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Latin America Roundup: Loft raises $175M, SoftBank invests in Mexico’s Alphacredit and Rappi pulls back

By Anna Escher
Sophia Wood Contributor
Sophia Wood is a principal at Magma Partners, a Latin America-focused seed-stage VC firm with offices in Latin America, Asia and the U.S. Sophia is also the co-founder of LatAm List, an English-language Latin American tech news source.

Brazil’s famously tricky real estate market has long drawn international investors to the region in search of tech solutions. This time, Brazilian startup Loft brought in a $175 million Series C from first-time investor in the region, Vulcan Capital (Paul Allen’s investment arm), alongside Andreessen Horowitz. Loft is also a16z’s first and only Brazilian investment. 

Co-founded by serial entrepreneurs and investors Mate Pencz and Florian Hagenbuch in 2018, Loft uses a proprietary algorithm to process transaction data and provide more transparent pricing for both buyers and sellers. The startup uses two models to help clients sell properties; either Loft will value the apartment for listing on the site, or they will offer to purchase the property from the buyer immediately. Many real estate platforms in the U.S. are shifting toward a similar iBuyer model; however, this system may be even more apt for the Latin American market, where property sales are notoriously untransparent, bureaucratic and tedious.

Loft will use the capital to expand to Rio de Janeiro in Q1 2020 and to Mexico City in Q2, bringing on at least 100 new employees in the process. It also plans to scale its financial products to include mortgages and insurance by the end of the year. 

AlphaCredit raises $125M from SoftBank

Mexican consumer lending startup AlphaCredit became SoftBank’s new Mexico bet this month, with a $125 million Series B round. AlphaCredit uses a programmed deduction system to provide rapid, online loans to individuals and small businesses in Mexico. To date, the startup has granted more than $1 billion in loans to small business clients in Mexico and Colombia, many of whom have never previously had access to financing. 

AlphaCredit’s programmed deductions system enables the startup to lower default rates, which in turn lowers interest rates. For more than eight years, AlphaCredit has encouraged financial inclusion in Mexico and Colombia through technology; this round of investment will enable the platform to consolidate its holding as one of the top lending platforms in the region. The investment is still subject to approval by Mexico’s competition authority, COFECE, which has previously blocked startup deals such as the Cornershop acquisition in 2019. 

SoftBank’s biggest bets back off in Latin America

While SoftBank is still rapidly deploying its Latin America-focused Innovation Fund, some of its largest companies are stepping on the brakes. In particular, SoftBank’s largest LatAm investment, Rappi, recently announced that it would lay off up to 6% of its workforce in an effort to cut costs and focus on their technology. The Colombian unicorn has been expanding at a breakneck pace throughout the region using a blitzscaling technique that has helped it reach nine countries, with 5,000 employees in just two years, including Ecuador in November 2019.

Rappi has stated that it will focus on technology and UX in 2020, explaining that the job cuts do not reflect its long-term growth strategy. However, Rappi is also facing legal action for alleged intellectual property theft. Mauricio Paba, José Mendoza and Jorge Uribe are suing Rappi CEO Simon Borrero and the company for stealing the idea for the Rappi platform while providing consulting for the three founders through his firm, Imaginamos. The case is currently being processed in Colombia and the U.S. 

One of SoftBank’s biggest bets in Asia, Oyo Rooms, is facing similar challenges. Just months after announcing their expansion into Mexico, Oyo fired thousands of employees in China and India. Oyo plans to be the largest hotel chain in Mexico by the end of 2020, according to a local spokesperson.

Argentina’s Agrofy breaks regional agtech records

With a $23 million Series B from SP Ventures, Fall Line Capital and Acre Venture Partners, Argentine agricultural supply marketplace Agrofy has raised the region’s largest round for an agtech startup to date. The platform provides transparency and ease for the agricultural industry, where users can buy everything from tractors to seeds. In four years, Agrofy has established itself as the market leader in agricultural e-commerce; it was also Fall Line Capital’s first investment outside of the U.S.

Agrofy is active in nine countries and receives more than five million visits per month, 60% of which come from Brazil. However, the startup faces the challenge of low connectivity in rural areas, where most of its customers live. The investment will go to improving the platform, as well as integrating new payment types directly into the site to help clients process their transactions more smoothly. 

