The impact of U.S. trade restrictions is trickling down to the developer community. GitHub, the world’s largest host of source code, is preventing users in Iran, Syria, Crimea and potentially other sanctioned nations from accessing the service, chief executive of the Microsoft-owned firm said.
Over the weekend, GitHub CEO Nat Friedman wrote on Twitter that like any other “company that does business in the US,” GitHub is required to comply with the U.S. export law. The confirmation comes months after work collaboration service Slack, too, enforced similar restrictions on its platform.
It is painful for me to hear how trade restrictions have hurt people. We have gone to great lengths to do no more than what is required by the law, but of course people are still affected. GitHub is subject to US trade law, just like any company that does business in the US.
As part of the push, Friedman said GitHub has enforced new restrictions to prevent users in sanctioned countries from accessing private repositories and GitHub Marketplace as well as maintaining private paid organizational accounts.
A selection of GitHub services such as access to public repositories will remain available to everyone, the company said in a statement on its website. “This includes limited access to GitHub public repository services (such as access to GitHub Pages and public repositories used for open source projects), for personal communications only, and not for commercial purposes.”
For developers intending to store export-controlled data, GitHub points them to its enterprise server offering, a self-hosted virtual appliance that can be run within users’ own data center or virtual private cloud.
Several developers began to complain about their inability to access some of GitHub’s services last week. News outlet ZDNet reported about a Russian developer living in Crimea whose GitHub account had been restricted, for instance. Hamed Saeedi Fard, a developer who is based in Iran, wrote in a Medium post that his GitHub account was blocked without being given any prior notice or the option to back up his data.
Interestingly, the restrictions are imposed based on a user’s location — by tracking their IP address and payment history — instead of validating their nationality and ethnicity, GitHub said on its website, where it mentions that Cuba and North Korea are also facing the U.S. sanctions. For those who are considering a workaround by using VPNs (virtual private networks), GitHub has ruled out that possibility: People in U.S.-sanctioned countries “are prohibited from using IP proxies, VPNs, or other methods to disguise their location when accessing GitHub.com services.” It remains to be seen how GitHub enforces the rule.
Banned users who believe their accounts have been wrongfully suspended can fill out an appeal form, where they must provide a copy of their government-issued photo ID to prove their current residency along with a selfie, signaling GitHub’s step towards imposing real-name identity check.
Joy Capital, the venture capital firm that’s backed Luckin, NIO, Mobike and other investor darlings in China, just raised $700 million for a new fund focusing on early-to-growth stage startups.
Launched in 2015 by a team of former investors at Legend Capital, the investment arm of PC maker Lenovo’s parent company, Joy Capital made the news official (in Chinese) on Monday. It didn’t identify the limited partners in this new corpus of funding but said they include “top” public pension funds and insurance companies. Its existing pool of investors counts those from sovereign wealth funds, education-focused endowment funds, family funds and parent funds.
The fresh money boosted Joy’s total tally to over 10 billion yuan ($1.45 billion) under management, with a focus on backing cutting edge technologies and companies involved in the digital upgrade of China’s traditional sectors, or what Joy’s founding partner Liu Erhai (pictured above) dubbed the “new infrastructure” in an op-ed for the China Securities Journal. Targets can include the likes of logistics companies, online car rental platforms or bike-sharing apps.
As a relatively young fund, Joy Capital has so far achieved a few large outcomes. One of its portfolio companies NIO became China’s first electric vehicle startup to go public in the U.S. as a rival to Tesla. It’s also funded Luckin, the Starbucks nemesis from China that floated in the U.S. only 18 months after inception. The fund’s other big wins include Mobike, the bike-sharing pioneer that was sold to Meituan Dianping for $2.7 billion and fast-growing house-sharing unicorn Danke Apartment.
Joy Capital’s new raise arrived at a time when Chinese venture investors are coping with a cash crunch amid a cooling economy exacerbated by the expansion of U.S. tariffs. We reported that private equity and venture capital firms in the country raised 30% less in the first six months of 2019 compared to a year earlier, and the number of investors that managed to attract fundings was down 52% in the same period.
