Startups vying for the attention of Venture capitalists (VCs) – part 4


OOI Boon Sheng, founder and chief executive officer of Web Bytes Sdn Bhd, was fortunate to have found a good match in Chok Kwee Bee, managing director of venture capital firm Teak Capital, when he set out to look for a partner to help his retail management services company grow to the next level.

Venture capitalists (VCs) play a unique role in the entrepreneurial ecosystem.Magic Logo_Small

They provide startups with funding in exchange for equity in the company. In addition, VCs are often given a say in how the company will operate and grow.

Ultimately, the goal of such partnerships is for VCs to make a profitable exit at a later date either through the sale of their stakes or an initial public offering.

Chok, who sits on the board of Web Bytes following Teak Capital’s investment in the startup, takes an active interest in helping Ooi develop the company’s product.

As Web Bytes grow with the guidance of Chok, so does its value, allowing Teak Capital the chance to make a profitable exit in the future.

Somewhat like angel investors, VCs have a wealth of resources, expertise and network that startups can tap into.

However, VCs tend to fund early-stage startups that have already gained some traction in user base and revenue, but are still new enough to be considered a risky investment for traditional banks and debt funding.

In identifying suitable startups to invest in, VCs are naturally drawn to early-stage companies with technologies that have the potential to generate high returns. Ideally, products developed by these startups are not in overly saturated markets.

VCs also analyse the market to ensure that it is robust enough to support the entry and growth of a startup.

The startup’s management team is also taken into consideration as VCs typically look for a team that is passionate, persistent, experienced, dedicated and organised.

According to Chok, having the right people is as important as having the right idea as the right people would be needed to make the ideas work.

“We have seen more than 1,000 companies since our formation in 2008 and only invested in less than 10, with an average investment of RM2mil to RM3mil.

We look at the team, the product and the market potential,” she said.

Startups are encouraged to build a good working relationship with VCs, not just for the funding element but also because investee companies will be spending a lot of time with mentors from their VC partners.

Many startups, like Web Bytes, have indeed benefited from the active participation of their VC investors. Among Teak Capital’s portfolio of startups, Web Bytes has seen tremendous growth after a year of active mentoring.

But the venture capitalism in Malaysia is still in its early days.

Malaysia Venture Capital Management Bhd (Mavcap) chief executive officer Jamaludin Bujang noted that while there is an increase in demand for capital, there are only a handful of VCs in the market.

Currently, about 60% of VC funds come from Government sources, with only nine private VC firms in the country.

Jamaludin says VC firms should look at pushing out more Series-A funding. Series-A is the first significant round of funding for startups that have progressed beyond the seed-funding stage and have started generating revenue of between RM200,000 and RM1mil. With things heating up in the local startup scene, both Jamaludin and Chok agree that more needs to be done to encourage more entrants into the field of venture capitalism.

“The startup scene is picking up. And a lot of them are actually going to Singapore for funding. So I think we need more Malaysian VCs in the market,” said Chok.

By Lim Wing Hooi
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Playing angel to startups as some successful Malaysian entrepreneurs made it big – part 2 & 3


How successful entrepreneurs can give back to their younger counterparts

JUST as it takes a village to raise a child, it also takes many different players in an ecosystem to raise a successful startup.

And one of the most valuable players in the startup ecosystem are those who have walked the path of an entrepreneur and succeeded in their own right. These players have a wealth of experience and expertise as well as capital to plough back into other budding startups.

Most times, they invest in the capacity of an angel investor.

By definition, an angel investor is an affluent individual who is willing to invest in a company at its earlier stages in exchange for an ownership stake, often in the form of preferred stock or convertible debt.

They typically fill the gap in startup financing between seed funding, likely provided by friends and family, and formal venture capital funding in later stages once the startup has gained some traction.

Angel investors are usually entrepreneurs themselves and have successfully cashed out of their ventures with deep pockets to spare.

Over the years, scores of entrepreneurs, who have tasted hard-earned success, have increasingly been giving back to the ecosystem by reinvesting their time, money and knowhow into other startups.

Unlike other sources of funding such as government grants and venture capital funds, the angel investors’ involvement in startups is vital given their experience in building successful companies.

This would enable new startups to tap into their network and expertise, giving them a higher chance at succeeding.

As some entrepreneurs note, “one entrepreneur betting on another is a great validation of the idea.”

Some Malaysian entrepreneurs who have made their mark in the startup scene have sowed back into the ecosystem. They include the likes of Azrul Rahim, founder of application launcher for PalmOS, Facer, and Mark Chang, founder of JobStreet. com, who recently expressed interest in backing entrepreneurs from underprivileged backgrounds.

