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What started as a tiff over tariffs and intellectual property grew into a full-fledged trade war between the world’s largest economies. The outcome: of uncertainty and hundreds of billions of dollars in preemptive and retaliatory tariffs levied between the two countries. The U.S. and China have , for now, but of the trade war for several quarters to come.

Apparently, however, nobody told this to venture capital investors. (Or, if they have, it’s slow to sink in.) Cross-border VC investment activity between the U.S. and China is at an all-time high.

In the chart below, we’ve plotted cross-border transaction activity between companies and investors on opposite sides of the Pacific Ocean.1

Venture capital deal data in Crunchbase indicates that the balance of trade (such as it is) between the U.S. and China-based venture investing markets is shifting. For 2018, we’ve surfaced 355 deals between U.S.-based investors and China-based companies and 198 deals between China-based investors and U.S. companies2. U.S. investors accounted for over 64 percent of the cross-border investment deal volume in 2018 to date. That’s a near perfect reversal from 2016, when China-based investors accounted for 63 percent of cross-border VC investments between entities in the U.S. and China.

(Venture) Capital Over Conflict

It’s possible that venture investors put politics aside in the interest of making (or at least trying to make) gobs of money. As the global venture market soared into record territory in 2018, so too did cross-border investments between the U.S. and China.

In the chart below, we plot the same counts of cross-border rounds on a more granular, quarterly timescale. We used a two-quarter moving average to smooth out some of the noise.

We can see a notable uptick in U.S. investor participation in China-based company rounds, peaking in Q2 of this year, one of the biggest quarters on record for venture market growth.

The 2018 jump in U.S. investment in China is loosely correlated to the trend of companies raising $100 million or more in single rounds of venture funding. This means that U.S. investors are taking part in more, larger rounds raised by China-based companies, exposing American firms to high-growth companies offshore. These “supergiant” rounds of venture funding, by definition, require a tremendous amount of capital to fill out, and that could be part of what’s prompting an acceleration in cross-border activity today. At least through August, when we compared the two markets, the U.S. and China were neck-and-neck in their output of venture deals totalling $100M or more.

Companies wanting global scale seek capital from global sources. The U.S. is a valuable market (and home to a still-robust IPO climate), so it’s likely China-based companies see U.S. investors as a conduit to either new customers, public market liquidity, or a bit of both. In turn, U.S. investors buy in to companies experiencing hyper-growth at a pace and scale less common in the American market.

Shaky Ground Likely Lies Ahead

The current trade spat between the U.S. and China is perhaps the most acute example of a long-term political and economic struggle between two superpowers. China-based investor involvement in U.S. company rounds may have dipped a bit since mid-2017, when the U.S. government began mulling limits to Chinese tech investment in strategically-important technologies to the U.S.

But the declines are small and seed and early-stage deals are subject to some reporting delays, so it’s also possible that declines in China-U.S. VC investment are smaller than reported here.

For now, the two nations have reached a trade detente negotiated by China’s President Xi Jinping and U.S. President Donald Trump over a at the G20 meeting in early December. But given the increasingly mercurial nature of U.S. executive branch leadership, in Canada (based on ), of two Canadian executives in China, and at home and abroad, there are many factors which threaten to destabilize the situation once again.

In other words, the trade war may yet get worse before it gets better for good. But it’s evidently going to take a lot more than the current sanctions regime to break the newly-formed trans-Pacific ties between investors and founders.

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This will come as great news for both companies’ investors who have fueled the astronomical growth supporting lofty valuations.

The Size And Sources Of Uber And Lyft’s Funding

Both companies have raised vast sums, and not for nothing. Bankers suggest that Uber could be worth . IPO valuation may seem paltry by comparison, even the lower half of the range would still make it one of the highest-valued tech companies to go public in recent years.

The chart below shows the breakdown of each company’s known funding to date.

Let’s unpack this a bit.

Uber

Between a few rounds of debt, a spritz of private equity, and a whole lot of VC (and corporate VC) money, Uber has raised over . Its backers include Silicon Valley stalwarts like , , and , as well as corporations ranging from 1 to ostensible competitors like 2 and 3. Uber’s cash needs have been so large that big sovereign wealth funds and invested directly in its offerings.

As it happens, those two government-backed funds are also among the principal limited partners of SoftBank’s nearly $100 billion . By leading several primary and secondary market transactions, the Vision Fund , holding at least fifteen percent of the company. In other words, Saudi and Qatari investors get (at least) two slices of a company that could be valued at over $100 billion when it finally goes public.

Lyft

, Lyft’s mountain of investor cash is impressive by any standard, except when it’s made a molehill by Uber’s own.

This being said, the company counts many high-profile backers in . Firms like , , and have all invested in Lyft. Mayfield led round and followed on .4 The company also received some direct investment from a government-managed fund, the .

And with Lyft there’s more corporate overlap. Lyft also received investment from an Alphabet-backed investor, CapitalG, which led . Presumably as part of its globally-scoped corporate investment strategy, Didi Chuxing invested in and rounds.

Fierce Competition Drives Funding Strategy Sameness

Both companies got their start at around the same time. Uber was founded in March 2009 and raised . Zimride, the company that would eventually become Lyft, was officially founded in May 2007 and raised . 5 Obviously, both companies would go on to raise much, much more.

In the chart below, we plot a running total of each company’s total capital raised (including equity and debt offerings) over time. Note that due to a combination of a linearly-scaled Y-axis and the truly huge sums involved, the relatively small sums of money raised prior to 2013 don’t show up on the chart. The important thing to take away here is the scale of Uber’s capital raise, relative to Lyft’s.

Competition pushed both companies to unveil new service models at around the same time too. The first iteration of the Lyft service we’re used to today launched in May 2012.6 Uber, which started as a black car and limo service, rolled out its Uber X platform in July 2012, opening up lower-cost rides in more basic car models like the Toyota Prius.

Organizational research by DiMaggio & Powell () 7 suggest that a highly competitive market will produce organizations with similar structures and strategies. Though these competing companies may achieve varying levels of success, they will respond in similar ways to changing market conditions. We can see a version of this behavior in a log-scaled chart (where the Y-axis is based on powers of ten), which shows how Lyft and Uber ramped up their fundraising efforts at the same time (if not at the same scale).

Uber and Lyft had to raise more money, effectively in lock-step, in order to keep up with one another, or at least not totally cede ground.

Because of competition, both companies have converged on remarkably similar service models. They both offer high-end vehicles and pooled and solo rides in more everyday cars. In part to keep up with competing forms of transportation like bikes and scooters, Uber and Lyft rolled out last-mile transportation options of their own. And, finally, considering that paying drivers is one of the biggest expenses for Uber and Lyft, both companies have their own (fabulously expensive) research labs and automaker partnerships (, ), all in the interest of developing autonomous vehicles.

In other words, these companies are more similar than they are different.

The End Of The Beginning

Despite public market choppiness over the past few days, the march to Wall Street continues. Today, as the lead underwriter for its IPO. For its part, Lyft picked JP Morgan Chase & Co as its main underwriter , according to the Wall Street Journal at the time. In other words, like being the first to a decentralized marketplace model, where individuals drive their own cars, based on the timing of those decisions it looks like Lyft is just a couple months ahead of the giant that continues to overshadow it.

Think of these filings less as an end to the story and more like the end of the beginning. It’s been roughly a decade since both of these companies got their start, a decade of bitter rivalry and ruthless ( ) growth tactics. Once the companies go public, though, those battles will be fought in public, with ticker tape tracking what transpires.

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