Bloomberg Businessweek

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Bloomberg Businessweek August 20, 2018

Edited by

Jef Muskus

and David Rocks

○ Alibaba and Tencent have

poured cash into hundreds

of startups, many of which

are warning investors about

the downside

The

Looming Over

China’s IPOs

customers Alibaba and Tencent provide, the deals

can also feel like a trap. They can give Alibaba and

Tencent inordinate voting power through board

seats and veto rights; come laden with conlicts of

interest over hiring, mergers and acquisitions, and

other strategic decisions; and deepen the startups’

dependence on traic from the larger companies

to life-and-death proportions.

Almost two dozen companies have flagged

Tencent or Alibaba as risk factors in their IPOs in

the past two years. They include Meituan Dianping,

the food-delivery giant aiming to collect $6 bil-

lion in a Hong Kong IPO, and social-shopping site

Pinduoduo Inc., which raised more than $1.6 billion

in its July ofering in New York. “Failure to maintain

our relationship with Tencent could materially and

More big Chinese tech companies are going public

these days than American ones, thanks to heavy

investing by Alibaba Group Holding Ltd. and

Tencent Holdings Ltd. But the largesse from the

tech giants comes at a price. A review of initial

public ofering ilings by Chinese companies shows

that while the startups beneit from the cash and