The live streaming industry has been on a tear in China, with more than 200 platforms looking to feed the insatiable appetite of the nation's young people for live video delivered online.
Tech giants and venture capitalists have poured investment money into the platforms, pushing a handful to unicorn status – valuations of more than $1 billion. That's not surprising, given 344 million Chinese, 47% of the nation's internet users, use live streaming apps and have created a market worth $2.5 billion, according to China Internet Network Information Center research (link in Chinese).
But early-stage investors who haven't backed a platform so far would be wise to sit this craze out, according to one of the leading western investors active in China.
“The reality is a smart investment probably has recognised that the companies have been established," says Fritz Demopoulos, a serial entrepreneur who now operates a personal investment vehicle, Hong Kong-based Queen’s Road Capital. "It’s probably not a good idea to start investing in start-ups in this space.
“There’s a few very well-ran companies, we have one of them,” he added, referring to Asia Innovations Group, the developer of the Up Live app, which was valued at $250 million in a 2016 funding round and is shooting for a multibillion-dollar IPO by the end of 2018.
Demopoulos, an American, made his name in China with online travel giant Qunar, which he co-founded in 2005. Six years later, he and his two partners sold a majority stake in Qunar to Baidu for $306 million, and he became an angel investor.
While Up Live is drawing much of its audience from beyond the Chinese-speaking world, Demopoulos sees Chinese internet giant Tencent at the likely winner in the home market. Tencent has captured rising demand for entertainment on the go by promoting streaming on mobile rather than PC, he adds.
Besides developing its own streaming platforms, Tencent has invested in leading startups such as Inke and Kuaishou.
“Tencent made the transition, which is why they’re at the higher level,” Demopoulos said. “And to be honest, there’s also room for more than one player. This is not one can take all.”
In March, Tencent led a $350 million funding round in Kuaishou, an app specialising in short videos. The investment pushed the app’s valuation to about $3 billion, according to Bloomberg.
In the same month, another live streaming company Live.me, a subsidiary of New York-listed Cheetah Mobile, raised US$60 million in series A funding from investors including Matrix Partners China, Evolution Media China, Gobi Partners, IDG Capital and Welight Capital.
In China, the low price of risk capital, a stable macro-environment and the growing middle-class population are the forces behind “a more favorable valuation” for mobile apps, according to Demopoulos.
“There’s a lot of money in the market,” he said. “The Chinese consumers plus the emerging markets consumers, they’ve been saving money for years, and now they want to spend that money.”