Two years ago, it looked like China’s Tencent was about to break out in America. The social media and online games giant had recruited university students in the U.S. to promote its social network WeChat. It had joined a $150 million deal for a stake in the New York design site Fab.com. It was also rumored to be part of a fundraising round for Snapchat that would have valued the young startup without a lick of revenue at—gasp!—$4 billion.
The Snapchat deal never happened, as leaked emails from the Sony hack later showed. And today, even as Tencent has become one of the biggest venture capitalists in China, as part of an ambitious strategy that Fortune details in its current issue, the excitement surrounding Tencent’s U.S. moves has all but evaporated.
Tencent didn’t join Snapchat’s latest fundraising round in March (though rival Alibaba did, to the tune of $200 million), and its U.S. deals have mostly focused on game companies and small startups that could potentially grow in Tencent’s home country. In contrast, Alibaba has become the Chinese company to watch in Silicon Valley. Last year, in addition to the Snapchat funding, it invested $200 million in Shoprunner, invested $250 million in Lyft, led a $280 million investment round in messaging-service TangoMe, and opened a cloud services business in the U.S. (It also sold a boutique U.S. e-commerce site it had opened just a year earlier, after weak sales.)
As Tencent’s profile rises in China—last year, it invested in 48 deals worth $6 billion—the lack of a complementary U.S. strategy is even more apparent. “That’s their hard problem—getting into the U.S.,” says Stephen Bell, a former venture capitalist in China who recently moved back to the U.S.
Tencent’s U.S. office, not far from Stanford’s campus, is led by David Wallerstein, who joined the company in 2001 from Tencent’s earliest investor, the South African media company Naspers. Wallerstein and Tencent have made small investments, sometimes for only a few million dollars, in companies like Scaled Inference, which offers machine learning as a service. Scaled Inference co-founder and CEO Olcan Sercinoglu, who worked at Google for more than 10 years, received seed funding from Tencent and even some help finding an office in Palo Alto. “They were looking for a more ambitious startup,” he says.
But ambitious, in this case and others, didn’t mean big. “They’re not that aggressive—they are doing small things,” says Hans Tung, managing partner at GGV Capital, a venture capital firm with investments in the U.S. and China. None of Tencent’s recent investments have captured the same kind of attention as Alibaba’s, nor does it seem that Tencent cares about creating a foothold in the American market. Tencent declined multiple requests for interviews about its investments.
WeChat, a huge success in China with a half-billion users, flopped in the U.S. after it turned out few Americans wanted to ditch Facebook or Instagram. The only major U.S. success Tencent has had, say some analysts, is their acquisition of Riot Games for $230 million in 2011. The Los Angeles-based online game company has only one product, League of Legends, but it is the most popular computer game in the world, with around 70 million monthly players. The company reportedly earned $620 million in sales in 2013 as the multi-player battle game continued to thrive.
Tencent’s other investments could still pay off. “All these small bets give them good view of what’s happening in the mobile space in emerging categories,” says Tung. “That will be interesting in three to five years.”
And Tencent is investing heavily in the U.S. in at least one area: bringing content back to China. It has signed agreements to stream content from the National Basketball Association, Warner Bros., and HBO for a potential audience of hundreds of millions on Tencent’s video site. Major League Baseball’s digital arm has also become interested, a source close to both organizations told Fortune. An MLB spokesperson declined to comment.
Mark Zuckerberg hasn’t been shy about his desire to expand Facebook to China, a market that Tencent dominates, with sales and profits roughly equal to Facebook’s. Tencent, meanwhile, isn’t nearly as ambitious to leave its home market in a meaningful way.