Chinese automobile-focused e-commerce firms Tuhu.cn and Mychebao.com have raised roughly $100 million and $50 million respectively in private capital from fund managers that continue to deploy capital on the mainland despite a central government-imposed freeze on initial public offerings.
The last time the government intervened to suspend IPOs was in November of 2012. Fund managers who experienced that 14 month-long suspension now appear more confident in alternative avenues of divestment such as trade sales and private placements.
Tuhu, a Shanghai-based e-commerce site founded in 2011 and specialising in online sales of tyres and car maintenance products, raised approximately $100 million in Series C funding, according to people familiar with the deal.
Beijing-based venture capital firm Joy Capital led the Tuhu investment and was joined by Welkin, Far East Horizon and the private equity arm of Haitong, a Chinese securities firm. Existing investors, Legend Capital and Qiming Venture Partners, also participated in the round.
Mychebao, a second-hand car marketplace established in 2012 on Monday raised $50 million in a Series B round. Five investors, including mainland private equity shops Jiuding Capital and Addor Capital joined Gobi Partners, Nanjing Venture Capital and Bank of Nanjing in the round.
Aspiring bell ringer
In the wake of Alibaba's massive IPO, China's e-commerce companies and early-stage investors are hoping to replicated that outsized success.
Tuhu is no exception.
Yet, unlike some e-commerce companies that have struggled to monetise user bases, Tuhu has exhibited the ability to generate significant income and has built up a partnership network of 6,500 service station in 30 Chinese provinces.
Tuhu’s revenue is expected to jump to Rmb1 billion this year, up from Rmb300 million in 2014. A growing awareness among consumers about the environmental and economic benefits of regular vehicle maintenance is driving growth and the company expects to become profitable by 2017.
Tuhu secured an aggregate $30 million from earlier funding rounds in 2013 and 2014 on the back of sales growth in the past three years. It has two million paid online users who spend an average of Rmb1,000 per transaction, with repeat customers representing between 20% to 30% of its customer base, according to the company's chief executive.
“Taking the company public on the US stock market looks like a viable proposition as we operate under the variable interest entity structure, or so-called the VIE structure,” Chen Min, Tuhu's chief executive, told FinanceAsia in a phone interview. “We plan to expand our business to third- and fourth- tier cities in China, where growth is faster than the mature [markets] in cities like Shanghai and Beijing.”
The VIE structure, controversially applied by Jack Ma in the spin-off of Alibaba's online payments unit Alipay, refers to an offshore entity to facilitate foreign financial investment without ceding control of the onshore company or sharing in the ownership of its onshore assets.
Not so fast
Mychebao's founder Lee Huang appears to be in no rush to tap capital markets.
“Our gross merchant value is expected to reach over Rmb2 billion this year, and we have no plan to list our company in the next two years,” said Huang, who is also chief executive of the company.
The Nanjing-based company plans to complete with larger industry players including an automobile e-commerce firm owned by Chinese insurance giant Ping An.
Cheyipai, another rival for the hearts and purses of China's legions of car owners and buyers which claims to be the country's biggest used car trading platform, received $110 million in Series D funding in March. Cheyipai raised $75 million in earlier funding over the past four years.
China’s internet sector, courted by private capital over the years, is paying even more attention to the overtures of private equity and venture fund managers since the country's stock markets shed more than $3 trillion in value between mid-June and early July.
Coming months before the capital market meltdown, the massive $1.1 billion private investment in Chinese mobile phone maker Xiaomi last year was yet another reminder of the ability of private capital to help firms grow and mature in preparation for their capital market event.
