updated three times
Xiaonei, the company that likes to call itself the “Facebook of China” has raised a whopping $430 million from financial backers, VentureBeat has learned from the company’s investors.
The backing gives it a larger financial warchest than Facebook itself, and sets the scene for a showdown with the American company. Facebook has just started to get serious about entering the huge, fast-growing Chinese market.
The backing of Xiaonei could be a statement that the company intends to fend off China from Facebook’s advances. Xiaonei’s site sports the soothing blue border colors almost identical to Facebook’s; its thus not entirely surprising that Xiaonei would also copy Facebook’s ambitious fundraising strategy.
Recently, Facebook took $100 million (in two tranches) from Hong Kong business mogul Li Ka-Shing, in what is widely considered a strategic move to get help to enter that market. Facebook hasn’t entered China yet. But Ka-Shing’s company, Hutchison Whampoa Ltd, runs everything from major port facilities to mobile, location-based 3G services in China and other countries — all of which could be attractive to Facebook in China’s vibrant mobile market.
Xiaonei is owned by Oak Pacific Interactive (OPI), a holding company with a number of online communities.
The lead investor in this latest round is SOFTBANK Corp.
The huge investment in OPI translates into about 35 percent of the company, according to its investors, meaning the overall company is now worth more than $1 billion on paper. But that’s still far less than Facebook’s value — which is $15 billion, at least based on the value Microsoft gave it when the giant backed Facebook last year.
Facebook has raised $378 million in total over several rounds, including from venture firm Accel Partners, which has also invested in OPI.
While the investment was made into OPI, the money will mainly be used to helping expand Xiaonei.com, the company said. Xiaonei is China’s largest social-networking site. Two other groups, SBI and JOHO Capital, participated in the funding.
Xiaonei.com’s features include include multiplayer gaming and wireless services for mobile users. In the college market, Xiaonei.com claims a dominant market share, but hasn’t released any specific user data [update: Xiaonei had "22 million registered users and 12.7 million daily users by March," reports Communication Information, cited via Pacific Epoch. Xiaonei had 280 million page views in March, according to the report. Thanks to Christian, from comments.]
It’s true, though, that in China, there are few Facebook-like sites. Most social sites are like MySpace, where people are freer to use false identities. OPI also owns and operates Mop.com, the largest entertainment portal, and Donews.com, one of the leading IT blogging services in China.
Oak Pacific also announced that Masayoshi Son, chief executive of SOFTBANK Corp. will join the board.
Existing investors of OPI include General Atlantic, DCM, Technology Crossover Ventures, and Legend Capital. OPI had already raised $48 million from those investors two years ago.
Update: I just talked with David Chao, a partner at venture firm DCM and early investor in OPI, and one of its six board members. When I asked him about the Facebook clone-like blue color, Chao said he thinks the blue “looks like IBM to me.” He added that most sites these days are either blue, green or orange.
Chao was on the board two years ago when it decided to acquire Xiaonei, at the time a small startup. OPI invested heavily into the company, to make it a Facebook-like site. When combined with the traffic of OPI’s other property, Mop (which is more like a MySpace), they make up China’s fourth most visited site in China.
Notably, Chao said the company is cash flow-positive, meaning it didn’t really need to raise money. But Chao said that, after some debate, the company decided to “put the pedal to the metal, and really dominate the market,” he said.
As for Facebook, Chao said he doesn’t see the companies competing closely short-term, because Facebook isn’t even present in China. He noted most strong Chinese companies are home grown, from Alibaba, to 51Job, Baidu, Ctrip and Sina. “There might be an exception, but history tells us there’s not going to be too much to worry about an outside, non-Chinese born company taking a big chunk of the Chinese market.”
Update II: Reuters and WSJ are reporting the investment was only $96 million, but they seem to have gotten it wrong. There was also a reference to warrants, which is also wrong. Here’s what I think happened: They must have taken an Nikkei article about the investment (which referred to yen) and converted to dollars mistakenly. The Nikkei article refers the company’s draw of $100 million, as the first tranche of the total round. But the $100 million was assumed a 100 yen rate - so it ended up as 100 oku yen in the Nikkei article then it got recalculated at 105 yen to a dollar and ended up with 96 million. In the same article it clearly states total round will be 400 mil (oku) - so it got converted twice wrongly.
