2017 was certainly an eventful year for China’s venture capital industry.

In the first half of the year, venture capital investment was attracted by projects related to the sharing economy for various items: bicycles, portable power banks, umbrellas, etc. In the second half of the year, projects involving cashierless supermarkets and unmanned retail shelves became popular among investors. Throughout the year, artificial intelligence remained one of the most attractive areas for investors. The total value of projects in this sector was estimated to be 2–4 times higher than in the United States.

Thanks to the mobilization of capital, unicorns began to emerge and grow faster. Building a company valued at more than USD 1 billion is extremely difficult. However, some companies managed to achieve this status in just over one year. Previously, this would have been difficult even to imagine.

So-called “unicorns” are companies valued at more than USD 1 billion and no more than ten years old since their founding. In 2017, 34 new companies met these criteria. More than 60% of them were directly or indirectly connected with the BAT group — Baidu, Alibaba and Tencent.

It is reasonable to expect the amount invested in these companies to increase with each funding round. BAT is highly active in strategic investment. Tencent’s investment activities, for example, enabled the company to outperform a number of leading investment institutions. The amount of early-stage investment, including angel investment and Series A rounds, increased by 42% compared with the previous year.

ITjuzi compiled a list of unicorns for 2017. The list included 34 companies, although there are some doubts regarding their valuations. Several companies that could also be described as unicorns were not included.
Representatives of the entertainment, business services, automotive and transportation sectors account for 55% of all unicorns.

The companies on the list operate in 11 industries. Entertainment and business services lead by number of companies, with seven representatives each.

As in 2016, entertainment ranked first in 2017 by the number of unicorns represented. Entertainment companies focus on short-video production and the creation and distribution of high-quality, often paid content. Popular unicorns in this sector include Kuaishou (快手), Yidianzixun (一点咨询), Kuaikanmanhua (快看漫画), Qingting FM (蜻蜓FM), Lojisiwei (逻辑思维) and Zhihu (知乎).

Compared with 2016, business services improved their position in the ranking. Companies associated with artificial intelligence are now classified within this category. AI became particularly popular in 2017. With investor support, companies such as SenseTime (商汤科技), Face++ (旷视科技) and Mobvoi (出门问问) emerged.

Naturally, the unicorn list also includes companies from the sharing economy: Mobike (摩拜单车), OFO (小黄车), Xiaozhu (小猪短租) and Urwork (优客工场).

More and more representatives of the TMT sector (technology, media and telecom) are attracting venture capital investment and becoming unicorns.
Companies from Beijing, Shanghai, Guangdong and Zhejiang account for 94% of all unicorns. Beijing-based companies alone account for 56%.

The geographical distribution of companies on the unicorn list is largely similar to that of 2016. Most companies are concentrated in five provinces and cities. Beijing, for example, is home to 19 companies, representing 56% of all unicorns. In 2016, the share of Beijing-based unicorns was 42%. Most of these companies operate in IT and AI.

Two of Shanghai’s five unicorns operate in healthcare: United Imaging (联影医疗) and Nextcode (明码科技).

Three of Guangdong Province’s four unicorns operate in finance: Futus (富途证券), Tuandai (团贷网) and Suishouji (随手记).

Among Zhejiang Province’s four unicorns, two companies provide business services: DT Dream (数梦工场) and Tongdun (同盾科技).

More than half of the companies received investments of USD 100–200 million.

Based on the largest amount of investment received by companies on the list, we can assess the financial attractiveness and position of these unicorns. According to the statistics, USD 100–200 million is the threshold at which a company becomes a unicorn. This is why investments of this size account for the largest share.

One notable feature of 2017 was the investment of exceptionally large amounts in unicorns. During this period, Mobike and OFO each raised more than USD 1 billion. Mobike’s largest single investment amounted to USD 600 million, while OFO’s amounted to USD 700 million. Both transactions were the largest in the entire sector.

AI companies SenseTime (商汤科技) and Face++ (旷视科技) raised USD 410 million and USD 360 million, respectively, in single funding rounds.
38% of companies raised more than USD 200 million in financing, while 20% raised more than USD 300 million. Clearly, most of the funds are being invested in leading unicorns.

Type of the Latest Funding Round

Regarding the type of the latest funding round, 11 companies (32%) raised a Series C round and 8 companies (23%) raised a Series D round.

In addition, 15% of companies raised a Series A round that enabled them to become unicorns. There are two most likely scenarios.

Either large companies spin off certain services into separate companies, such as Zhuanzhuan (转转) from 58.com (58同城), or Wangyi Music (网易音乐) from 163.com (网易).

Alternatively, a company receives investment from major corporations or the state. For example, Alibaba (阿里巴巴) invested in Cambricon (寒武纪) and DT Dream (数梦工场), while United Imaging (联影医疗) received government financing.

Time Required to Achieve Unicorn Status

The shortest period was 17 months, while the longest was 105 months.

Judging by the amount of time from founding to achieving unicorn status, Cambricon (寒武纪) was the fastest, taking just 17 months. During this period, the company raised angel investment, a Pre-A round and a Series A round. It was then valued at USD 1 billion.

Mobike (摩拜单车) and Zhuanzhuan (转转) also became unicorns in less than two years.

The company that required the longest time to achieve this status was Chubao (触宝科技), at 105 months.

Most companies — 76% — required between two and six years to become unicorns. As a rule, such firms received substantial financial support or were spun off from larger companies.

The constantly changing venture capital environment is forcing unicorns to evolve, while the amount of time required to achieve this status is shrinking. However, relatively young companies face new problems: competition, profitability, user acquisition and uncertainty.

Despite the popularity achieved by today’s unicorns, they should seriously consider how to create genuine value for users and begin generating profits as quickly as possible. Otherwise, they may face an unfortunate end.

Since the beginning of 2017, 41 companies worldwide have achieved unicorn status. According to CB Insights, 15 new unicorns were created in China. By comparison, only five appeared in Europe.

The United States still ranked first with 17 companies. The US dominated the global startup landscape. At the time of publication, there were 215 unicorns worldwide, 107 of which were from the United States. Most were registered in California.

But China was gradually catching up with the leader. In 2014, the country had only eight unicorns; at the time of publication it had 56. Europe had 23.
Most Chinese unicorns operate in e-commerce and online marketplaces. CB Insights technology analyst William Altman says: “Unicorn valuations depend on the growth of the middle class, which is increasingly buying goods online and using online services.”

The dominance of Alibaba, Baidu and Tencent in the Chinese market is difficult to overstate.

“The increase in investment activity in local unicorns has a positive impact on company valuations, which in turn guarantees larger investments,” Altman says.