to a recent referencing Chinese government data. Specifically, online retail sales in China totaled about $1.33 trillion in 2018, up nearly 24 percent from 2017, , a government agency.

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And so came the present era of software as a service (SaaS) businesses. Though there’s nothing uniquely American about the idea of a business continuing to provide iteratively improving software to customers as long as they continue to pay, venture-backed SaaS startups are a largely U.S.-centric phenomenon. It’s one we’ve documented in the past and wanted to revisit today.

The U.S. accounts for an outsized share of SaaS-specific VC deal volume, relative to what its share of total VC deal volume (from all sectors) might suggest. In the chart below, we compare the share of all VC deal volume in the top ten startup markets against each country’s share of SaaS-specific deal counts from 2019, year-to-date.

Of the worldwide market for venture capital, U.S.-based companies accounted for roughly 39.8 percent of all reported deals struck so far in 2019. If we narrow down to , however, and we see that American SaaS ventures accounted for 57.3 percent of all deals raised in that sector.

On the flipside of the coin, there’s China, which is skewed in the other direction. China-based startups account for 14.8 percent of all reported VC deal volume, but just 2.8 percent of SaaS rounds in particular, year-to-date. SaaS may also be under-represented in India’s startup market too. Indian startups make up 5.2 percent of overall deal volume but just 2.5 percent of the SaaS deals.

These numbers are even more skewed when looking at dollar volume which, due to variability in round sizes, can be kind of “lumpy.” In Crunchbase News’s Q2 2019 global VC report, we highlighted the fact that, in the U.S., VC rounds are generally larger than in the rest of the world. This is especially true in the SaaS sector.

At time of writing, there have been nearly 240 reported early-stage (Series A and Series B) rounds raised by SaaS companies, worldwide, so far in 2019. Collectively, this represents over $2.9 billion in venture backing. The worldwide average early stage SaaS round is $14 million.

Across these money measures, SaaS rounds in the rest of the world are materially smaller than those raised by U.S. Early-stage SaaS startups based in the U.S. account for just over $2 billion of that reported dollar volume, over 70 percent of the sum. The average (mean) early-stage U.S. SaaS round was $15.4 million, with a median value of $11 million. By comparison, all the early-stage SaaS companies outside the U.S. averaged out at $11.6 million, with a median value of roughly $6.6 million.

Like we observed in prior analysis, the SaaS fundraising gap points to structural differences in the private software startup equity market. Conditions are particularly favorable for SaaS ventures in the U.S., and perhaps uniquely unfavorable to their counterparts in China and, to a lesser extent, India. The cause of the SaaS gap is unclear and probably multifaceted, but the data shows it’s there.

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Recent details a dramatic decline in American sentiment regarding technology companies. After enjoying positive opinion for years, technology companies have seen their public perception slip.

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Notably, the declines aren’t too partisan. It isn’t rare to see American sentiment change quickly based on the turning of our internal politics (see , for example), but in this case members of both the major political parties have seen their views of tech turn more negative in recent years.

The data is stark. According to Pew, the percentage of Americans who viewed technology companies as “having a positive impact on the United States” has “tumbled 21 percentage points , from 71% to 50%.” Among Americans who are Democrats or lean in that direction, positive sentiment regarding tech companies’ impact has fallen from 74 percent to 54 percent since 2015. Republicans and folks who lean in that direction saw their views slip from 72 percent positive to an underwater 44 percent over the same timeframe.

How many  Americans say that technology companies have a negative impact on “the way things are going in the country?” That figure rose from 17 percent in 2015 to 33 percent in 2019. That’s nearly a doubling in less than half a decade.

So What?

Tech companies big and small depend on consumer trust to get work done. Seeing trust fall among a very profitable portion of the global population (American tech companies are brilliant at extracting value from American DAUs; see , for example) is a cause for concern for technology companies that want to acquire new users and expand their revenue.

It’s not going to be easier to acquire customers if the pool of potential customers is curdling against your industry. And according to the Pew data, trust and faith in tech companies is doing just that.

You can see why in both honest and cynical terms. In the honest category, some tech companies have been poor actors; some technology companies are ; some growing technology companies have had to ; ; many tech companies , so that they can pay them less (); many gig jobs are set up to but avoid the legal ramifications of such control (i.e. employment); one company managed to find a way to ; the ; you can add to the list, I’m sure.

Staying in the honest criticism category, some of the innovation that we flocked to wound up not being so great. Facebook’s ability to connect you to friends wound up as a way for the firm to to send you texts about coming back more often to the service. That sort of thing.

Cynically, you can complain that tech companies can be silly (true, but immaterial), or strange (same retort), or focused on the wrong problems (not every tech project that winds up being serious has to start that way).

At the same time, tech does a hell of a lot of good, allowing us to do more, more quickly in an increasingly competitive world. Technology itself made it possible for me to write to you this morning. Indeed, I’d hazard that it was the superpower-like power that tech has given us over time through its various revolutions (radio, then television, wired Internet, wireless Internet, etc.) that contributed to why we liked it so much. That and the companies that powered it often stood at an angle to the world. Google was a perfectly lovely odd duck. (More recently it’s famous for , and for trying to build a .)

But there was a lot to like about Google before it became the incumbent. Now when I think of Google my first thought is how slow Chrome has become and how mobile Google search is so full of UI-bloat that I’m considering giving Bing a try. So I suppose I at least partially fit in the category of companies losing some optimism concerning tech companies.

Adoption Of The New

It’s hard to note change when you’re in the middle of it, but I wonder if the erosion of public optimism regarding technology companies will slow adoption of new services. That could favor incumbents and dent startups.

Which brings me to something that , an old colleague and present friend of mine wrote for The Next Web, my old home. In a piece entitled “,” he riffed on the fun times when things like Google Wave launched and the Internet ground to a halt as everyone jumped aboard to give it a try.

Two sections, in particular, resonated:

It’s healthy to have a critical attitude to the technology that plays a much bigger part in our daily lives than it did 10 years ago, but I can’t help but feel we’ve lost a healthy level of enthusiasm for embracing new things, too. All too often, new technology is greeted with questions about how it might make the world worse, rather than better. […]

Tech has become a much more important part of our lives over the past decade, but I do worry that by focusing too much on the dominance of tech giants, foreign interference in elections, deepfakes, and everything else that scares us about the future, the media is leading us all to lose our sense of wonder at the little ways tech can make our lives better.

In a sense, the second paragraph details why the first paragraph is happening. Because big tech companies have been rather bad lately (here’s some from this week, for example, that made me mad), consumer sentiment is changing. More clearly, big tech might be poisoning the well for smaller companies.

You can see a piece of that in reaction to privacy legislation, worries that big companies will wind up entrenched at the cost of smaller companies.

I should confess my own biases before we go. I’m a technology optimist, but I think I’ve become net-neutral on many technology companies. Once public, a company has an insatiable drive to continue revenue and profit growth. Those demands will eventually clash with ideals, and, at times, what’s best for consumers. These pressures are not unique to the technology world. Indeed, they are merely a facet of capitalism, a method of structuring economies that I favor over others.

But if technology companies are going to arrogate all sorts of power and authority over our data, we can demand more from them. And the Pew data shows that Americans are.

I just hope that we don’t lose all of our optimism about the power of technological change because some tech companies can’t seem to find where they put their ethics.

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