The chemist who helped create the magic sauce behind Juul, Xing Chenyue, unveiled the product of her new startup Myst Labs this week after two years of development: electronic cigarette alternatives designed for China’s 350 million smokers, the world’s biggest smoking population.
This new contender makes for a potentially heated battlefield given that Juul will reportedly enter China soon. TechCrunch has reached out to Juul about its expansion, but has not heard back at the time of writing.
Pax Labs — the company that spun out Juul in 2017 — was a 20-person team when Xing joined as one of its first scientists in 2013. During her nearly three-year post at what would become America’s largest vaping company, Xing helped invent nicotine salts, the compounds that made Juul an instant hit. The patented technology inspired a raft of followers because it allows high levels of nicotine to be inhaled more easily and with less irritation, according to the U.S. Centers for Disease Control and Prevention.
Xing left Juul when the company made a foray into marijuana vaporizers, a move that didn’t particularly interest the scientist, a non-smoker whose ambition is to “help smokers meet their nicotine needs whilst reducing the harmful substances they consume,” Xing told TechCrunch in a phone interview.
Myst says it spends about 20% of its money raised on research and development. / Photo: Myst Labs
The China-born scientist took up a project management role at publicly-traded pharmaceutical company Dermia before eventually returning to cigarettes research by starting Myst Labs, which she co-founded in 2017 with Thomas Yao, a venture capitalist she had met over a decade ago at Fudan University in Shanghai.
As Myst began to take form, Juul was on course to reach its whopping $38 billion valuation even while it was under fire for luring teenagers into vaping. Meanwhile in China, vaping had just begun to catch on. Research from Soochow Securities (in Chinese) shows that China, despite being the world’s biggest producer of vaping devices, accounts for merely 6% of the world’s e-cig market. Xing wanted to seize the opportunity and this time, she’s in control over what comes out of the lab.
“We certainly want to reach the same level of society-wide impact in China as Juul does in the U.S. We hope Myst can leave a positive mark on Chinese smokers,” said Xing. “Myst can slowly transform the way people smoke and gradually reduce the level of their nicotine intake.”
Myst’s first product, dubbed the P1 series, is a 399 yuan ($58) flash-drive-shaped device that comes with a nicotine level of 3% or 5% and sports a retractable cigarette holder for hygiene and a “click” sound that mimics a lighter. Myst will ship in China through online and offline channels and said it plans to sell in international markets down the road. Its price point is comparable to Juul’s pricing in the U.S.
Myst does not market itself as a smoking cessation tool because to do so would require approval from China’s drug regulator. Rather, the startup bills itself as a “new type of cigarette substitute for adult smokers.” It has avoided using images of young, cool-looking models, the style of campaigns that backfired on Juul. To verify customers’ age, Myst applies facial recognition, an increasingly ubiquitous technology in China where people scan their face to pay for things or access certain entertainment services such as video games and live videos.
Myst says its products are priced and marketed to target ‘adult smokers,’ not young people. / Photo: Myst Labs
That positioning also allows the company to potentially evade stepping on the toes of China’s powerful cigarette monopoly, which provides the government with handsome sums of tax revenues.
From Silicon Valley to Shenzhen
Myst deploys about half of its 20-person team to conduct research and development in Silicon Valley. The rest of the company mainly works out of Shenzhen, the electronics manufacturing hub that also produces the majority of the world’s vaporizers.
“We are combining Silicon Valley research and China’s supply chain, a strategy that sets us apart from most vaporizers on the market,” Yao, who heads up business development at Myst, told TechCrunch.
He compared China’s vaping craze to what happened to smartphones between 2010 and 2011 when copycats of incumbents crowded the market in a gold rush. Countless knockoffs of Juul and other established brands now flood the market. Companies with various degrees of development capabilities have also mushroomed — at least 20 Chinese e-cig startups have received venture investment in the last seven months.