MaGic_Angel Network

Notably, like every investment, there are risks involved when investing in early stage startups.

To recap, startups are experimental by nature and therefore are meant to fail several times before they succeed. As such, it is important that angels understand that a high percentage of the startups they invest in may likely fail.

However, as with other types of investment, angel investors should have a portfolio of high growth startups to invest in. And in that basket of startups, a gem or two will return a big reward.

Take Berjaya Group’s Tan Sri Vincent Tan, for example, who is known to make quite a few bets with budding companies.

While not all of them have been known to be successful investments, Tan certainly uncovered a jewel in MOL, which he bought for US$3.2mil (RM10.5mil) in early 2000s and listed on the Nasdaq this year. He reportedly pocketed a cool US$200mil from the listing exercise.

The government is also increasingly encouraging more early-stage private investment in startups with the introduction of the Angel Tax Incentive, which is administered by a unit within Cradle Fund Sdn Bhd.

Angels who are eligible for the incentive are high net worth individuals with total wealth of more than RM3mil or high income earners with gross annual income of more than RM180,000.

Angel investing is indeed becoming more visible and formalised with the formation of networks that connect entrepreneurs and angels.

Most recently, local entrepreneur-turn-investor Khailee Ng, who co-founded GroupsMore and SAYS. com, was made managing partner at 500Startups. Through the fund, Ng has invested in multiple companies across the region.

The local startup scene can indeed benefit with the involvement of more angel investors. Entrepreneurs who have achieved their milestones should think of investing in the future and giving back to younger entrepreneurs.

Entrepreneurs who have been there understand the satisfaction of nurturing another venture.

So if you have succeeded with your company, perhaps it is time to consider investing back into the ecosystem by sharing your expertise and resources as angel investors.

Malaysia has more successful tech startups than many people realise

MaGic_MyTekxi

Investor interest: MyTeksi has managed to raise a total of US$90mil in funding over the past 12 months.

Much has been said about this being the best time to launch and grow startups due to the availability of funding, infrastructure and an accommodating environment.

Additionally, mergers and acquisitions suggest that there is much value to be derived from startups. Foreign corporate moves include the US$966mil (RM3.1bil) price tag that Google paid to acquire navigation app Waze and the US$22bil takeover of messaging app Whatsapp by Facebook.

No doubt, many budding entrepreneurs aspire to follow in the footsteps of these successful startups. In a globalised market, the success of startups is not limited to those with connections to or within the vicinity of Silicon Valley.

With the right experimentation and innovation, a startup can succeed even in a risk-averse culture. It is not impossible for startups to grow rapidly and achieve high revenues in a short time.

But budding local entrepreneurs often lament that there are few local heroes to look up to in order to benchmark the ability of the local startup scene in producing successful ventures.

Although they are few and far between and are generally below the radar, there are some local gems that have scaled up very quickly, attaining regional success in just a few years, and have caught the eye of internationalinvestors.

One such company is MyTeksi Sdn Bhd. The Internet-based taxi booking service provider, which was launched in 2012, has already established a strong presence in Singapore, the Philippines, Thailand, Vietnam and Indonesia under the brand GrabTaxi.

The MyTeksi app has reportedly been downloaded onto over 2.1 million mobile devices with more than 400,000 active monthly users in six countries and more than 25,000 taxi drivers registered with the network.

Most notably, the company has managed to raise a total of US$90mil in funding over the past 12 months, counting US-based Tiger Global Management, GGV Capital and Vertex Venture Holdings as some of its investors.

One of the key reasons for MyTeksi’s success, says co-founder Anthony Tan, is its focus on solving a real social problem. In this case, providing an efficient and safe platform to match taxi drivers and passengers.

Another homegrown startup that is shaking up its field is banking solutions company Juris Technologies Sdn Bhd.

When the company was founded in 1997, co-founder and CEO See Wai Hun said its main agenda was to market a data mining system. But See quickly realised that no one was interested in data mining because people were reeling from the shock of the financial crisis.

Thankfully, she was equally quick at spotting an opportunity to create software for bad debt recovery which would help financial institutions manage their workflow with their litigation team.

Juris was set up with the help of an angel investor but See noted that the company eventually bought back its shares within a few years of incorporation. The team has grown from 10 people when it started to a staff strength of 80 today.

Its product range has also expanded from just a component of the debt recovery software to software for debt collection systems, loan origination systems, credit scoring systems, conveyancing and loan documentation systems.

