When Mark Pavlyukovskyy, founder of a do-it-yourself computer kit maker, was looking for investors last year, he wanted someone who knew the Chinese market.
Turns out, Pavlyukovskyy didn’t have to go to Beijing or Shanghai. Chinese venture capitalists are everywhere in Silicon Valley.
Last year, Pavlyukovskyy, a Ukrainian-born American entrepreneur working in San Francisco, raised $2.1 million from nine investors, including a Chinese firm based in the Valley.
"We’re looking not just for financial capital, but interpersonal capital with expertise and knowledge of the education market in China," said Pavlyukovskyy. His company, Piper, sells a $299 augmented reality computer kit that children assemble themselves. Now, Piper is in schools in Hong Kong. Over 150,000 kits have been distributed around the world.
For the past decade, Silicon Valley money flowed to China as the communist country opened its markets and companies sought to expand there. That cross-border investing reversed as Chinese companies started to look outside their borders for investment opportunities. While Chinese investors have made their impact felt in the U.S. real estate, energy and transportation sectors, it was only in recent years they turned to tech.
Chasing U.S. innovation
Now, Chinese investors are pouring money into Silicon Valley deals, where it might take longer to see a return on an investment than in commercial real estate but where the potential to strike it big is higher.
"This is the very beginning," said David Cao, who came from Singapore as a programmer before founding F50, a full-service investment firm, in 2014.
Fueling the Chinese capital is a perception that the majority of innovation is still coming out of the U.S., and that China is playing catch-up, said Chris Evdemon, who in 2014 opened Sinovation, the U.S. arm of Chuangxin, one of China’s leading early-stage venture firms. There are now 38 startups in his portfolio, which includes firms specializing in internet-of-things, robotics and education technology.
"We thought we should put some capital to work and see if we can be a great go-to market," said Evdemon.
Chinese investors, particularly traditional media groups, are interested in firms specializing in virtual reality and augmented reality technologies, which might enhance digital entertainment. Other areas of interest for Chinese backers include robotics, artificial intelligence and technologies that focus on the financial, health and education markets. There are now more than 30 Chinese incubators in Silicon Valley.
Strategic U.S.-developed tech
But this wave of Chinese investment has called into question whether advanced technologies that are seen as critical to U.S. strategic interests are, instead, going to a competitor. A recent Pentagon report raised concerns about whether the Chinese government and Chinese investors in Silicon Valley were gaining access to key technologies through these investments.
Those concerns did not gain much attention at a recent cross-border investment summit held by F50 in Menlo Park. Instead, investors talked about how Chinese investors have become more savvy, with an emphasis on working with Silicon Valley companies to test their ideas in the U.S. first, before thinking about the Chinese market.
"I don’t see any barriers anymore between the two ecosystems," said Evdemon. "I’m enjoying seeing wall gardens disappear."