News and Notes: Fanatiz, Pachama, Moons, Didi and IDB

The Miami-based sports-streaming platform Fanatiz raised $10 million in a Series A round from 777 Partners in January 2020 after registering 125% user growth since July 2019. Founded by Chilean Matias Rivera, Fanatiz provides legal international streaming of soccer and other sports through a personalized platform so that fans can follow their teams from anywhere in the world. The startup provided the Pope with an account so that he could follow his beloved team, San Lorenzo, from the Vatican. Fanatiz has previously received investment from Magma Partners and participated in 500 Startups’ Miami Scale program.

Conservation-tech startup Pachama raised $4.1 million from Silicon Valley investors to continue developing a carbon offset marketplace using drone and lidar data. Pachama was founded by Argentine entrepreneur Diego Saez-Gil in 2019 after he noticed the effects of deforestation in the Peruvian Amazon. After participating in Y Combinator in 2019, Pachama now has 23 sites in the U.S. and Latin America where scientists are working alongside the startup’s technology to certify forests for carbon sequestration projects. 

Mexico’s Moons, an orthodontics startup that provides low-cost invisible aligners, has raised $5 million from investors such as Jaguar Ventures, Tuesday Capital and Foundation Capital and was recently accepted into Y Combinator, bringing the startup to the U.S. Moons provides a free consultation and 3D scan to patients in Mexico to determine if they are a good fit for the program, then supplies them with a year-long invisible braces regime for around $1,200. With 18 locations in Mexico and two in Colombia, Moons is expanding rapidly across the region, with ambitions for providing low-cost healthcare across several verticals in Latin America. 

Chinese ride-hailing startup Didi Chuxing recently launched a sustainable fleet of over 700 electric and hybrid cars for its Mexico City operations. After two years operating in Mexico, Didi announced that it would establish its headquarters in the capital city to manage its new low-emissions fleet. The company will provide financing to help its drivers acquire and use the vehicles, in an effort to reduce Didi’s environmental impact.

The IDB Lab released a report on female entrepreneurs in Latin America, finding that 54% of female founders have raised capital and 80% plan to scale internationally in the next five years. The study, entitled “wX Insights 2020: The Rise of Women STEMpreneurs,” finds that female entrepreneurship is on the rise in Latin America, particularly in the areas of fintech, edtech, healthtech and biotech. Nonetheless, 59% of the 1,148 women surveyed still see access to capital as the most significant limitation for their companies. However, as women take center stage in Latin American VC, such as Antonia Rojas Eing joining ALLVP as Partner, we may see funding tilt toward female-founded firms.

This month has set 2020 on a course to continue the strong growth we saw in the Latin American ecosystem in 2019. It is always exciting to see international investors make their first bets in the region, and we expect to continue seeing new VCs entering the region over the coming year.

China Roundup: Tencent’s new US gaming studio and WeChat’s new paywall

By Rita Liao

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world.

The spotlight this week is back on Tencent, which has made some interesting moves in gaming and content publishing. There will be no roundup next week as China observes the Lunar New Year, but the battle only intensifies for the country’s internet giants, particularly short-video rivals Douyin (TikTok’s Chinese version) and Kuaishou, which will be vying for user time over the big annual holiday. We will surely cover that when we return.

‘Honor of Kings’ creator hiring for U.S. studio

Tencent’s storied gaming studio TiMi is looking to accelerate international expansion by tripling its headcount in the U.S. in 2020, the studio told TechCrunch this week, though it refused to reveal the exact size of its North American office. Eleven-year-old TiMi currently has a team working out of Los Angeles on global business and plans to grow it into a full development studio that “helps us understand Western players and gives us a stronger global perspective,” said the studio’s international business director Vincent Gao.

Gao borrowed the Chinese expression “riding the wind and breaking the wave” to characterize TiMi’s global strategy. The wind, he said, “refers to the ever-growing desire for quality by mobile gamers.” Breaking the wave, on the other hand, entails TiMi applying new development tools to building high-budget, high-quality AAA mobile games.