To-date, 11 banks, 900 lawyers, 200 collection agencies and 100 property valuers are using its systems and See is expecting revenue to hit a high of RM30mil this year.

Most recently, Juris joined the ranks of Endeavor Global Inc’s global network of high-impact entrepreneurs, being the second Malaysian company to do so.

The achievement gives Juris access to global investor network and partnerships that will enable the company to scale up for regional expansion.

Malaysia has seen other startups, including the likes of iMoney, Softspace, FashionValet, Piktochart and TextbookAsia, take flight and achieve success in various fields.

Local entrepreneurs can take heart that some of the action does take place on our home ground. It is possible to nurture the local startup ecosystem to provide startups with a good platform to thrive and contribute significantly to the growth of the country.

With the right combination of policy, infrastructure, funding facility and mentoring, the local startup industry could unlock another key growth driver in our economy.


By Joy Lee

 

 

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Brewing a startup – part 1

Brewing a startup – part 1


Magic Logo


In a 10-part series, the Malaysian Global Innovation and Creativity Centre (MaGIC), in collaboration with The Star’s Metrobiz section, explores what it takes to make a great startup ecosystem, beginning with an understanding of what startups are all about.

The Father of Modern Chemistry, Antoine-Laurent de Lavoisier once said that it is vital “to submit our reasoning to the test of experiment, and never to search for truth but by the natural road of experiment and observation.”

A startup’s journey is not very different, in that it is meant to run a series of experiments before it hits a growth path. According to Steve Blank, a Silicon Valley serial-entrepreneur who developed the Customer Development Methodology, “A startup is an organisation formed to search for a repeatable and scalable business model.”

But what is a business model?

A business model describes how your company creates, delivers and captures value. An entrepreneur is supposed to create a vision for a product that solves a real problem in the world, with a series of assumptions about all the pieces. Who are the customers? How do you sell to them? How do you price and position the product? How do you build and finance the company?

An entrepreneur’s job is to quickly validate whether the model is correct by seeing if customers behave as predicted. Most of the time they don’t. So entrepreneurs are supposed to tweak that business model until they find enough traction to grow into a sustainable company.

Once on a growth trajectory, a startup decides to enter new markets or create new product lines and eventually exits favourably, providing significant returns to investors or venture capitalists.

Like science experiments, a startup is meant to fail several times before it succeeds. It is important that we understand this in order to support local entrepreneurs who are looking to push the boundaries of innovation.

Jack Ma’s e-commerce company Alibaba Group Holding Ltd’s recent US$25bil (RM80.7bil) initial public offering on the New York Stock Exchange, which is the largest in history, proves that Asian entrepreneurs and markets are just as competitive and innovative as those in the US.World largest IPO: Alibaba shows

Another revered Silicon Valley figure, Y Combinator startup incubator founder Paul Graham describes a startup as, “a company designed to grow fast.” He goes on to explain that a startup does not have to be newly founded to work on sophisticated technology or to take venture funding. He emphasised that the only essential thing for a startup to achieve is high growth.

Without high growth, a company is categorised as the more common small- and medium-sized enterprises of mom-and-pop shops, professional services firms, manufacturers, brick-and-mortar businesses, or resellers. They typically grow at a steadier rate, require physical locations, more up-front capital (usually bank loans as opposed to private investments) and are not as scalable (can only serve a limited number of people based on human resource capacity).

The new startups of the 21st century are also admittedly different from the old-school startups of the 1970s, back in the early Microsoft, Oracle and Apple days. Today’s startups are a new breed that leverages the Internet and technology to scale across borders very quickly.

Startups such as Facebook, Airbnb, Dropbox, Pinterest, Uber and Spotify have all achieved billion-dollar valuations in a matter of three to four years.

This signifies that we are in a new era where entrepreneurs are able to very quickly create global products that permeate our daily lives. And these entrepreneurs can come from anywhere, not just Silicon Valley, which is typically the benchmark for startup and innovation ecosystems around the world.

Startups are the main job creators in the US economy, and similarly, it will become the primary growth engine for Malaysia as we seek to become a high-income nation by 2020.

As a nation that is trying to push its own innovation boundaries, we should come together and support our young entrepreneurs and enable them to solve some of the toughest problems in our country and beyond.

Next week: Some of our local startups who have made it big.

