Bottom line: Tujia’s new fund raising reflects strong investor confidence in its business model and market positioning, which could help the company to post strong growth before an IPO in the next 1-3 years.
It seems like hot Internet sites only need to say they’re looking for new money these days, and they can automatically attract big investor interest that allows them to raise huge funds and get lofty valuations. The latest company to follow the pattern is Tujia, a site that allows homeowners to rent out their vacant properties to travelers, using a similar model to popular US site Airbnb. Just a month after media reported that Tujia was finalizing a new funding round worth $250 million (previous post), the latest reports say demand was so strong that it ended up raising $300 million.
This kind of fund-raising outperformance has become quite routine these days, helping to boost a new generation of Chinese Internet companies that often simply copy western business models. Others to engage such turbocharged fund-raising include Didi-Kuaidi, which started out as a taxi app operator but is rapidly moving into the private car services model pioneered by Uber. Didi-Kuaidi originally set out to raise about $1.5 billion in its latest funding round last month, but ultimately ended up with $2 billion due to huge demand.
Tujia isn’t quite as advanced as Didi-Kuaidi, but the company itself has become hot property by borrowing Airbnb’s business model of linking up property owners with travelers looking for cheaper, more homey accommodations than traditional hotels. Tujia’s latest funding is its fourth to date, and follows a previous round that saw it raise $100 million about a year ago. (English article; Chinese article)
All-Star Investments led the latest funding round, giving Tujia a valuation of more than $1 billion. All-Star joined a cast of other big names that have invested in Tujia, including leading Chinese online travel site Ctrip (Nasdaq: CTRP) and US-based HomeAway (Nasdaq: AWAY), which operates a similar service to Airbnb. Other earlier backers include China Broadband Capital, a private equity firm with close ties to Shanghai Media Group, China’s second largest traditional media company.
Tujia does seem like quite a good bet to me due to its unique positioning in China’s crowded online travel space. It’s the leading company in its area, which has yet to be discovered by any of the nation’s other major online travel operators. The kinds of properties it lists could also be quite attractive to China’s legions of budget-conscious families that might prefer such cheaper, home-style accommodations when traveling.
Tujia should also benefit from China’s huge number of people who purchased properties for investment purposes. Many of those properties are now sitting idle, since their owners never intended to hold them for long and were hoping to quickly sell them for a profit when China’s real estate market was hot. But now that the real estate market has cooled, many of these owners are being forced to hold their properties and might consider renting them out to travelers to make some money while they wait for things to improve.
That situation has helped Tujia to sharply boost the number of properties listed on its site. The company already has 300,000 such properties, and expects the number to swell to as much as 500,000 by the end of this year. Part of the big expansion will come as Tujia boosts its overseas presence, with a particular focus on Asian markets like Taiwan, Indonesia, Thailand and South Korea.
I’m always a little skeptical of Chinese Internet companies that try to go global too early, especially when they’re just copycats of western names like Airbnb. But that said, Tujia certainly looks strong in its home China market and should be able to quickly become a major force there. I’m less confident of its global expansion, but do think the company should offer an attractive choice for investors if and when it makes an IPO in the next 1-3 years.