The studio is credited for producing one of the world’s most-played mobile games, Honor of Kings, a mobile multiplayer online battle arena (MOBA) game, and taking it overseas under the title Arena of Valor. Although Arena of Valor didn’t quite take off in Western markets, it has done well in Southeast Asia in part thanks to Tencent’s publishing partnership with the region’s internet giant Garena.

Honor of Kings and a few other Tencent games have leveraged the massive WeChat and QQ messengers to acquire users. That raises the question of whether Tencent can replicate its success in overseas markets where its social apps are largely absent. But TiMi contended that these platforms are not essential to a game’s success. “TiMi didn’t succeed in China because of WeChat and QQ. It’s not hard to find examples of games that didn’t succeed even with [support from] WeChat and QQ.”

Call of Duty: Mobile is developed by Tencent and published by Activision Blizzard (Image: Call of Duty: Mobile via Twitter) 

When it comes to making money, TiMi has from the outset been a strong proponent of game-as-a-service whereby it continues to pump out fresh content after the initial download. Gao believes the model will gain further traction in 2020 as it attracts old-school game developers, which were accustomed to pay-to-play, to follow suit.

All eyes are now on TiMi’s next big move, the mobile version of Activision Blizzard’s Call of Duty. Tencent, given its experience in China’s mobile-first market, appears well-suited to make the mobile transition for the well-loved console shooter. Developed by Tencent and published by Blizzard, in which Tencent owns a minority stake, in September, Call of Duty: Mobile had a spectacular start, recording more worldwide downloads in a single quarter than any mobile game except Pokémon GO, which saw its peak in Q3 2016, according to app analytics company Sensor Tower.

The pedigreed studio has in recent times faced more internal competition from its siblings inside Tencent, particularly the Lightspeed Quantum studio, which is behind the successful mobile version of PlayerUnknown’s Battlegrounds (PUBG). While Tencent actively fosters internal rivalry between departments, Gao stressed that TiMi has received abundant support from Tencent on the likes of publishing, business development and legal matters.

WeChat erects a paywall – with Apple tax

Ever since WeChat rolled out its content publishing function — a Facebook Page equivalent named the Official Account — back in 2012, articles posted through the social networking platform have been free to read. That’s finally changing.

This week, WeChat announced that it began allowing a selected group of authors to put their articles behind a paywall in a trial period. The launch is significant not only because it can inspire creators by helping them eke out additional revenues, but it’s also a reminder of WeChat’s occasionally fraught relationship with Apple.

WeChat launched its long-awaited paywall for articles published on its platform 

Let’s rewind to 2017 when WeChat, in a much-anticipated move, added a “tipping” feature to articles published on Official Account. The function was meant to boost user engagement and incentivize writers off the back of the popularity of online tipping in China. On live streaming platforms, for instance, users consume content for free but many voluntarily send hosts tips and virtual gifts worth from a few yuan to the hundreds.

WeChat said at the time that all transfers from tipping would go toward the authors, but Apple thought otherwise, claiming that such tips amounted to “in-app purchases” and thus entitled it to a 30% cut from every transaction, or what is widely known as the “Apple tax.”

WeChat disabled tipping following the clash over the terms but reintroduced the feature in 2018 after reaching consensus with Apple. The function has been up and running since then and neither WeChat nor Apple charged from the transfers, a spokesperson from WeChat confirmed with TechCrunch.

If the behemoths’ settlement over tipping was a concession on Apple’s end, Tencent has budged on paywalls this time.

Unlike tipping, the new paywall feature entitles Apple to its standard 30% cut of in-app transactions. That means transfers for paid content will go through Apple’s in-app purchase (IAP) system rather than WeChat’s own payments tool, as is the case with tipping. It also appears that only users with a Chinese Apple account are able to pay for WeChat articles. TechCrunch’s attempt to purchase a post using a U.S. Apple account was rejected by WeChat on account of the transaction “incurring risks or not paying with RMB.”

The launch is certainly a boon to creators who enjoy a substantial following, although many of them have already explored third-party platforms for alternative commercial possibilities beyond the advertising and tipping options that WeChat enables. Zhishi Xingqiu, the “Knowledge Planet”, for instance, is widely used by WeChat creators to charge for value-added services such as providing readers with exclusive industry reports. Xiaoe-tong, or “Smart Little Goose”, is a popular tool for content stars to roll out paid lessons.

