Recently news came that Vancl just closed its F round fund raising with total investment amount of $230 million. Shocked and amused by the word “F round”, I even started worrying what if they use up alphabet for fund raising. A question came into my mind: Why are investors supporting them continuously? Are the E-Commerce Giants facing the same situation as banking corporations during Financial Tsunami: they are just too big to fail?
Despite the fact that large B2C companies already built their business model, how to sustain the growth rate and acquire enough market share remain in question. The pressure comes from the low inventory turnover ratio and high expense on marketing and logistics. Hence, e-commerce companies are in desperate need of cash because most of them are still struggling on the breakeven line or burning venture capital’s fund for daily operation. The capital market won’t give a smile in this winter either, and many Chinese internet companies postponed their IPO schedule due to the low valuation.
Several e-commerce companies already gave up facing the recession. The shut-down of online supermarket Dahuozhan(大货栈), the dispute of online luxury store Wooha and even the rumor of Vancl’s fund chain broken. all touched us with the chilly wind. Nevertheless, I have perfect confidence that giant e-commerce companies will survive until the day they go public. Why so? Ventures already bet a big amount of capital on them and will never let them fail.
Let’s take Vancl as an example. Here comes the fund raising history of Vancl:
- Round A, Oct, 2007, $2 million Chuangyuan Capital; IDG
- Round B, Jan, 2008, $10 million Softbank
- Round C, Aug, 2008, Over $10 million Qiming Ventures; Chuangyuan Capital; IDG; Softbank;
- Round D, May, 2010, $40-50 million Tiger Fund
- Round E, Dec, 2010, $100 million Chuangyuan Capital; IDG; Tiger Fund
- Round F, July, 2011, $230 million Undisclosed
If you take time to calculate how much capital is involved in Vancl, you may easily realize the problem: the investment is too huge and the only way to exercise quick profit is to get Vancl listed. Venture capitals are impatient for the share of retained earnings, not to mention the marketing and distribution expense at current stage faded the possibility of any high profit margin in near future. As a result, IPO for Vancl is not a question of “whether or not”, but a question of “when and how”.
Moreover, Vancl is already a giant player in Chinese B2C market, especially for the online clothing retail industry. Failure of Vancl will not only be a tragedy of the company itself, but an earthquake for the whole market. Just think about how many ventures, enterprises and employees are involved in this case. For the similar reasons why Citibank and AIA must survive for the U.S. financial industry, so will Vancl for the Chinese e-commerce industry. They are just too big to fail.
However, will Vancl become a safe investment choice for ordinary investors when listed? It’s hard to tell at this moment. But once ventures realized their return by draining capital out from Vancl, no one has the incentive to support this company unconditionally any more. Concepts and new models become less sexy once married to secondary market, and investors do pay attention to real figures.
[image credited to uproxx.com]