By: LIM WING HOOI

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Datuk Seri Najib Tun Razak tonight witnessed the signing of memorandum
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LUMPUR: Prime Minister Datuk Seri Najib Razak has announced the
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China cutting edge technologies: Naval Missile Defense Unveiled, Hypersonic Surpasses US


  • China's hypersonic Missile Veh1

    China’s defensive missile technology makes strides

  • China’s defensive missile technology makes strides. A number of antiship cruise missiles, or ASCMs have been deployed in multiple PLA naval drills this year. They also been sold to other navies around the world. China’s long-range, multi-purpose, all-weather, anti-ship cruise missiles, C802A…

Naval missile defense system unveiled

China revealed its HongQi-10 surface-to-air missile system for the first time Wednesday.

The advanced system, which can mitigate the threat from low-altitude anti-ship missiles, was unveiled during a China Central Television (CCTV) report.

As a naval point-defense missile system, HongQi-10 boasts a particularly quick response to low-altitude missiles that area-defense systems fail to intercept. It has a high success rate in intercepting them, Lan Yun, deputy chief editor of Modern Ships, told the Global Times.

The point-defense missile system defends a warship against rockets over a limited area. It is in contrast to an area-defense system that targets medium- and long-range objects with slower response and lower success rate.

HongQi-10 can be prepared to launch missiles in about 10 seconds and aims at missiles only 1.5 to 10 meters above the sea level, Lan said.

The advanced system, equipped with both infrared and microwave seekers, can secure naval ships against anti-ship missiles outfitted with either infrared or microwave radiation, Lin Yuchen, a missile expert of China Aerospace Science and Industry Corp, told CCTV.

The dual seeker missiles can combat interference from jamming, since an infrared seeker is always combined with a radar seeker that often detects waves whose wavelengths are longer than microwaves, said naval expert Li Jie.

In addition to maritime defense, the low- to medium-level air defense system is also designed to protect ground forces from air attacks by jets, unmanned aerial vehicles and cruise missiles, said Lin.

Such small missile system can be widely deployed due to its agility, he added.

The system was adopted by the Liaoning aircraft carrier and the type 056 corvette in 2011, said Lan.

By Chen Heying Source:Global Times Published: 2014-9-11 0:58:06

Related: 

China Surpasses US in Hypersonic Weapons

The Advanced Hypersonic Weapon concept conducts its first flight in 2011 (Army photo)

There are detailed descriptions about China’s hypersonic glide vehicle (HGV) in my book. I have only to point out:

1. Chinese HGV has achieved a speed of Mach 10 while the US one, only Mach 5.

2. China will develop HGV with the speed of Mach 22 launched from its space-air bomber.

Mach 10 means 3.3 km per second. If launched from the height of 100 km low orbit of a satellite, it takes 30 seconds, an HGV reaches its target. Rich Fisher’s rail gun needs 2 minutes; therefore, there is no defense against a Mach 10 HGV.

If the HGV flies at a speed of Mach 22, it takes only 12 seconds!

That is why China adopts the Space Era Strategy to develop integrated space and air capabilities. The US, however, sticks to its outdated strategy of Air-Sea Battle. It focuses on defense instead of attack and is, therefore, doomed to defeat.

ICBM was first developed in early 1960s, but even now more than 50 years later, we still cannot 100% intercept it. Our interception system will be regarded as very good if the rate of interception is 50%.

The US has not yet been able to produce workable HGV, but focus on development of weapons to defend it. Why? Because it has to protect the major weapons of its Air-Sea Battle—its very expensive nuclear aircraft carriers.

In space era, aircraft carrier is obsolete.

The following is the full text of the magazine’s article:

US, China in Race to Develop Hypersonic Weapons
By Valerie Insinna

On the heels of reports that China had successfully completed a second ultra-high-speed missile flight test, the Defense Department announced on Aug. 25 that it had aborted a test of its own hypersonic weapon.

The military is investigating the “anomaly” responsible for the test failure, but analysts told National Defense that the incident was not a major setback for the program.

“It’s a glitch. These are weapons that operate under fantastic stresses,” said Rick Fisher, a senior fellow at the International Assessment and Strategy Center. “Failure is not necessarily a bad thing, especially if data can be gathered so that you learn from your mistake.”

“These weapons are traveling at such fantastic speeds and they are required to be capable of such accuracy that it is simply going to require an extensive development program to achieve a point where they can be considered ready for the field,” he added.

The Aug. 25 test of the advanced hypersonic weapon was aborted because of an unspecified flight anomaly, according to a Defense Department news release. “The test was terminated near the launch pad shortly after liftoff to ensure public safety. There were no injuries to any personnel,” the release read.