Not everyone is bullish on the new paywall. One potential drawback is it will drive down traffic and discourage advertisers. Others voice concerns that the paid feature is vulnerable to exploitation by clickbait creators. On that end, WeChat has restricted the application to the function only to accounts that are over three months old, have published at least three original articles and have seen no serious violations of WeChat rules.

2019 Africa Roundup: Jumia IPOs, China goes digital, Nigeria becomes fintech capital

By Jake Bright

2019 brought more global attention to Africa’s tech scene than perhaps any previous year.

A high profile IPO, visits by both Jacks (Ma and Dorsey), and big Chinese startup investment energized that.

The last 12 months served as a grande finale to 10 years that saw triple digit increases in startup formation and VC on the continent.

Here’s an overview of the 2019 market events that captured attention and capped off a decade of rapid growth in African tech.

IPOs

The story of the year is the April IPO on the NYSE of Pan-African e-commerce company Jumia. This was the first listing of a VC backed tech company operating in Africa on a major global exchange —  which brought its own unpredictability.

Founded in 2012, Jumia pioneered much of its infrastructure to sell goods to consumers online in Africa.

With Nigeria as its base market, the Rocket Internet backed company created accompanying delivery and payments services and went on to expand online verticals into 14 Africa countries (though it recently exited a few). Jumia now sells everything from mobile-phones to diapers and offers online services such as food-delivery and classifieds.

Seven years after its operational launch, Jumia’s stock debut kicked off with fanfare in 2019, only to be followed by volatility.

The online retailer gained investor confidence out of the gate, more than doubling its $14.95 opening share price post IPO.

That lasted until May, when Jumia’s stock came under attack from short-seller Andrew Left,  whose firm Citron Research issued a report accusing the company of fraud. The American activist investor’s case was bolstered, in part, by a debate that played out across Africa’s tech ecosystem on Jumia’s legitimacy as an African startup, given its (primarily) European senior management.

The entire affair was further complicated by Jumia’s second quarter earnings call when the company disclosed a fraud perpetrated by some of its employees and sales agents. Jumia’s CEO Sacha Poignonnec emphasized the matter was closed, financially marginal and not the same as Andrew Left’s short-sell claims.

Whatever the balance, Jumia’s 2019 ups and downs cast a cloud over its stock with investors. Since the company’s third-quarter earnings-call, Jumia’s NYSE share-price has lingered at around $6 — less than half of its original $14.95 opening, and roughly 80% lower than its high.

Even with Jumia’s post-IPO rocky road, the continent’s leading e-commerce company still has heap of capital and is on pace to generate over $100 million in revenues in 2019 (albeit with big losses).

The company plans reduce costs by generating more revenue from higher-margin internet services, such as payments and classifieds.

There’s a fairly simple equation for Jumia to rebuild shareholder confidence in 2020: avoid scandals, increase revenues over losses. And now that the company’s publicly traded — with financial reporting requirements — there’ll be four earnings calls a year to evaluate Jumia’s progress.

Jumia may not be the continent’s standout IPO for much longer. Events in 2019 point to Interswitch becoming the second African digital company to list on a global exchange in 2020.  The Nigerian fintech firm confirmed to TechCrunch in November it had reached a billion-dollar unicorn valuation, after a (reported) $200 million investment by Visa.

Founded in 2002 by Mitchell Elegbe, Interswitch created much of the initial infrastructure to digitize Nigeria’s (then) predominantly cash-based economy. Interswitch has been teasing a public listing since 2016, but delayed it for various reasons. With the company’s billion-dollar valuation in 2019, that pause is likely to end.

“An [Interswitch] IPO is still very much in the cards; likely sometime in the first half of 2020,” a source with knowledge of the situation told TechCrunch .

China-Africa goes digital

2019 was the year when Chinese actors pivoted to African tech. China is known for its strategic relationship with Africa based (largely) on trade and infrastructure. Over the last 10 years, the country has been less engaged in the continent’s digital-scene.

china africa techThat was until a torrent of investment and partnerships this past year.

