FUND RAISING: Weibo Backs Video, 58.com Unleashes Guazi

Bottom line: Weibo’s investment in mobile video app Miaopai looks like a smart move to build on its recent momentum, while 58.com’s spin-off of its Guazi used car service is mostly a management restructuring.

58.com spins off Guazi used car site

A couple of web-related fund-raising stories are in the headlines today, though their relatively small size reflects investor sentiment that is rapidly fading towards these money-losing Internet companies. The bigger of the 2 deals has short video app Miaopai raising $200 million, in a funding round led by China’s Twitter-like Weibo (Nasdaq: WB). The second has leading online classifieds site 58.com (NYSE: WUBA) spinning off its Guazi used car businesses, in a move aimed at giving the company more flexibility to raise money for its future growth.

The $200 million figure is one of the largest we’ve seen in recent months, but is well below mega-fundings in the first half of this year when China’s stock markets were rallying and fundings of $1 billion or more were almost ordinary. But the flow of money has slowed sharply in recent months as investors get impatient for profits, forcing a number of former rivals into mergers to accelerate their drive to profitability.

We’ll begin our funding round-up with Miaopai, which is the only actual fund-raising deal of the 2 that I’ve mentioned. Miaopai’s parent, Xuan Yi Xia Technology, was the actual beneficiary of the funding, whose other contributors besides Weibo included Sequoia Capital and Korea’s YG Entertainment. (English article; Chinese article) The deal gave Xuan Yi Xia a market value of $1 billion, meaning the investors must have received about 20 percent of the company.

The round marked the fourth for Miaopai, which specializes in short videos that are well suited to quick viewing over smartphones when people are outside and don’t have big blocks of time for longer movies and TV series. Concurrent with the investment, Miaopai and Weibo parent Sina (Nasdaq: SINA) will set up a $100 million fund to promote development of mobile video and related companies.

We don’t often see Sina or Weibo in the investment headlines these days, so this particular deal looks relatively significant for each. Mobile video is certainly an important area for both companies, as they try cater to a young generation that does most of its web surfing over their smartphones. The deal looks like an especially good fit for Weibo, which has recently begun to gain some momentum as it tries to compete with Tencent’s (HKEx: 700) hugely popular WeChat and QQ social networking (SNS) services.

Management Shuffle at 58.com

Next there’s Guazi, a used car site that is now being spun off by 58.com to give it more flexibility for future growth and fund raising. Guazi will be led by Yang Haoyong, who was previously co-CEO of 58.com but will leave that position to become chairman and CEO of the C2C used car site. (company announcement; Chinese article) Yang will remain on the board of 58.com, which will retain 46 percent of Guazi after the spin-off.

This particular story is clearly one of politics, since Yang was previously the head of his own company, Ganji, which was purchased by 58.com back in April this year. (previous post) After the merger he was named as co-CEO of 58.com alongside its existing  chief Yao Jinbo, but clearly that was a temporary arrangement.

This particular move looks prudent, as it will remove Yang from day-to-day operations at 58.com and also give him a new project to work on with the development of Guazi. I expect he will quickly get to work on that project, and we could see Guazi announce a new funding within the next 3-4 months. I wouldn’t expect the amount to be huge, perhaps in the $100-$200 million range, and I also expect we won’t see many — if any — new Internet funding deals higher than $500 million next year due to cooling sentiment.

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