Silicon Valley Waits as China's Unicorns Race to Public Markets

(Bloomberg) -- U.S. tech titans are sitting on at least $60 billion of untapped paper wealth, choosing to stay private for longer. Their counterparts in China are taking a different path, rushing to the public markets to cash in.

Five initial public offerings have helped at least 16 tech bigwigs ring up a combined $48 billion of net worth at the time of the IPOs, according to data compiled by the Bloomberg Billionaires Index. Half of them are co-founders of Xiaomi Corp., with shares of the smartphone maker valued at $26.5 billion on its July 9 debut. Pinduoduo Inc. Chief Executive Officer Colin Huang was worth $9.9 billion two weeks later, when the e-commerce platform went public in the U.S. at $19 a share.

Silicon Valley Waits as China's Unicorns Race to Public Markets

China’s unicorns -- private companies valued at more than $1 billion -- “are more opportunistic” when it comes to timing their IPOs, said Kevin Diao, CEO of Meixin Global Inc., an online asset-management platform offers unicorn investment products. “If they achieved better financial performance at the end of 2017, they’ll seek an offering this year because they’re not sure whether their growth can sustain and support the valuation.”

Xiaomi’s 2017 revenue, for example, surged 67 percent from a year earlier after posting annual growth of just 2.4 percent in 2016. Revenue at Meituan Dianping, another e-commerce platform that’s set to go public this week, climbed 161 percent last year after more than tripling in 2016.

The rapid creation of wealth is taking place even as other tycoons are seeing declines in their fortunes. Twelve Chinese tech billionaires on the Bloomberg index have collectively lost $12.1 billion this year as of Sept. 18, led by Netease Inc.’s William Ding, who’s down almost $8.5 billion as shares of the game developer have plunged. The MSCI AC Asia Information Technology Index dropped 11 percent in 2018.

Silicon Valley has had fewer unicorn IPOs this year, even as valuations for firms such as Uber Technologies Inc. have soared.

Silicon Valley Waits as China's Unicorns Race to Public Markets

Staying private can keep companies focused on the long term, and avoid wild swings in value caused by changes in the stock market. But it doesn’t guarantee a higher valuation each round. Palantir Technologies Inc. was valued at $20 billion in a 2015 funding round but Morgan Stanley mutual funds have cut the valuation several times over the past two years. The funds’ June 30 evaluation implies the data miner was worth just $4.4 billion, meaning Palantir’s co-founders would only have a combined stake of $1.76 billion.

Selling shares in an IPO doesn’t guarantee instant riches on both sides of the world. The Hong Kong Stock Exchange and the U.S. Securities and Exchange Commission both require a minimum lock-up period of 180 days, and 36 months if listing in mainland China.

The “lucky rich” from China also have to maintain their wealth amid the threat of a potential trade war and the dangers from its shadow banking system.

Meituan’s IPO timing will be a test of investor confidence. Meixin’s Diao said his company participated in subscribing Meituan existing shares in March through the secondary market before it filed for the IPO, and the HK$69 price per share is 20 percent higher than he expected amid recent volatile market. He said his clients are satisfied with the return but concerned the offering price is too high to follow up and subscribe, so they decided to just wait and see the market reaction.

Shares in Meituan opened 5.7 percent higher than their IPO price Thursday and closed at HK$72.65. CEO Wang Xing told Bloomberg TV that the company’s food-delivery business is close to break even and that Meituan is seeking opportunities to move up the value chain, including helping restaurants source ingredients.

“September is a key time for the IPO market as NIO and Meituan debut, “ Diao said. “If they perform well, the market won’t be too pessimistic, but if they don’t look good, investors’ enthusiasm will turn cold.”

©2018 Bloomberg L.P.