July saw Chinese-owned Opera raise $50 million in venture spending to support its growing West African digital commercial network, which includes browser, payments and ride-hail services.

In August, San Francisco and Lagos-based fintech startup Flutterwave partnered with Chinese e-commerce company Alibaba’s Alipay to offer digital payments between Africa and China.

In September, China’s Transsion  — the largest smartphone seller in Africa — listed in an IPO on Shanghai’s new STAR Market. The company raised ≈ $394 million, some of which it is directing toward venture funding and operational expansion in Africa.

The last quarter of 2019 brought a November surprise from China in African tech. Over 15 Chinese investors placed over $240 million in three rounds. Transsion backed consumer payments startup PalmPay raised a $40 million seed, stating its goal to become “Africa’s largest financial services platform.”

Chinese investors also backed Opera-owned OPay’s $120 million raise and East-African trucking logistics company Lori Systems’ (reported) $30 million Series B.

In the new year, TechCrunch will continue to cover the business arc of this surge in Chinese tech investment in Africa. There’ll surely be a number of fresh macro news-points to develop, given the debate (and critique) of China’s engagement with Africa.

Nigeria and fintech

On debate, the case could be made that 2019 was the year when Nigeria become Africa’s unofficial capital for fintech investment and digital finance startups.

Kenya has held this title hereto, with the local success and global acclaim of its M-Pesa mobile-money product. But more founders and VCs are opting for Nigeria as the epicenter for digital finance growth on the continent.Nigeria naira

A rough tally of 2019 TechCrunch coverage — including previously mentioned rounds — pegs fintech related investment in the West African country at around $400 million over the last 12 months. That’s equivalent to roughly one-third of all startup VC raised for the entire continent in 2018, according to Partech stats.

From OPay to PalmPay to Visa — startups, big finance companies and investors are making Nigeria home-base for their digital finance operations and Africa expansion strategies.

The founder of early-stage payment startup ChipperCash, Ham Serunjogi, explained the imperative to operating there. “Nigeria is the largest economy and most populous country in Africa. Its fintech industry is one of the most advanced in Africa, up there with Kenya  and South Africa,” he told TechCrunch in May.

When all the 2019 VC numbers are counted, it will be worth matching up fintech stats for Nigeria to Kenya to see how the countries compared.

Acquisitions

Tech acquisitions continue to be somewhat rare in Africa, but there were several to note in 2019. Two of the continent’s powerhouse tech incubators joined forces in September, when Nigerian innovation center and seed-fund CcHub acquired Nairobi based iHub, for an undisclosed amount.

CChub ihub Acquisition

The acquisition brought together Africa’s most powerful tech hubs by membership networks, volume of programs, startups incubated and global visibility. It also elevated the standing of CcHub’s Bosun Tijani across Africa’s tech ecosystem, as the CEO of the new joint-entity, which also has a VC arm.

CcHub CEO Bosun Tijani1

CcHub/iHub CEO Bosun Tijani

In other acquisition activity, French television company Canal+ acquired the ROK film studio from Nigerian VOD company IROKOtv, for an undisclosed amount. The deal put ROK founder and producer Mary Njoku in charge of a new organization with larger scope and resources.

Many outside Africa aren’t aware that Nigeria’s Nollywood is the Hollywood of the continent and one of the largest film industries in the world (by production volume). Canal+ told TechCrunch it looks to bring Mary and the Nollywood production ethos to produce content in French speaking African countries.

Other notable 2019 African tech takeovers included Kenyan internet company BRCK’s acquisition of ISP Surf, Nigerian digital-lending startup OneFi’s Amplify buy and Merck KGaa’s purchase of Kenya-based online healthtech company ConnectMed.

Moto ride-hail mania

In 2019, Africa’s motorcycle ride-hail market — worth an estimated $4 billion — saw a flurry of investment and expansion by startups looking to scale on-demand taxi services. Uber and Bolt got into the motorcycle taxi business in Africa in 2018.

Ampersand Africa e motorcycle

Ampersand in Rwanda

A number of local and foreign startups have continued to grow in key countries, such as Nigeria, Uganda and Kenya.

A battle for funding and market-share emerged in Nigeria in 2019, between key moto ride-hail startups Max.ng, Gokada, and Opera owned ORide.

