China's Unicorn Surge: Accelerated AI Growth Adds 56 Unicorns in 2023

China’s Unicorn Surge: Accelerated AI Growth Adds 56 Unicorns in 2023 - Global Unicorn Index 2024

In a period of frenzied growth in China’s artificial intelligence (AI) sector, the country witnessed an incredible surge in unicorn start-ups, defying the declining trend in global venture capital investments. According to the recently published Global Unicorn Index 2024 by the Hurun Research Institute, China added a staggering 56 unicorns in 2023, averaging one new unicorn each week. This places China second only to the United States, which minted 70 unicorns during the same period. The rest of the world added 45 new unicorns, as reported by the institute.

The Global Unicorn Index is an annual report by the Hurun Research Institute, led by former accountant Rupert Hoogewerf. The institute is well-known for their annual “rich list,” which tracks the net worth of billionaires in China and abroad. The report reveals that the United States remains the leading breeding ground for unicorns, with over 700 out of the global total of 1,453 unicorns based there. China follows closely behind with more than 340 unicorns as of last year.

Interestingly, the report highlights that AI has surpassed e-commerce to become one of the top three sectors producing unicorns. By the end of 2023, the AI sector boasted 115 unicorns. The other sectors leading in producing unicorns were fintech with 185 unicorns, and software-as-a-service with 139 unicorns. Hoogewerf remarks on the distribution, saying, “The US has half of the world’s known unicorns, led by software-as-a-service, fintech, and AI. China has a quarter, led by AI, semiconductors, and new energy, while the rest of the world has the other quarter, led by fintech and e-commerce.”

Hoogewerf suggests that the surge in unicorn numbers in China may be attributed to a lackluster initial public offering (IPO) market. With some unicorns delaying their listing plans, they have found themselves in a perpetual “bridesmaid” status. The report notes that in 2023, global private equity fundraising hit its lowest point since 2017, according to investment data firm Preqin.

The title of the world’s largest unicorn still belongs to Beijing-based ByteDance, valued at an impressive US$220 billion. Following closely behind is Elon Musk’s rocket and satellite operator, SpaceX, valued at US$180 billion. OpenAI, backed by Microsoft, experienced the fastest valuation increase, surging 14 places to claim the third spot with a valuation of US$100 billion. Ant Group, which halted its IPO abruptly in 2020, secured the fourth position, and fast-fashion shopping platform Shein rounded up the top five. It’s worth noting that Ant Group is the fintech affiliate of Alibaba Group Holding.

The list also showcases other notable Chinese start-ups such as Tencent Holdings-backed WeBank in tenth place, and Shanghai-based video gaming studio MiHoYo, which remarkably jumped 91 places to rank 12th after its valuation surged to US$23 billion from US$15.8 billion. MiHoYo achieved this feat with the launch of its flagship video game Genshin Impact in September 2020, which generated an impressive US$4 billion in global revenue by the end of 2022.

Among the investors with the most unicorns in their portfolios are US investment firm Tiger Global Management, Japanese tech conglomerate SoftBank Group, and venture capital firm HongShan, formerly known as Sequoia Capital China. They held stakes in 205, 169, and 125 unicorns, respectively. It’s worth noting that among the top 30 investors who invested in Chinese unicorns, the majority are based in the country, including state-backed investment bank China International Capital Corporation, Big Tech companies Tencent, Alibaba, and Xiaomi, as well as funds like HongShan.

The increasing geopolitical tensions have had an impact on potential US investments in China. Last year, a US congressional panel announced an investigation into four American venture capital firms regarding their investments in China’s AI and semiconductor sectors. This added another obstacle for US investors looking to capitalize on the growing opportunities in China.

As the unicorn phenomenon continues to shape the global business landscape, China’s rapid growth in AI and other sectors is undeniably remarkable. The country’s ability to breed one new unicorn per week demonstrates its commitment to innovation and its prowess in the technology sector. With the unicorn ecosystem expanding globally, it will be intriguing to see how this surge will continue to reshape the future of business and technology.