As with the smartphone market that’s now dominated by a small rank of players, Yao believed the bad apples in vaping will eventually be weeded out. “This [counterfaiting] happens whenever China experiences a technological breakthrough. Chinese brands get eliminated at a rate to which no other country can compare. Perhaps a lot of [e-cig] companies will go out of business by the end of this year.” A sector reshuffle will result in part from government regulation, which can arrive in China anytime soon.
Myst co-founder Thomas Yao introduced his co-founder and the company’s chief scientist Xing Chenyue, a former scientist at Juul. / Photo: Myst Labs
Xing believes Myst’s edge lies in the quality of its products. According to Yao, the company spends about 20% of the money raised on R&D.
Yao declined to disclose how much the company has banked but said it has sufficient funds in the coffer and that “money isn’t an issue” because he has personally invested in Myst. Yao had previously picked some winners by backing mobility unicorn Lime and India’s wallet leader Paytm in their early days.
The co-founder has also brought to the table key personnel for the business, including Myst’s chief executive officer Daniel Chen, who previously managed Hong Kong-listed robotics firm Super Robotics; chief operation officer Martin Liu, former CEO of Blackberry China; head of product Yingqun Cao, a former product manager at Google Home and Juul; and lastly head of design Jiandong Hao, previously a design director at global design firm IDEO.
The pool of talent is reflective of Myst’s vision to digitize smoking, which can manifest in the form of a connected vaporizer that tracks users’ health conditions just like a smart wristband does. Myst’s current generation of products does not yet enable the futuristic scenario, but Yao maintained that digitization is key to smoking.
“For smokers, vaporizers could become the second most used electronic devices after smartphones,” he said.
Months of tit-for-tat trade negotiations between China and the United States have damaged cross-border investment interest between the superpowers, especially in areas that involve deep technology and intellectual property. But one sector has so far stayed relatively intact: lifestyle.
That’s what got Per Welinder, the legendary skateboarder-turned-entrepreneur who recently moved into venture investing, to look towards China for opportunities. In early 2018, Welinder teamed up with Chinese venture investor Curt Shi — a skateboard amateur himself — to launch early-stage angel fund Welinder & Shi Capital, focusing on bringing western lifestyle brands to China.
So far, Welinder & Shi has deployed all of its first fund into five consumer brands with the potential to capture China’s increasingly sophisticated middle-class, among whom Welinder observed a “growing individualism away from collectivism that is positive for lifestyle brands,” Welinder told TechCrunch in a phone interview.
Rather than taking the “spray and pray” approach, the fund picks a smaller number of companies compared to many other venture capital firms because it focuses on brands, which take time to build.
“There has been a headwind when you talk about cross-border opportunities with China in general. However, lifestyle is usually not a national security threat to either Chinese or to the U.S.,” Welinder observed. “Yes, there may be tariffs here and there, but it’s not a national threat to consume a pair of pants by a cool brand originating from the U.S.”
Per Welinder, a former skateboarding legend who is now hunting for western brands that can appeal to Chinese consumers / Photo: Per Welinder
That being said, Shi, in a separate interview with TechCrunch, admitted that trade tensions have in recent times generated doubts from limited partners on the fund’s methodology to help overseas portfolio companies “slingshot to China.”
“China and the U.S. can’t afford a real economic fight with each other… I believe once China and the U.S. reach a consensus, the investment between them will be booming again,” Shi noted.
Unlike a successful venture capital investment in tech that can generate a 200x type of exit, the return in brand investment is less lucrative. The appeal is that even if a portfolio company goes south, there remains some value in the brand, whether it’s the trademark itself or graphics.
“When you use branding as a differentiator, you may get pennies on the dollar even on the bad investment. But it will not go to zero like so many tech investments do, so we feel that is a somewhat less risky formula,” Welinder said.