The on-demand motorcycle market in Africa has attracted foreign investment and moved toward EV development. In May, MAX.ng raised a $7 million Series A round with participation from Yamaha and is using a portion to pilot renewable energy powered e-motorcycles in Africa.

In August, the government of Rwanda announced a national policy to phase out gas-motorcycle taxis altogether in favor of e-motos, in partnership with early-stage EV startup Ampersand.

New funds

The past year saw several new funding initiatives for Africa’s startups. Senegalese VC investor Marieme Diop spearheaded Dakar Network Angels, a seed-fund for startups in French-speaking Africa — or 24 of the continent’s 54 countries.

Africinvest teamed up with Cathay Innovation to announce the Cathay Africinvest Innovation Fund, a $100+ million capital pool aimed at Series A to C-stage startup investments in fintech, logistics, AI, agtech and edutech.

Accion Venture Lab launched a $24 million fintech fund open to African startups.

And Naspers offered more details on who can pitch to its 1.4 billion rand (≈$100 million) Naspers Foundry fund, which made its first investment in online cleaning services company SweepSouth.

Closed up shop

Like any tech ecosystem, not every startup in Africa killed it or even continued to tread water in 2019. Two e-commerce companies — DealDey in Nigeria and Afrimarket in Ivory Coast — closed up digital shop.

Southern Africa’s Econet Media shut down its Kwese TV digital entertainment business in August.

And South Africa based, Pan-African focused cryptocurrency payment startup Wala ceased operations in June. Founder Tricia Martinez named the continent’s poor infrastructure as one of the culprits to shutting down. A possible signal to the startup’s demise could have been its 2017 ICO, where Wala netted only 4% of its $30 million token-offering.

Africa’s startups go global

2019 saw more startups expand products and business models developed in Africa to new markets abroad. In March, Flexclub — a South African venture that matches investors and drivers to cars for ride-hailing services — announced its expansion to Mexico in a partnership with Uber.

In May, ExtraCrunch profiled three African founded fintech startups — Flutterwave, Migo and ChipperCash — developing their business models strategically in Africa toward plans to expand globally.

By December, Migo (formerly branded Mines) had announced its expansion to Brazil on a $20 million Series B raise.

2020 and beyond

As we look to what could come in the new year and decade for African tech, it’s telling to look back. Ten years ago, there were a lot of “if” questions on whether the continent’s ecosystem could produce certain events: billion dollar startup valuations, IPOs on major exchanges, global expansion, investment from the world’s top VCs.

All those questionable events of the past have become reality in African tech, even if some of them are still in low abundance.

There’s no crystal ball for any innovation ecosystem — not the least Africa’s — but there are several things I’ll be on the lookout for in 2020 and beyond.

Two In the near term, start with what Twitter/Square CEO Jack Dorsey may do around Bitcoin and cryptocurrency on his return to Africa (lookout for an upcoming TechCrunch feature on this).

I’ll also follow the next-phase of e-commerce in Africa, which could pit Jumia more competitively against DHL’s Africa eShop, Opera and China’s Alibaba (which hasn’t yet entered Africa in full).

On a longer-term basis, a development to follow is how the continent’s first wave of millionaire and billionaire tech-founders could disrupt 21st century dynamics in Africa around politics, power, and philanthropy —  hopefully for the better.

More notable 2019 Africa-related coverage @TechCrunch

China Roundup: Y Combinator’s short-lived China dream

By Rita Liao

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. Last week, we looked at how Alibaba and Tencent fared in the last quarter; the talk in Silicon Valley and Beijing this week is on Y Combinator’s sudden retreat from China. We will also discuss the enduring food delivery war in the country later.

Brief adventure in the East

The storied Silicon Valley accelerator Y Combinator announced the closure of its China unit just a little over a year after it entered the country. In a vague statement posted on its official blog, the organization said the decision came amid a change in leadership. Sam Altman, its former president who hired legendary artificial intelligence scientist Lu Qi to initiate the China operation, recently left his high-profile role to join research outfit OpenAI. With that, YC has since refocused its energy to support “local and international startups from our headquarters in Silicon Valley.”

