Is the Chinese technology start-up company overvalued? foreign VCs have doubts

Foreign media reports say Chinese technology start-ups are raising huge sums of money from private equity investors at record rates, raising concerns about overvalued valuations.

The latest round of deals is a public comment on the impending completion of 800 million dollars in financing, the source said the strong demand for new investors increased the amount of financing, so that the public comment on the valuation reached about 4 billion U.S. dollars. This is equivalent to twice times the company's valuation a year ago, or even higher than the market value of 3.4 billion U.S. dollars after the US website Yelp was listed. Before that, the group's main competitor, one of the major rivals, had just funded 700 million dollars in January.

Sceptics point out that Chinese technology companies are overvalued because they have not yet found a way to continue to generate revenue and talk about profitability. Investors and Internet entrepreneurs are more interested in the number of users, the total amount of merchandise transactions, and other indicators, rather than income and profits. Some VCs say they will slow their investment in unlisted Chinese technology companies this year because their prices are too high.

"One of the reasons for the soaring valuations of private companies [in China's technology sector] is the fear of missed opportunities," said Tony Hsu, chief investment officer of Hong Kong hedge fund OTS Capital Management. "Many investors stubbornly equate them with big companies, regardless of the price they pay." ”

In the second half of last year, Chinese technology companies financed 5 billion of dollars in private-equity deals, much higher than the $700 million trillion in the second half of 2013, according to data from the Hong Kong-based Centre for Research in Asia. The biggest round of financing was the $1.1 billion trillion in millet last December, which allowed the handset maker to value as much as $46 billion to become the world's highest-valued technology start-up company. This is equivalent to the August 2013 Millet 10 billion dollar valuation of more than four times times.

American tech start-ups and already-listed tech companies are also facing doubts about whether valuations are too high. After a 200 million dollar investment by China's power giant Alibaba, the "Burn After reading" Application Snapchat is currently valued at $15 billion trillion. "It cannot be said that the technology industry in the United States and China is twin brothers, but they are closely related. "Lin, a founder of DCM, the venture company, said.

Investors often compare companies in China and America, which sometimes raise valuations. Last December, the U.S. car service company Uber valued at $41 billion trillion, making it possible for China's two largest taxi service companies to drop taxis and take a quick taxi. The two Chinese companies agreed to be combined in a new round of financing after 1.3 billion dollars. Under the agreement of both parties, the two services will continue to operate independently. Existing investors say potential buyers have contacted them, hoping to invest in a valuation of about 10 billion dollars.

Investors are hoping that the company's IPO will yield substantial returns, which were evident in last year's 25 billion dollar record IPO deal. BEIJING-East, another Chinese power-maker, also went public last year, with shares already up more than 50% per cent.

But sometimes valuations in the private-equity market may even exceed the market capitalisation after the IPO. A source said that the public comments had hired investment banks to discuss IPOs, but the IPO process was suspended because private equity investors gave higher valuations and performed faster.

The main attraction of China's technology start-ups is its rapid user growth. App developers are looking for ways to serve more than 500 million smartphone users in China, with more than 190 million active users in the last quarter, with 85% of pages browsing from mobile users. By contrast, Yelp's independent access to the last quarter was 136 million.

But China's technology start-ups are also facing the challenge of turning user growth into income and profits. Most of these companies, including the public comments, did not disclose detailed financial data. Lei, the founder of Millet, said this month that the sales of millet last year were 74.3 billion yuan (about 11.9 billion U.S. dollars), up more than one times the year, and sales are expected to surpass 100 billion yuan. But Millet did not disclose its profit status.

Millet investors believe the smartphone maker can earn more by using services such as store and gaming. "The main risk for investors is whether Chinese consumers are willing to pay for online services," said Bryan Wang, an analyst at the Market Research Institute, Blaine Wang. This is still a big question mark. "(Beckham)

(Responsible editor: Mengyishan)