FUND RAISING: Alibaba Builds a Home, Baidu Funds E-Commerce

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Bottom line: New $200-$300 million investments by Baidu and Alibaba in smaller Internet companies show such fundings are starting to recede in size after peaking earlier this year.

58 Home gets investment from Alibaba, KKR

Two big fund-raising stories are in the headlines today, each involving a top Internet company as China’s “big 3” trio of Baidu (Nasdaq: BIDU), Alibaba (NYSE: BABA) and Tencent (HKEx: 700) look for ways to put their big cash pots to work. It’s interesting to note that neither Baidu nor Alibaba is the central player in either of these latest deals, one in e-commerce and the other in online-to-offline (O2O) services. Instead, both are playing secondary roles, supporting other companies with good growth potential.

The larger of the 2 investments is seeing Alibaba participate in a new $300 million first funding round for a 1-year-old company that helps web surfers find home-based services like cleaning and baby sitting. The second has Baidu participating in a $200 million funding for an older e-commerce company with close ties to state-run cereals giant COFCO.

I’ve said in recent months that the gravy train of mega-fundings for Chinese Internet companies appears to have passed its peak following an explosion of mega deals early this year. These latest 2 deals seem to reinforce that point, since both are large but neither comes close to the $800 million to $1 billion fundings we saw earlier this year for names like smartphone maker Xiaomi and group buying site Meituan.

In fact, Meituan was reportedly in the market for a new funding worth $1 billion during the summer but ultimately abandoned the plan for unspecified reasons, probably because it couldn’t get the valuation it wanted and investors were becoming more cautious. As a result, the company ended up forming an uneasy merger of equals last week when it announced  surprise merger with rival Dianping. (previous post)

All that said, let’s jump into the latest headlines starting with the new funding for 58 Home, a website specializing in home-based services that is also a unit of New York-listed 58.com (NYSE: WUBA), often called the Craigslist of China. Alibaba is participating in the funding, along with private equity giant KKR and major financial services company Ping An. (company announcement)

Expansion Binge

This particular funding is part of 58.com’s recent expansion binge that has included a healthy dose of M&A. The company made a related investment earlier this year when it paid $38 million for To8to, a site that specializes in home decorating services. (previous post) In this instance it’s noteworthy that 58.com could attract big-name backers for such a young company like 58 Home. That certainly seems to imply that others think 58 Home has good potential, and may calm fears that 58.com’s recent M&A drive is becoming overheated.

Next there’s the e-commerce deal that has Baidu and Taikang Life Insurance stepping up as main backers in the $200 million funding deal for a site called Womai. (English article; Chinese article) Whereas 58 Home is quite a young company, Womai is actually a bit older and was founded in 2008. The company’s relatively mature age makes it a bit surprising that this is only its third funding round.

But a closer look at Womai’s background makes it clearer that this is a company with close state ties, and thus it’s probably far more conservative than many other Internet start-ups. Womai’s main business is selling food products, and a big portion of that is supplied by COFCO, China’s state-owned cereals juggernaut.

That slow-moving, state-run background means that Womai probably isn’t an e-commerce company that Alibaba, JD.com (Nasdaq: JD) or anyone else needs to worry about. But the fact that Baidu doesn’t have much e-commerce presence anyhow means it’s not a very risky move for the online search leader. And besides, Baidu could even get some useful government connections through Womai’s COFCO ties.

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