The portfolio counts the likes of a Swedish electric off-road motorbike startup called Cake and premium gin manufacturer Wilde Irish Gin. Welinder makes a deliberate decision to back premium brands because even when tariffs are on the high side, the extra costs generally don’t have an obvious effect on consumers who like to treat themselves to the really good things in life.
When it comes to identifying potential investments, Welinder leans on spotting what he calls a “movement.” He cited his personal experience in the 80s and 90s when skateboarding became a movement. First, he started to see other people getting hooked on either participating or watching skateboarding. With the help of VCRs, DVD players and gaming consoles, skateboarding-culture blossomed into a global commerce phenomenon.
“And people got excited and then said, hey, mom and dad, can I have a skateboard? Can I have a T-shirt? Can I have a pair of shoes? That’s the kind of the way we like to look at things. Where do we see movements, what technology can be leveraged to really speed up that movement, and is that movement big enough for more than just one player.”
Salesforce, the 20-year-old leader in customer relationship management (CRM) tools, is making a foray into Asia by working with one of the country’s largest tech firms, Alibaba.
Alibaba will be the exclusive provider of Salesforce to enterprise customers in mainland China, Hong Kong, Macau, and Taiwan, and Salesforce will become the exclusive enterprise CRM software suite sold by Alibaba, the companies announced on Thursday.
The Chinese internet has for years been dominated by consumer-facing services such as Tencent’s WeChat messenger and Alibaba’s Taobao marketplace, but enterprise software is starting to garner strong interest from businesses and investors. Workflow automation startup Laiye, for example, recently closed a $35 million funding round led by Cathay Innovation, a growth-stage fund that believes “enterprise software is about to grow rapidly” in China.
The partners have something to gain from each other. Alibaba does not have a Salesforce equivalent serving the raft of small-and-medium businesses selling through its e-commerce marketplaces or using its cloud computing services, so the alliance with the American cloud behemoth will fill that gap.
On the other hand, Salesforce will gain sales avenues in China through Alibaba, whose cloud infrastructure and data platform will help the American firm “offer localized solutions and better serve its multinational customers,” said Ken Shen, vice president of Alibaba Cloud Intelligence, in a statement.
“More and more of our multinational customers are asking us to support them wherever they do business around the world. That’s why today Salesforce announced a strategic partnership with Alibaba,” said Salesforce in a statement.
Besides gaining client acquisition channels, the tie-up also enables Salesforce to store its China-based data at Alibaba Cloud. China requires all overseas companies to work with a domestic firm in processing and storing data sourced from Chinese users.
“The partnership ensures that customers of Salesforce that have operations in the Greater China area will have exclusive access to a locally-hosted version of Salesforce from Alibaba Cloud, who understands local business, culture and regulations,” an Alibaba spokesperson told TechCrunch.
Cloud has been an important growth vertical at Alibaba and nabbing a heavyweight ally will only strengthen its foothold as China’s biggest cloud service provider. Salesforce made some headway in Asia last December when it set up a $100 million fund to invest in Japanese enterprise startups and the latest partnership with Alibaba will see the San Francisco-based firm actually go after customers in Asia.
China is taking steps to regulate its blossoming vaping market as health concerns over electronic cigarettes increase in recent times.
China’s National Health Commission has begun research into e-cigarettes and plans to issue legislation for the industry, said the head of the health authority Mao Qunan at a press conference this week. The attempt came as Chinese e-cigarette startups raised loads of venture capital over the past year in their fight to vie for attention in the world’s largest market of smokers.
Vaping suppliers in China range from little-known workshops that have come under legal attack from industry giant Juul, which is reportedly mulling a China entry itself, to venture-backed startups operating out of manufacturing hub Shenzhen. At least 20 e-cigarette companies in China have raised fundings since the beginning of 2019, according to data collected by Crunchbase.
These players are in effect up against state monopoly China Tobacco, which is the world’s biggest cigarette maker and provides the government with colossal tax revenues.
