Bumper JD Finance capital raise extends PE frenzy

The fintech firm's $1.95 billion series-B funding almost triples its valuation. But what does it tell us about the current state of China's private equity market?

JD Finance, the fintech affiliate of JD.com, has closed another bumper round of funding that almost triples its valuation, illustrating how a bubble-like buying mentality still has some hold over the Chinese private equity market.

The company said on Thursday that it had attracted fresh funding commitments totalling roughly Rmb13 billion ($1.95 billion) from multiple Chinese investors.

It is the latest of several billion-dollar private capital raisings after similar deals by the likes of Ant FinancialManbang and JD Logistics as cash-rich investors chase the next big technology growth story.

“There is a lot of capital flooding the market at the private level,” Jixun Foo, managing partner at GGV Capital, said at the RISE conference in Hong Kong, also on Thursday.

JD Finance's timing looks judicious. With the fresh capital, the fintech firm is now valued at more than Rmb133 billion, according to a statement on its official WeChat account.

That compares with its previous valuation of Rmb46.65 billion just 30 months ago when JD Finance closed a Rmb6.65 billion series-A round of funding led by Sequoia Capital China, China Harvest Investment and China Taiping Insurance.

For investors committing capital at increasingly stretched valuations, though, the risks are clearly growing. And as Xiaomi's troubled initial public offering shows, some are already beginning to feel the strain.

So perhaps JD Finance's latest capital raise comes at the top of the market. Time will tell. 

RARE CASE?

Among the investors who committed to JD Finance's series-B funding are: CICC Capital, an affi liate of China’s first Sino-foreign joint venture investment bank China International Capital Corporation; alternative investment firm Citic Capital; Bank of China’s investment unit BOCGI; and mainland brokerage China Securities.

But can JD’s success be easily replicated?

With the era of easy money ending as policymakers slowly tighten monetary conditions, both globally and in China, raising finance is getting harder, and probably even more so at the billion-dollar level.

Investors are starting to push back and question valuations, whilst entrepreneurs and founders are still clinging to the hope that they too will be able to raise the same amount of cash as their peers and sit at the helm of a unicorn company. Even Ant Financial struggled to towards the end of its $10 billion overseas fund raising, according to one source involved in the process.

According to Chinese online finance researcher 01Caijing, 65 fundraisings have taken place in China’s fintech space since Ant Financial raised $14 billion in early June, and these have generated approximately Rmb9.99 billion. But the average size of those deals is only about Rmb153.7 million.

Still, for now, investors seem happy to chase stretch valuations for the right growth stories.

“There are some jitters in the capital markets, tied to the macro environment,” said Helen Wong, a partner at Qiming Venture Partners, which counts Xiaomi as one of its portfolio companies. companies. “[However] good companies should be able to get through those cycles and do well.”

TECH-FOCUSED

Backed by China’s second largest e-commerce firm, JD Finance started operations in October 2013 and split off from JD.com in June 2017.

It claims to be the first company in China to identify itself as a fintech firm and its platform connects with 700 financial institutions and provides services to 400 million individual users and 8 million small and micro enterprises, both online and offline.

The company has expanded into other advanced areas such as urban computing and intelligent robotics and has ambitions to continue doing so.

“We will intensify the digital technology strategy, increase input in the data and technology space,” Shengqiang Chen, the chief executive of JD Finance, said in the statement. “We will not touch businesses that are irrelated to data and technology.”

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