Startup Investing Helps Alibaba Expand Footprint Outside China

(Bloomberg) -- Alibaba Group Holding Ltd. is becoming a more active startup investor. The Chinese internet giant is willing to spend money in hopes of finding the next Snapchat or Lyft -- so long as the target uses Alibaba’s tools and services.

Alibaba made at least two dozen investments in private companies last year, according to research firm CB Insights. The number of deals has nearly doubled since 2013, and the e-commerce company has continued spreading money around this year.

Through a pair of not-for-profit funds set up in late 2015, Alibaba is looking to use venture capital to expand its reach beyond the mainland and get businesses hooked on its services early. Last November, Alibaba established a NT$10 billion ($312 million) fund to support Taiwanese entrepreneurs and an HK$1 billion ($129 million) fund targeting Hong Kong startups. Any returns from successful bets will be reinvested into the funds, which are meant to encourage entrepreneurship in those regions, according to Alibaba.

However, the funds could one day pay off for Alibaba in a different way. Entrepreneurs that apply for investment are required to use at least one of Alibaba’s services. For instance, the company needs to sell through Alibaba’s e-commerce marketplaces, such as Taobao or Tmall, or use Alibaba’s cloud computing service, which is trying to break into a market dominated by Amazon.com Inc., Alphabet Inc.’s Google and Microsoft Corp.

The Taiwan fund made at least two investments recently, according to people with knowledge of the matter. Health2Sync, a startup in Taiwan that makes an app for diabetics, raised $3 million in a financing round led by Alibaba, said the people, who asked not to be identified because the matter is private. Alibaba also kicked $2 million into IStaging, another Taiwanese startup, which makes virtual and augmented reality software, the people said. The two investments were sourced and managed by WI Harper Group, a venture firm with operations in Taipei, San Francisco and Beijing.

An Alibaba spokesman confirmed the two investments but declined to comment further. Health2Sync and IStaging declined to comment.

While Alibaba is known for making high-profile investments in more mature upstarts such as Lyft Inc. and Snapchat Inc., the Hangzhou-based company has been increasingly turning its attention to younger startups.

“It’s a great way to keep your eyes on emerging technology and keep seeding capital on it overtime,” said RJ Hottovy, an analyst at Morningstar Inc. “In an industry that moves quickly, it’s good to take a smaller stake and see how it evolves.”

The investments may also give an indication of Alibaba’s strategic interests. Health2Sync offers an app to help diabetes patients monitor and manage their blood glucose levels. The three-year-old startup lets each user connect with family and health care providers through the app so they can view the patient’s latest activities. The software works with a cable that connects a glucometer to an iPhone.

The startup could fit into Alibaba Chairman Jack Ma’s broader health-care ambitions, which have been fueled through Ali Health. The subsidiary, called Alibaba Health Information Technology Ltd., has explored creating a drug-coding system, e-pharmacy platform, online consultation services and a health insurance marketplace.

The funding for IStaging comes as Alibaba has been exploring how virtual reality technology can be applied to enhance the shopping experience for its 400 million or so users. Alibaba led the $794 million round of funding for Magic Leap Inc., the augmented reality company said in February. IStaging, which creates tours of property listings and interior designs, allows customers to virtually try furniture in their homes.

To contact the reporter on this story: Selina Wang in Hong Kong at swang533@bloomberg.net. To contact the editors responsible for this story: Mark Milian at mmilian@bloomberg.net, Molly Schuetz

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