China Is Crushing One of Its Most Innovative Companies

Didi Chuxing, or “Honk Honk Taxi”, was one of the greatest success stories of Chinese tech. Founded in 2012, it broke out just months later by providing rides during a heavy Beijing snowstorm. A regular taxi was impossible to get, but Didi came through.

After that, the company was on the fast track. It raised over $23 billion in funding from major venture firms like Softbank and beat Uber to dominate the Chinese market. So when the time came to go public this summer, markets had every reason to cheer.

Just sixteen days later, things look a lot different. Here’s what Didi’s stock has done:

Investors are down 15% in just two weeks, a disappointing debut. Meanwhile, Didi’s offices are flooded with Chinese state security agents:

China sent regulators including state security and police officials to Didi Global Inc.’s ride-hailing business on Friday as part of a cybersecurity investigation, the latest development in a regulatory saga that has gripped China’s tech industry.

Regulators from government units including the Ministry of Public Security, the Ministry of State Security, the Cyberspace Administration of China, the Ministry of Transport and Ministry of Natural Resources will be stationed at Didi starting Friday for the investigation, the cyberspace administration said in an online statement.

Potential outcomes include financial penalties, suspensions of business licenses and criminal charges.

Imagine if, shortly after its IPO, FBI and CIA agents raided Uber headquarters. This is exactly what’s happening to Didi.

Didi may not have adequately disclosed the concerns the Chinese government had about its security practices. That, and substantial investor losses, set the stage for a tsunami of shareholder lawsuits. Indeed, a class action suit has already been filed against Didi.

I see Didi being increasingly distracted by heavy pressure from the authoritarian Chinese government along with cascading lawsuits in the US. Even if the company survives, they’re distracted and ripe for disruption.

There is no evidence Didi has actually done anything improper with user data. But the Chinese government doesn’t like any information passing outside its borders, and companies are required to make disclosures to IPO in the US, so Didi is now under fire from a powerful and dictatorial government.

Another company had its IPO on the same day as Didi: SentinelOne, a California-based cybersecurity startup. Here’s how they’ve done since:

Up 4% with no regulatory problems: a situation Didi can only dream of.

If one Chinese company after another comes under the Communist thumb, and investors suffer as a result, why wouldn’t the venture funding go to the SentinelOnes rather than the Didis? Even in today’s hot market, there are always more startups than there is funding. Chinese companies, with their unique regulatory risks, are likely to be the last in line.

China has generated amazing innovation, but those days may be coming to an end.

Have a good weekend everyone!

More on tech:

HOW CHINA’S TECH INDUSTRY DIES

CHINA IS KILLING ITS TECH INDUSTRY

INSIDE A STARTUP ACCELERATOR DEMO DAY

Photo: “crushed can” by subsetsum is licensed under CC BY-NC-ND 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! And please leave your comments at the bottom.

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s