China is also applying more scrutiny to the new smoking technology. Research shows that the aerosol produced by heating up e-cigarettes can contain “a lot of harmful substances” and additives in e-cigarettes can “pose health risks,” said Mao. He also noted that equivocal labeling of nicotine level can misguide smokers and sloppy device standards can result in battery explosion and other safety incidents.
Like the U.S., China has seen a worryingly high vaping rate among young people, which is another reason that urges Beijing to hold the industry in check. The use of e-cigarettes by kids, teens and young adults has been proven unsafe because nicotine, which is highly addictive, can harm brain development.
In May, China drew up a set of standards (in Chinese) for e-cigarettes that specify the level of nicotine, the type of additives and other components and designs allowed in battery-powered cigarette devices.
Luckin continues to expand at jaw-dropping speed as it announced plans to open shop overseas for the first time. On Monday, the Starbucks challenger from China said it has signed a memorandum of understanding to set up a joint venture with Americana Group, a major international food group.
The deal will see Luckin launch a new retail coffee business in the Greater Middle East region and India, said the company that just took its 18-month-old business public in May. Its partner has a far longer track record. Founded in Kuwait more than 50 years ago, Americana owns the local franchises of KFC, Pizza Hut, Friday’s, Costa Coffee and other prominent casual dining brands across the Middle East and North Africa.
Luckin did not provide further details of this new venture and a spokesperson for the company declined to comment when contacted by TechCrunch.
But there’s still a lot to read into its international foray. For one, Chinese companies have had a growing presence in the Middle East and India in recent times as Beijing puts forward its Belt and Road infrastructure development and investment initiative. Notably, the MoU between Luckin and Americana was signed with both Chinese and Arab government officials in attendance.
These countries are also blessed with emerging middle-class populations, the demographic that Luckin targets back home. In China, the coffee startup is known for shelling out large subsidies to lure millions of tea drinkers into trying its coffee beverages. Instead of attracting them to sit and relax at Starbucks-like retail stores, Luckin relies on a massive network of pickup points and delivery staff — which allows it save on rent and take advantage of China’s relatively cheap labor — to complete orders.
Luckin also owns a massive amount of user data, as all orders and payments take place over its app. It can be imagined how the Chinese startup sets out to replicate this digital-first model in places with booming internet populations.
“We at Americana believe this MoU will revolutionize the food and beverage retail industry in the Greater Middle East and India, regions that provide promising prospects for new retail growth and expansion,” said Americana Group chief executive officer Kesri Kapur in a statement.
Luckin CEO Qian Zhiya noted that her company looks “forward to further expanding the freshly brewed coffee market internationally as we realize the incredible growth opportunities available to us through our innovative business model.”
The startup has indeed recorded months of stunning growth, but it is also facing skepticism from investors who are put off by its continued cash burn with no plans to achieve profitability on the horizon. Luckin is aiming to double its China-based operations from just over 2,000 locations to 4,500 by 2019, and its new global ambition is set to even further test investor patience.
For western startups looking to enter Asia and Asian startups expanding globally, more funding has become available as investors are increasingly looking to export local tech solutions to overseas markets.
Globally based venture capital firm White Star Capital has set up a new office in Hong Kong this month to capture entrepreneurs in the budding region as well as help its portfolio companies go to Asia. Founded by Eric Martineau-Fortin, who spent years conducting mergers and acquisitions at Merrill Lynch, and Jean-Francois Marcoux, who sold his gaming startup Ludia to FermantleMedia, White Star has over the last decade backed a spectrum of early-stage companies across several continents.
Beginning in 2017, Martineau-Fortin and his partners began looking eastward. They decided to initially exclude China as the market was already crowded with no shortage of funding available, leading to much larger investment round sizes compared to the U.S. and Europe as well as notoriously high valuations.
The investor also believed “cultural differences in both consumer and enterprise behavior” require different regional strategies. Whilst certain Asian companies specializing in artificial intelligence, fintech, enterprise software and micro-mobility share some commonalities with Western counterparts, others such as e-commerce businesses remain, still, quite distinct in Asia.
