China’s Giant Tencent Placing Bets on Small Silicon Valley Startups

Photograph by Vibhu Norby/Everyme

Everyme CEO Oliver Cameron (left) with staff members Omid Mikhchi, Maurycy Wojtowicz and Cortland Klein.

The allure of Silicon Valley has aroused China’s largest Internet company to begin investing in some of America’s smallest ones.

Tencent Holdings has funded about a half dozen young startups, many of them from prestigious business incubator Y Combinator, hoping like everyone else that its relatively small investments will lead to big payoffs.

One of its first seed investments is being put to the test today as Everyme, a new social network, opens its online doors.  Tencent was the lead investor in the startup’s $1.5 million seed round, which closed in October, according to Everyme Chief Executive Officer Oliver Cameron.

Everyme, based in Menlo Park, California, lets people share messages and photos with groups that are arranged automatically based on a user’s address book and Facebook activity.

“We kind of agreed with their thesis that there’s a lot of value in the address book,” said David Wallerstein, a senior executive vice president for Tencent, who is based in Palo Alto, California. Other investors included Andreessen Horowitz, Greylock Partners, Ron Conway’s SV Angel and Michael Arrington’s CrunchFund.

Wallerstein and Cameron, Everyme’s CEO, were introduced to each other by Paul Graham, the co-founder of Mountain View, California-based Y Combinator. After their meeting, Cameron had to do some online research to familiarize himself with Tencent, which is a juggernaut in China but is relatively unknown here.

Tencent’s influence in China can be attractive to young entrepreneurs aspiring to be the next Facebook or Google, two companies that are having trouble breaking into the Chinese market.

Down the road, if Everyme takes off, “Tencent can publish our app in China as a partnership,” said Cameron, whose company fits the Silicon Valley stereotype. Everyme’s five employees, who sport hoodies and t-shirts bearing the company’s logo, type away at big-screen iMac computers with a ping-pong table behind them.

Tencent began investing in U.S. companies’ initial rounds last year, starting with Everyme in October and a photo-sharing app called Waddle the following month. The company had invested large amounts in the later stages of game developers. A year ago, Tencent purchased a majority stake in Riot Games, based in Santa Monica, California.

Last week, Tencent invested in “a few more” Y Combinator companies from the most recent group of startups, bringing Tencent’s total number of seed investments to between five and 10, Wallerstein said. He declined to provide details. Just last month, Tencent President Martin Lau said the company was considering spending less on investments.

When Chinese companies fund U.S. businesses, they tend to not get directly involved in how they’re operated, said Yasheng Huang, an international business management professor at MIT. “They tend to defer to their American management more. The Chinese firms that have made investments in the U.S. are new kids on the block.”

When startups talk about possible investments with Tencent, the topic of China inevitably comes up, Wallerstein said.

“Having that discussion gets big and serious and almost scary,” he said. ”The U.S. is in a learning phase with China. We know we have a lot of value to offer, but we’re a new face out here.”

Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz.

(Updated to correct that Riot Games is based in Santa Monica.)

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