ソフトバンク、中国ネット大手を傘下に――最大市場に攻勢
ソフトバンクは中国のインターネット大手、オーク・パシフィック・インタラクティブ（ＯＰＩ、北京市）を傘下に収めることで同社と合意した。約400億円で株式の40％を取得、経営権を握る。急成長する中国ネット市場で携帯電話経由の情報提供など新サービスの拠点とする。中国のネット人口は今年、2億2000万人超と米国を抜き世界最大に浮上する。国内大手のミクシィや米グーグルなど米国勢も事業展開を加速しており、巨大市場を巡る攻防が激化する。
ソフトバンクはＯＰＩ株式の約14％を約100億円で取得。20数％分の新株予約権も得た。最終的に総額400億円を投じて出資比率を約40％に高める。同社創業者のジョー・チェン最高経営責任者（ＣＥＯ）を上回る筆頭株主となり、孫正義ソフトバンク社長は取締役に就任する見通し。
[4月30日/日本経済新聞 朝刊]
Update III. Furthermore, there were no warrants, as discussed by some sources. Next, the amount discussed in Nikkei article was $400 million, but that’s just the Softbank portion. It didn’t count the $30 million contributed by Joho and SBI.
Finally, there are no milestones - the pulling down of the first $100 million (instead of the full amount of $430M) is just cash timing that is best for both sides - nothing to read between the lines.
22 Comments
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Marshall Kirkpatrick said:
Great, here comes the Xiaonei app spam! lol
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Marc Fawzi said:
Are we doing all we can to compete as well as collaborate with China?
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David Oliver said:
The WSJ is reporting that the investment was about $96m for a 14% stake. This deal is surprising - Oak Pacific Interactive has shown an ability to raise large sums of money in the past but has not had much in the way of results to show for it.
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Christian Cadeo said:
Bloomberg is also reporting at $96MM with warrants to increase to total of $385MM by 2011. Is this $430MM inclusive of these warrants that may/may not be called?
Also this infusion is for the parent company and not purely for Xiaonei.
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Matt Marshall said:
Christian/David,
Yes, the money came through the parent company, but it was earmarked mainly for Xiaonei — to blow it out. At least that’s what the company tells me. Also, the company told me $430M, and I talked with David Chao about it extensively about the deal, and he didn’t qualify the amount. I’m checking nevertheless.
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Matt Marshall said:
Have updated the article further.
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Jon Hart said:
matt, amazing news… seems Li Ka-Shing bet on the wrong horse.
some other SN (facebook look a likes) to look out for…
odnoklassniki.ru (eastern europe)
vkontakte.ru (russia mainly)
sonico.com (latin america)
studivz.net (germany)It will be fun to see how all this plays out this year… seems nobody wants to lose out in the SN craze.
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113.com said:
Nice round.
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David Oliver said:
I would believe the WSJ number of $96m. There are a few Facebook clones in China, Xiaonei is just one of them. There is also a debate in China about whether Chinese prefer to use these types of services, or a combination of IM and other services to stay in touch. Tencent would still be considered the dominant leader by most people.
This seems to me more like Softbank taking a punt. As I said before OPI has been very successful at raising money from outside investors.
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Christian Cadeo said:
Matt,
Some additional datapoints courtesy of Pacific Epoch:
22MM total users/12.7MM daily users/280MM Monthly PV/US$500K - $850K ad revenue a month
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Matt Marshall said:
Dave, I’ve clarified further with updates. WSJ number appears to be wrong. Also, no warrants or anything like that I’m told. Looks like there was some bad translation from the Nikkei article.
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Matt Marshall said:
Thanks Christian, will point to that.
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Orchid said:
As a Chinese and a user of xiaonei & Facebook,I feel very shamed to hear this.
However,Chinese and the westerners have already misunderstood each other.PS:FB is terribly slow in China(much slower than Google.com and wiki[a blocked site in China,if there is no proxy...]) ,so I have to turn to XN.
PS ag:We are all human beings,there are no so many differences,if you’ve ever been to China,you’ll get a better impression of her.The difference is that we’re in different stage of development, and I think it’s where the diffences come from. please give us some time to improve ourselves.