“Having said this, there is also a number of fabulously interesting ecosystems and countries outside of Hong Kong and China that are sometimes forgotten by North American and European-based investors, such as Japan, Korea, Singapore and Taipei. Those are also very advanced regions with great schools, great engineers having certainly easy access to capital but not always the ability to connect and sell their product, services and technologies to other places than the U.S. West Coast,” said Martineau-Fortin in a phone interview with TechCrunch.
Upon that realization, White Star started to build connections with big corporations and investors in Japan and South Korea, which in 2018 led to opening its first Asian location in Tokyo headed by former World Economic Forum executive Shun Nagao.
The proven record in Japan eventually inspired the investment firm to launch in Hong Kong,adding to a list of offices in New York, London, Paris, Berlin and Stockholm. Joe Wei, a former investment banker at Deutsche Bank for more than 10 years before becoming a fintech entrepreneur, is taking the lead for White Star in Hong Kong.
The firm’s strategy is to allocate 10-15% of each fund outside of North America and Europe with the bulk of it reserved for Asia-based startups. It’s currently 75-80% through its $180 million second fund closed in 2018, and it’s looking to raise a bigger fund leading up to 2020.
Why Hong Kong
The founding partner believes Hong Kong offers great exposure to mainland China with easy access to fast-growing places as Shenzhen — which houses some of the world’s biggest tech firms such as Tencent, Huawei and DJI — while “offering a similar business environment” to the one it has experienced in New York and London.
“Not only do you have a lot of capital in Hong Kong, but you have also a bunch of new innovative ideas that are coming out of Shenzhen and other fast-growing cities in China and Southeast Asia. We think a number of these ideas could certainly be of interest for North America and Europe,” noted Martineau-Fortin.
Irrespective of where companies are based, White Star always selects them based on a set of criteria, which are: “Can we help our companies expand outside their own base? Can we offer them [help to] recruit talent from abroad? Can we offer our venture connection with certain companies that can be relevant to either the tech, distribution or manufacturing side?”
Trade tensions between the U.S. and China are not to be overlooked for anyone investing in the Greater China region. Martineau-Fortin pointed out while the trade war is negative for everyone, the impact on White Star is likely limited as its investment platform offer “unique neutrality to these challenges.”
“Perhaps the trade conflicts will have an impact on the relationship certain of our U.S. companies have with other jurisdictions, but I certainly hope it could be the opportunity for other of our portfolio companies in Europe and Canada to strengthen the strong bond which exists between Asia and China, and these regions where we have a strong presence”.
China is BMW’s largest market, and the German automaker knows in order to capture the country’s demanding consumers, its future models must support robust autonomous driving capability.
But to build it itself in China is hardly possible. The success of autonomous driving relies in part on high-definition mapping, a process that requires an expansive collection of geographic information. By law, foreign entities can’t host China-based data without local partnerships. Apple noticeably works with a Chinese firm to store user emails, text messages and other forms of digital footprint in the country.
That appears to be one of the catalysts for BMW’s new partnership with Tencent. The Chinese tech giant, which is best known for WeChat and runs an expanding cloud computing business, said on Friday it’s setting up a data computing and storage platform for the German premium carmaker. Reuters reported that the pair plans to launch the computing center by the end of this year in Tianjin, a port city near Beijing.
The tie-up came months after BMW’s earlier data expansion in the world’s largest passenger car market. In February, Here — a Google Maps alternative partly owned by BWM — joined forces with Chinese navigation service Navinfo which would help Here collect data locally. It’s perhaps by no coincidence that Navinfo and Tencent both bought small shares in Here three years ago.
As BMW gets more familiar with China’s road conditions, there’s no reason why it won’t apply those data to its freshly minted ride-hailing venture.
Teaming up with BMW can be a big win for Tencent, which has been placing more focus on enterprise-facing endeavors as its main gaming business copes with regulatory pressure. In the world of transportation, “Tencent is committed to assisting automotive companies in the digital transformation,” said Dowson Tong, the company’s president of Cloud and Smart Industry, in a statement.