What was untold is the insurmountable challenge that multinationals face in their attempt to win in a wildly different market. Lu Qi, who wore management hats at Baidu and Microsoft before joining YC, was clearly aware of the obstacles when he said in an interview (in Chinese) in May that “multinational corporations in China have almost been wiped out. They almost never successfully land in China.” The prescription, he believes, is to build a local team that’s given full autonomy to make decisions around products, operations, and the business.

A former executive at an American company’s China branch, who asked to remain anonymous, argued that Lu Qi’s one-man effort can’t be enough to beat the curse of multinationals’ path in China. “All I can say is: Lu has taken a detour. Going independent is the best decision. When it comes to whether Chinese startups are suited for mentorship, or whether incubators bring value to China, these are separate questions.”

What’s curious is that YC China seemed to have been given a meaningful level of freedom before the split. “Thanks to Sam Altman and the U.S. team, who agreed with my view and supported with much preparation, YC China is not only able to enjoy key resources from YC U.S. but can also operate at a completely independent capacity,” Lu said in the May interview.

Moving on, the old YC China team will join Lu Qi to fund new companies under a newly minted program, MiraclePlus, announced YC China via a Wechat post (in Chinese). The initiative has set up its own fund, team, entity and operational team. The deep ties that Lu has fostered with YC will continue to benefit his new portfolio, which will receive “support” from the YC headquarters, though neither party elaborated on what that means.

Alibaba’s food delivery nemesis

The food delivery war in China is still dragging on two years after the major consolidation that left the market with two major players. Meituan, the local services company backed by Tencent, has managed to attain an expanding share against Alibaba-owned Ele.me. According to third-party data (in Chinese) provided by Trustdata, Meituan accounted for 65.1% of China’s overall food delivery orders during the second quarter, steadily rising from just under 60% a year ago. Ele.me, on the other hand, has lost nearly 10% of the market, slumping to 27.4% from 36% a year ago.

In terms of monetization, Meituan generated 15.6 billion yuan ($2.2 billion) in revenue from its food delivery segment in the quarter ended September 30. That dwarfs Ele.me, which racked up 6.8 billion yuan ($970 million) during the same period. Both are growing north of 30% year-over-year.

meituan dianping

Source: Meituan

This may not be all that surprising given Alibaba has arguably more imminent battles to fight. The e-commerce leader has been consumed by the rise of Pinduoduo, which has launched an assault on China’s low-tier cities with its ultra-cheap products and social-driven online shopping experience. Meituan, on the other hand, is fixated on beefing up its main turf of on-demand neighborhood services after divesting its costly bike-sharing endeavor. 

When both contestants have the capital to burn through — as they have demonstrated through heavily subsidizing customers and restaurants — the race comes down to which has greater control of user traffic. Meituan holds a competitive edge thanks to its merger with Dianping, a leading restaurant review app akin to Yelp, back in 2015. Dianping today operates as a standalone brand but its food app is deeply integrated with Meituan’s delivery services. For example, hundreds of millions of users are able to place Meituan-powered food delivery orders straight from Dianping.

Alibaba and Meituan used to be on more friendly terms just a few years ago. In 2011, the e-commerce giant participated in Meituan’s $50 million Series B financing. Before long, the two clashed over control of the company. Alibaba is known to impose a heavy hand on its portfolio companies by taking up majority stakes and reshuffling the company with new executives. That’s because Alibaba believes that “only when you operate can you generate synergies and really create exponential value,” said vice chairman Joe Tsai in an interview. Whereas if you just make a financial investment, you’re counting an internal rate of return. You’re not creating real value.”

Ele.me lived through that transformation. As of September, Alibaba has reportedly (in Chinese) completed replacing Ele.me’s management with its pool of appointed personnel. Ele.me’s founder Zhang Xuhao left the company with billions of yuan in cash and joined a venture capital firm (in Chinese).

Meituan’s founder Wang Xing had more unfettered pursuits. In a later financing round, he refused to accept Alibaba’s condition for portfolio companies to eschew Tencent investments, a strategy of the giant to hobble its archrival. That botched the partnership and Alibaba has since been gradually offloading its Meituan shares but still held onto small amounts, according to Wang in 2017, “to create trouble” for Meituan going forward.

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