Hillhouse, Temasek and others may lose hundreds of millions of dollars as a Chinese startup collapses

This article by Eudora Wang originally appeared on China Money Network, the best data intelligence platform tracking China’s tech and venture capital markets (access requires subscription).

Blue-chip investors including Hillhouse Capital, Temasek Holdings and Shunwei Capital may be losing hundreds of millions of US dollars as a Chinese internet startup collapses.

Iwjw, a self-proclaimed unicorn hoping to disrupt how properties are bought and sold in China with new business models incorporating mobile internet technologies, appears to have gone into liquidation.

The company’s official website has been replaced by information about a new apartment rental app. Iwji’s mobile app, when opened, appears to display an error message, according to Chinese media outlet Yi Magazine, which is owned by the Shanghai Media Group. Yi Magazine also visited Iwji’s official registered office but found it does not exist. The new apartment rental app, which replaced Iwjw’s official website, also appears to be emptying its office, according to the report.

Beside Hillhouse, Temasek and Shunwei Capital, Morningside Ventures, GGV Capital and Banyan Capital also participated in financing Iwjw. Founded in 2014 in Shanghai, Iwjw offered a business model that proposed taking the online-to-offline (O2O) business model to the real estate agency sector in China. The idea was that the traditional real estate agency business could be made “lighter” by bringing part of the home-buying process online, thereby lowering costs to buyers and sellers. If successful, a leading player in this next-generation real estate agency business could potentially achieve significant business scale.

The investors bought into the vision. Iwjw reached a valuation of $1 billion after it raised five rounds of financing in a mere 18 months, a reflection of investor enthusiasm back then for O2O startups. The company last completed a $150 million Series E round led by Temasek Holdings and Hillhouse Capital in November 2015, half a year after a $120 million Series D round from GGV Capital, Morningside Ventures, Shunwei Capital, and Banyan Capital in May 2015.

But the company’s development did not go as planned. When people make the biggest financial investment of their lifetime, the process requires significant service, trust, and face-to-face interaction. In addition, because people don’t buy homes very often—unlike the so-called high-frequency food takeout or stock trading services, for example—the classic internet business strategy of user acquisition and value generation did not work well either.

Iwjw earned revenues by charging a 0.5% commission fee from both buyers and sellers on home sales. The fees were just half of the fees charged by traditional real estate agencies.

“[The quarterly gross merchandise volume of] Iwjw can rival the one-year business transactions of our competitors,” its co-founder Deng Wei once boasted. The company recorded RMB 40 billion ($5.95 billion) in GMV across deals involving over 20,000 houses in 2015; meanwhile, its homegrown rival Lianjia, with at least ten more years experience, booked RMB 120 billion ($17.89 billion) in GMV in the same year.

But that proved to be the turning point of the company’s growth. As the broader market cooled and macroeconomic uncertainties increased, the company’s fortunes began to decline. “What I am thinking about is how to survive,” said Iwjw co-founder Deng Wei in an interview with Chinese media outlet Jiemian in November 2018.

Now, aside from the hundreds of millions of US dollars in losses, both investors and entrepreneurs have perhaps learned a valuable lesson.