Jim Breyer, an early investor in Facebook and the cryptocurrency Ethereum, said he thinks investors should reset their expectations when it comes to returns on venture capital in China.
“There are segments that are extremely healthy. There are many more which are undergoing very significant valuation downdrafts as well as consolidation,” he told CNBC’s Geoff Cutmore at the East West Tech conference in the Nansha district of Guangzhou, China.
“We are no longer, I believe, in a market where people by expectation will consider 8, 10, 12 percent or more per year, many times after tax, to be a ballpark estimate of what they’re trying to do for their funds,” said Breyer, founder and CEO of global venture capital firm Breyer Capital.
He now foresees a “more profound change in what expectations should be” in the near future.
China’s industry has witnessed an influx of money from state funds over the past eight years, but that boom may not last long, he warned. “There has been an abundance of capital with an abundance of opportunity, and these kinds of trends generally don’t last and in many cases, they end badly.”
In 2005, Breyer partnered with Chinese firm IDG Capital to expand investments in China and has since opened offices in several metropolitan areas. “We fight like crazy over the very best entrepreneurs so it’s no different from Silicon Valley.”
Going forward, Chinese companies may not fare so well in the world’s largest economy, he predicted.
“Given our political state in the U.S. and the political state of China, I see the Chinese companies for the next couple of years competing over India but not necessarily competing very effectively in the U.S.”
“Therefore, I see the very best of the best internet companies in the U.S. trying to find pockets or pieces to get a foot into China.”
Breyer said he’s now focusing on the artificial intelligence market, especially projects that combine machine learning with other disciplines such as medicine. “I spend most of my time looking at new investments where the underlying platform is a set of artificial intelligence platforms and cloud services provided by Alibaba, by Google, Amazon, Microsoft.”
Two types of cryptocurrencies
Breyer, who made his first bitcoin investment in 2014 with a private company called Circle, said he expects a rebound in sentiment around digital currencies in the coming years.
“I divide the world of cryptocurrencies into those that have truly interesting underlying platforms, where parts of the rails are blockchain-based,” he said, “and others that are hoping to be a true commodity and trade like silver.”
He said he backs 12 companies in the sector and asks each “to focus very deeply on the technology.”
“Between countries, there is no type of monetization that will not, in the future, take place without very advanced crypto technologies,” he predicted.