Chinese smartphone maker Xiaomi Inc. has invested 55 companies during the past two years, four of which are tech unicorns, or start-ups with a valuation of over US$1 billion.
In an interview with Tencent Technology, Xiaomi co-founder and head of Xiaomi Ecosystem Liu De said that the Beijing-based company will likely slow down its investment pace going forward after aggressive deal-making in the past two years.
In 2014, Xiaomi founder Lei Jun announced that the smartphone maker will invest 100 start-ups in Xiaomi’s ecosystem. Since then, Xiaomi has studied over 600 companies and invested in 55.
Today, 20 of those have launched official products. Seven of the 20 reached annual revenue of RMB100 million (US$15 million). Huami Inc., Xiaomi’s fitness wearables partner and Jiangsu Zimi Technology, a smartphone peripherals maker, are two of the four tech unicorns backed by Xiaomi.
"If we use only one word to describe the process of building Xiaomi’s ecosystem, 2014 was ‘incubation’, 2015 was ‘support’ and this year will be ‘endorsement’," Liu De was quoted by the article.
The whole Xiaomi ecosystem companies will reach over RMB10 billion in aggregate revenue this year, compared to RMB5 billion last year, according to Xiaomi’s predictions.
But a key challenge for Xiaomi ecosystem companies will be a continued decline of Xiaomi’s smartphone sales.
Xiaomi dropped to become the No. 6 smartphone sellers in global phone sales, surpassed by Chinese rivals Oppo and Vivo, which are now ranked No. 4 and No. 5 phone behind Samsung, Apple and Huawei.
Investment, Or Incubation?
Xiaomi founder Lei Jun in 2014 revealed a strategic priority for the company to invest in great tech companies whenever possible and rapidly expand Xiaomi’s ecosystem.
Liu De, who was in charge of the effort, took 20 engineers from the company and let them make investment decisions.
"We wanted engineers to look at companies from the product perspective. Compared to investors, engineers focus on industry trend and products. That was more suitable for us as we are investing in hardware," Liu De told Tencent Technology.
Shunwei Capital, a private equity fund co-established by Lei Jun, co-invested with Xiaomi in most of its deals, including Huami Inc. and Jiangsu Zimi Technology.
Xiaomi invested in six sectors: smartphone peripherals, including earphones, mobile power pack, Bluetooth speakers; smart wearables, including fitness bands and a planned smart watch; smart home appliances, including water purifier; superior manufacturing capabilities; cool and innovative products such as sensor control vehicle and a planned Xiaomi 3D printer; as well as lifestyle products including power boards.
A Focus On Synergy
Compared to a traditional investment fund, Xiaomi looks at different metrics when making investment decisions.
A company must share the same business philosophy and value with Xiaomi, operating in a market with big enough potential. Its products must be suitable to Xiaomi’s existing users, and have the ability to attract loyal fans.
Since Xiaomi is making strategic investments, it does not have specified return targets.
"Xiaomi does not focus much on exits. We only care about if we can make the best products together and if we can push the ecosystem forward," Liu De said.
These companies could be bought by others, or could pursue a public listing, or be merged wit others to create a market leader, all of which have full blessings from Xiaomi.
Making Low Price Products Yet Profitable?
Liu De claimed that many of Xiaomi-backed companies have become profitable, despite a public perception of them making cheap products.
1More, a company that makes earphones for Xiaomi, became profitable not long after its establishment. The company is planning to list on China’s New Third Board this year, according to the article.
"Xiaomi leverages its global resources to help these companies improve efficiency, such as supply chain efficiency, which allows them to price their products at low prices. But they can still make a profit," Liu De Said.
A Xiaomi Drone?
In the interview, Liu De also said that Xiaomi indeed has invested in a drone maker, as previously reported.
"Once we decide to get into drones, we wanted to make sure we can produce the best products and ensure its safety," Liu De was quoted in the article. "We will reveal our drone product soon."
Xiaomi has plans to launch a smartwatch product, but will not make its own smart vehicles, Liu De explained.