BMW has previously sought after another Chinese tech leader to automate its vehicles. It has been working with Baidu, the country’s largest search engine provider with a growing list of artificial intelligence initiatives, on automated driving since 2014.
Last October, the duo ramped up their alliance after the German automaker joined Baidu’s autonomous driving open platform Apollo . The deal carried larger diplomatic significance as it came about during Chinese Premier Li Keqiang’s visit in Germany to meet with Chancellor Angela Merkel. Baidu president Zhang Yaqin said at the time the deal was meant to “accelerate the development of autonomous driving technologies that align with the Chinese market.”
BMW’s relationship with Tencent, on the other hand, has previously played out on other fronts including joint research into autonomous driving security and testing that involved Tencent’s noted Keen Security Lab.
Baidu and Tencent don’t compete directly for their core businesses, but both are making a big push into the future of mobility, whether the effort pertains to in-car entertainment or self-driving. It’s not uncommon for tech rivals in China to target the same partner. A spokeswoman for BMW told TechCrunch that “there is no overlap in the collaboration” and the German firm is “cooperating with different top-notch Chinese companies in different fields.”
Indeed, the setup with Tencent seems more comprehensive at first glance. The Chinese company is providing “IT architecture, tools and platforms supporting the entire process of [BMW’s] automated driving research and development,” according to the spokeswoman. When it comes to Baidu, she cited an example of the pair working on a self-driving safety white paper that also involved ten other partners.
A large network helps generate conversations and potential leads down the road, but keeping it this way could compromise the depth of “collaboration” — a word that’s too often co-opted by publicists. As Cao Xudong, founder of Chinese autonomous driving unicorn Momenta, told TechCrunch earlier, collaboration in the auto sector “demands deep, resource-intensive collaboration, so less [fewer partnerships] is believed to be more.”
What about the other heavyweight Alibaba, which also wants to own the future of driving? The Chinese e-commerce and cloud computing company has become pally with state-owned carmaker SAIC, with which it has set up a joint venture called Banma to create autonomous driving solutions. This existing marriage means BMW will unlikely tap Alibaba for automation, an employee at a major Chinese self-driving startup suggested to me.
Taylor Host has been operating his artificial intelligence startup out of Hong Kong for more than two years. The American entrepreneur has clients from Europe, North America and Asia, but he settled in the city for its adjacency to Southeast Asia and mainland China’s massive market.
Miro, which Host co-founded in 2017 with a British software engineer, had bootstrapped to six employees before raising a small note investment. Backed by Silicon Valley-based SOSV, it’s now seeking $2 million in a new funding round. As trade tensions between China and the U.S. drag on, the company is considering relocating for the first time because being a Hong Kong entity starts to turn off western investors.
Miro uses computer vision to tag images and videos of runners for the brands they wear. It then attributes that data — sporting goods purchases — to consumers profiles that are part of its clients’ customer relations management (CRM) system. Miro’s AI processes data in markets around the world, but China data, in particular, is desirable for western sports brands.
The Chinese rising middle-class has been fueling a marathon fever in recent years as they search for a healthier lifestyle. When they participate in a race, Miro’s sensors could be tracking their shoes and outfits for event organizers and sponsors. The technology has so far been used in nearly 500 events around the world and analyzed more than 10 million athletes — while most of the technical development has been conducted in Hong Kong.
“My co-founder and I both spent a considerable amount of time in Hong Kong. The majority of our team would call themselves Hong Kong Chinese, so we have a very strong foothold in Hong Kong and we love it here,” Host told TechCrunch over a phone interview.
“Lately though, it’s become very difficult to rationalize keeping the business in Hong Kong. There’s a number of reasons for that, but I think the ones that stand out are geopolitical.”