最后我想说句：人民无罪。
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treelovinhippie said:
OK, if you’re given $430M… design something other than the Facebook look (it’s not that great anyway).
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Facebook Quiz said:
Considering cross market spread ability with Xiaonei is slim to none for the near future.
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SC said:
It is purely a capital game–XiaoNei has a fatal flaw in its positioning. First, open API has big issue with Government (which imposes strong control for content). Second, unlike the western world, Chinese are very sensitive of where they came from. Only top university grads are proud to let others know their alma mater. Most top school grads understand English and use FaceBook anyways. The only viable revenue model for XiaoNei could be turning itself into a multi-user online game operator. They would most likely becoming another online gaming company (like SNDA), instead of pursuing the SNS path like FaceBook. It does have a stronghold in College market, for they have been paying up students to practically control most dormitories in China. However, their attempt to grow beyond the College market or step into the younger generations had not shown any progress at all–one of the most likely reason could be its FaceBook-like user interface.
Disclaimer: I am currently involved in one of the China SNS website, so I have been studying this category extensively. It also means that I could be very biased. ;)
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lucy said:
amazing news
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auto insurance calculator said:
Recommend this site for great pleasure.
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xiaonei said:
Nice round
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jimmy dragon said:
1. Unlike American students, do Chinese students have access to unlimited credit cards to spend on social networks?
2. Given the size of China population and social network audience, does a $1 billion valuation value each user/subscriber at $1 per user versus $50 per user at Facebook. What is the fair valuation based upon per user?___$10 dollars, $20 dollars___??
3. There is a profitable Chinese social network company with 40 million users at $20 million net income. Is this company’s valuation based upon PE ratio of 20x $20 million or $40 million, or $2 billion based upon Facebook per user valuation?
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Ragtube.com said:
IWe want to post on this website… problem is I dont read the language.
Thanks
Team Ragtube
Ragtube.com -
Ben Right said:
How much money does it actually cost to simply build a site like Facebook or Myspace?
I understand the major costs are in marketing, but what about the site construction itself?
27 Trackbacks
3:29 pm
Xiaonei, the Facebook of China, raises $430M — better funded than Facebook said:
[...] The backing of Xiaonei could be a statement that the company intends to fend off China from Facebook’s advances. Xiaonei’s site sports the soothing blue border colors almost identical to Facebook’s; its not entirely surprising that Xiaonei would copy Facebook’s fundraising strategy too. Read more. [...]
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[...] Chinese social networking site Xiaonei has raised $430 million in funding from Softbank, according to a report from VentureBeat. [...]
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[...] Chinese Facebook Clone Xiaonei Raises $430 Million (Techcrunch) Chinese social networking site Xiaonei has raised $430 million in funding from Softbank, according to a report from VentureBeat. [...]
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[...] 中国のソーシャルネットワーク、Xiaoneiがソフトバンクから$430M（4億3000万ドル）の資金を調達したことをVentureBeatが伝えている。 [...]
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[...] be the biggest beneficiary of this investment, and Matt Marshall’s VentureBeat even headlined his post on this “Xiaonei, the Facebook of China, raises $420M — better funded than [...]
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links for 2008-05-04 « Repository 0001 said:
[...] Xiaonei, the Facebook of China, raises $430M — better funded than Facebook » VentureBeat Xiaonei, the company that likes to call itself the “Facebook of China” has raised a whopping $430 million from financial backers, VentureBeat has learned from the company’s investors [...]
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[...] Chinese Facebook Clone Xiaonei Raises $430 Million VENTUREBEAT Xiaonei, the company that likes to call itself the “Facebook of China” has raised a whopping $430 million from financial backers, VentureBeat has learned from the company’s investors. The backing gives it a larger financial warchest than Facebook itself, and sets the scene for a showdown with the American company. Facebook has just started to get serious about entering the huge, fast-growing Chinese market. The backing of Xiaonei could be a statement that the company intends to fend off China from Facebook’s advances. Xiaonei’s site sports the soothing blue border colors almost identical to Facebook’s; its thus not entirely surprising that Xiaonei would also copy Facebook’s ambitious fundraising strategy. Source> [...]
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