China's startup scene is changing

Hi all, this is Zheping in Hong Kong. A major shift is underway in China’s startup scene. But first…Today’s top tech news: GameStop plans to [View in browser]( [Bloomberg]( Hi all, this is Zheping in Hong Kong. A major shift is underway in China’s startup scene. But first… Today’s top tech news: - GameStop plans to launch [an NFT marketplace]( - E3, the largest videogame expo, [cancelled its June event]( - Tech stocks are taking a [beating]( China’s VC machines China’s largest tech companies have long been its largest venture capital investors, too. Now—as Beijing’s anti-monopoly crusade rages on—the country’s startup ecosystem is changing. Tencent Holdings Ltd. is one of China’s most formidable VC investors, building up a [$185 billion portfolio](bbg://news/stories/R56YN4T0AFB5) in tech upstarts across the globe. But the social and gaming giant has recently started to withdraw from some of its most successful bets. On Wednesday, Tencent [sold $3 billion in shares]( of Singapore’s Sea Ltd., reducing its stake in Southeast Asia’s biggest tech firm to 18.7% from 21.3%. While Tencent is committed to its business relationships with Sea for the long run, it said in a statement, the company will use the proceeds to “fund other investments and social initiatives.” The share sale came just two weeks after Tencent said it would give away more than $16 billion of JD.com Inc. stock as [a one-time dividend](, divesting most of its holdings in China’s No. 2 online retailer. The double whammy [spooked traders]( who fear Tencent may offload more of its holdings to appease Beijing’s regulators. Companies in the Tencent camp—including food delivery giant Meituan, streaming site Bilibili Inc. and e-commerce app Pinduoduo Inc.—were among the biggest losers [this week]( as tech stocks slumped in the U.S. and Hong Kong. Along with its archnemesis, Alibaba Group Holding Ltd., Tencent has historically played the role of kingmaker in China’s tech industry—showering money on the next generation of industry leaders. Both giants have invested in online media, ride-hailing, electric cars and more, often simultaneously betting on rival startups who would [fight with one another]( to the death. Unlike typical venture investors, the companies also support the startups in their portfolio by letting them tap into the enormous traffic inside their respective ecosystems: WeChat for Tencent, and Taobao and Alipay for Alibaba. Picking Team Tencent or Team Alibaba is the most important decision many startup founders make. Those founders are then often asked to hand over outsize voting powers to the larger companies, and sometimes even veto rights over business decisions. That immense power is increasingly under scrutiny from Beijing, which has targeted industries from fintech to video games to online tutoring over the last year. Tencent has recently been forced to [open up more of the enclosed WeChat platform]( to rivals. And Alibaba, for its part, is in talks to sell all of its stake in Weibo Corp.—China’s closest thing to Twitter—to a state-owned conglomerate, [Bloomberg reported]( in December, as authorities grew wary of Alibaba’s influence over public opinion. What will the fallout mean for startups? China’s giants will likely have to scale back their venture investing, but that may not be an entirely bad thing for smaller companies. For one, founders may no longer need to pick sides, and could have a bigger say over their own ventures. And critically, the money isn’t going away: Venture investment in the country reached $25.5 billion in the third quarter, the highest level in more than three years, according to [data from CB Insights](. Sequoia Capital China made 96 deals during that period, the data showed. Tencent made 60. —[Zheping Huang](mailto:zhuang245@bloomberg.net) If you read one thing Fitness app Strava knows when you’ll give up on that [New Year’s resolution](. Here’s what you need to know Personal finance app Acorns will launch a feature in the coming months allowing users to [invest directly in stocks](—moving onto Robinhood’s turf. Sonos shares climbed after it won a U.S. trade agency ruling that will limit the imports of [some Google devices](. Meme coins are falling back [down to earth](. Doge is nearly 80% of its May highs. Follow Us More from Bloomberg Dig gadgets or video games? [Sign up for Power On]( to get Apple scoops, consumer tech news and more in your inbox on Sundays. [Sign up for Game On]( to go deep inside the video game business, delivered on Fridays. Why not try both? 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