For one, Host has sensed a “dramatic” sentiment change among western investors towards Hong Kong, where a contentious extradition bill triggered a wave of mass protests recently. At the heart of the issue are fears that the special administrative region is ceding autonomy to Beijing. Critics cite examples of the disappearance of a Hong Kong bookseller and a Financial Times journalist’s visa denied by the local government.
Miro, a Hong Kong-based startup, uses computer vision to tag images and videos of runners for the brands they wear. / Photo: Miro
In an alarming move, the U.S. government stated the extradition bill “imperils the strong U.S.-Hong Kong relationship” that includes a special trade arrangement independent from that of mainland China.
Hong Kong’s leader Carrie Lam announced in early July that the bill was “dead“, but the die has been cast as concerns linger for Hong Kong’s autonomous status. Businesses in the territory now risk being dragged into the U.S.-China trade war.
In March, Miro won a pitch competition at SXSW and has since attracted institutional investors of all sizes. But two of its potential backers based in the U.S. have decided to leave the negotiation table seeing Hong Kong as a risk.
“Not a single firm has overlooked the issue of us being a Hong Kong-based company,” said Host. “There is zero appetite from the U.S. investors who we have talked to to invest in our Hong Kong entity right now.”
The risk of backing Miro, which processes seas of data with image recognition capabilities, is more pronounced than funding companies with little or no core technology as intellectual property is one of the main targets of the U.S.-China negotiations.
“Foreign venture capitalists have become more vigilant about investing in Chinese AI and chips companies, even when they don’t own core technology,” Joe Chan, founding partner of Hong Kong-based MindWorks Ventures, told TechCrunch in an interview.
Meanwhile, the trade war has had a tangential impact on U.S. fundings for Chinese startups that focus on education, lifestyle and other non-deep tech sectors, according to a handful of investors who we have spoken to in recent months.
Southeast Asia gains
With the help of legal and tax consultants, Miro has recently shifted to a U.S. entity by registering in Delaware but will keep its operations in Hong Kong. It’s a move which, in Host’s words, has “pleased and allowed the company to move forward” with some of its interested U.S. investors.
“It was a requirement of our conversations with those U.S. investors that they are investing in a U.S. — not Hong Kong — entity,” the founder noted. “If you are dead set on your company being the biggest company in your industry, why would you even consider being in a place that has so much uncertainty and risk?”
For China-based companies whose cross-border business is anchored in Asia, Southeast Asia could be a safe haven from the trade war. As Chan observed, some Chinese startups have intended to move to Singapore “to become less politically sensitive.”
Miro won a pitch competition at SXSW and has since attracted institutional investors of all sizes. But potential backers have decided to leave the negotiation table seeing Hong Kong as a risk. / Photo: Miro
Miro is also hedging risks by looking to Southeast Asia, which many would argue is emerging as a winner from the U.S.-China fight. Like China, the region has a burgeoning middle class that is getting into running and a range of other hobbies and habits that will spawn startup ideas.
Indeed, there’s been a lot of chatter about the rise of the region with a population of 640 million. A few big-name global investors, including Warburg Pincus and TPG Capital, have set aside new funds over the past few months to back Southeast Asian startups. Corporate investors including Tencent, Alibaba, Didi Chuxing and JD.com, are also clamoring to gain a foothold in this rising part of the continent, as we wrote two years ago.
“On a macro level, the trade war certainly has a substantial impact on China’s economy, so we are seeing a lot more money flowing to Southeast Asia,” said Chan.
“For example, some manufacturers have moved to Indonesia where labor is cheaper. China’s tech industry — and this is not entirely linked to the trade war — is reaching saturation and dominated by the BAT [Baidu, Alibaba and Tencent], so the window of opportunity is small. Meanwhile, Southeast Asia is still in development.”
In a way, the trade war has accelerated the shift of attention from China to neighboring countries. The momentum was what brought Miro to visit one of the region’s largest tech conferences Techsauce recently.
“Nobody is talking about the trade war out here in Bangkok. We are talking about how Southeast Asia is exploding. And that is not just Chinese investors. It’s western investors too,” said Host.