Bottom line: 55Tuan’s increased IPO target and a major new funding round for online financial site Juzi Licai show investor interest remains high in Chinese Internet firms, though it could taper off in the second half of the year.
You know the market is still hot for China Internet companies when when money losers can boost the size of their IPOs, and start-ups can raise $100 million or more. That’s exactly what’s happening, with word that loss-making 55Tuan has boosted its IPO fund-raising target by more than 50 percent, as it seeks to become China’s first listed group buying site. At the same time, other media reports say Juzi Licai, an online financial site, has just raised a nifty $100 million in its second round of funding just 6 months after the launch of its core product.
The figures involved in these 2 deals mark a pull-back from December, when leading group buying sites Dianping and Meituan raised $800 million and $700 million, respectively, and when smartphone sensation Xiaomi raised a whopping $1.1 billion. Still, both Dianping and Meituan are profitable companies, whereas rival 55Tuan is losing money with no sign of becoming profitable anytime soon. And Xiaomi launched its first products more than 3 years ago, whereas Juzi Licai only has 6 months of operating history.
All this shows that the China tech market is still quite attractive for both domestic and international investors, who are clamoring for a piece of this rapid growth story. The fact that decidedly second-tier companies like 55Tuan and Juzi Licai can attract this kind of money is a bit surprising, though the smaller figures involved appear to show that demand could be starting to plateau and soften after reaching a peak late last year.
Let’s begin with 55Tuan, which looks like it may finally get to make its long-delayed IPO after previously saying it hoped to make such a listing as early as 3 years ago. According to its latest IPO filing, 55Tuan now plans to raise up to $65 million in an offering on the Nasdaq, up sharply from the $40 million it previous gave in its first public filing last month. (Chinese article) There’s nothing else new in this updated filing, though it’s worth noting that 55 Tun is still losing big money, posting a $32 million operating loss in the first 9 months of last year.
Juzi Licai is also almost certainly losing money due to its short history, but that hasn’t stopped a group of relatively big name investors from giving the company $100 million in its second funding round. (English article) The investor group contains some impressive names, including Russian high-tech giant Digital Sky Technologies (DST) and Bertelsman Asia Investments. DST has been a huge investor in China tech these days, purchasing stakes in everything from e-commerce leaders JD.com (Nasdaq: JD) and Alibaba (NYSE: BABA) to the smartphone-focused Xiaomi.
Juzi Licai operates a variation of the P2P financial services model that typically brings lenders and borrowers together online. In this case Juzi Licai works closely with another financial site called Fengqile, which makes relatively small loans averaging 3,500 yuan ($565) each to students wanting to buy consumer electronics. Juzi Licai then bundles the loans into packages of about 100 each and sells those to investors.
This kind of business model looks quite innovative, but also relatively labor intensive due to the small size of the loans. The risk for default also looks high, since students aren’t typically the best at repaying their debt. Still, transaction volume has soared on Juzi Licai’s platform in its first 6 months of operation to 100 million yuan a month, and the company expects the figure to reach 3-5 billion yuan for all of 2015. The company certainly looks interesting for its growth potential, though I would question whether it’s mature enough to be receiving $100 million so soon in its brief lifetime.