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Startup Investing Helps Alibaba Expand Footprint Outside China

  • Chinese internet giant is said to back health, VR companies
  • Strategy helps Alibaba get startups using its services early

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...