Testers made the decision to destroy the rocket within four seconds of its launch at the Kodiak Launch Complex in Alaska, said Maureen Schumann, a Pentagon spokeswoman. She was not able to provide additional information on what the anomaly was or how it was detected.

The advanced hypersonic weapon is just one of the technologies under development in the conventional prompt global strike program, she said. The goal is to create a menu of precision strike options that would be able to hit anywhere in the world in under an hour.

U.S. program officials are conducting an investigation to determine the cause of this Monday’s test failure, said Schumann. The investigation will likely take “weeks or months” to finish and will inform future tests and scheduling.

The August test was the second flight of the advanced hypersonic weapon, Schumann said. “The objective of the test was to develop and demonstrate hypersonic boost glide enabling technologies and collect data on flight vehicle and test range performance for long-range atmospheric flights.”

The United States may not be the only country that has been testing high-speed weapons this month. China conducted the second test flight of its hypersonic glide vehicle — called the Wu-14 — on Aug. 7, unnamed U.S. officials told the Washington Free Beacon.

Schumann would not confirm whether the Chinese military had executed a second Wu-14 test in August. Earlier this year, the Pentagon confirmed the Wu-14’s first flight test in January.

Based on the available evidence, including Chinese reports circulating the internet, it seems probable that there was a second Wu-14 test recently, Fisher said.

“China and the United States are seeking to develop the same range of hypersonic weapons, both boost-glide or hypersonic glide vehicles, and future air-breathing hypersonic vehicles, such as scram jets,” Fisher said.

The U.S. program appears to have progressed further, “but the Chinese program may be better funded and have greater depth in terms of the commitment of intellectual and development resources,” he said.

Mark Gunzinger, senior fellow at the Center for Strategic and Budgetary Assessments, said he is skeptical that China’s development of hypersonic weapons has matured past that of the United States.

“We hear about the successes and not the failures” of the Chinese program, he said. “They could have had dozens of failures that we know nothing about, at least in public.”

Hypersonic weapons could be operational within a decade, Gunzinger said. The challenge, especially in a budget-conscious environment, will be figuring out how to drive down manufacturing costs.

“Can we find a sweet spot in hypersonic weapons where the price point is right and we can buy enough of them?” he asked.

One of the reasons why hypersonic weapons are so highly coveted is because they are difficult to shoot down, Fisher said. Directed energy weapons, such as a hypersonic capable rail gun or laser, could offer a way to counter hypersonic missiles.

“If you have two to four rail guns for example, [and] you get maybe a two-minute warning that a hypersonic warhead is coming at you, that’s enough time to put into the sky clouds of hypersonic rail gun rounds that are designed like shotgun shells,” he said. “They’ll release into the air 100 to 200 tungsten pellets. Even if the hypersonic warhead is maneuvering, you’re likely to knick it with one of these pellets, and that alone will make the warhead tumble out of control.”

The United States appears to be further along in its efforts to develop directed energy weapons, although China’s program is not particularly transparent, Fisher said.

The Navy in April unveiled a high-speed electromagnetic rail gun capable of launching projectiles at speeds up to 5,600 miles per hour. The service has also tested its laser weapons system at sea, proving that it could shoot down small unmanned aircraft.

That laser currently lacks the power and range necessary to destroy a hypersonic glide vehicle, but it could become powerful enough in the next decade to shoot down such weapons, Fisher said. A hypersonic speed capable rail gun is possible in the early 2020s, he added.

Gunzinger said it may be too difficult to intercept a hypersonic missile with a high-powered laser, but rail guns could be well suited for those missions.

The advanced hypersonic missile was developed by Sandia National Laboratory and the Army. Its first flight test took place in November 2011 and was successful, with the missile traveling from Hawaii and hitting a target at the Reagan Test Site on Kwajalein Atoll, Republic of the Marshall Islands.

Source: Chan Kai Yee “Space Era Strategy: The Way China Beats The US”

Source: National Defense magazine “US, China in Race to Develop Hypersonic Weapons”

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What the hack were they up to, MH370?


HackingHackers target information on MH370 probe

The computers of high-ranking officials in agencies involved in the MH370 investigation were hacked and classified information was stolen.

The stolen information was allegedly being sent to a computer in China before CyberSecurity Malaysia – a Ministry of Science, Technology and Innovation agency – had the transmissions blocked and the infected machines shut down.

The national cyber security specialist agency revealed that sophisticated malicious software (malware), disguised as a news article reporting that the missing Boeing 777 had been found, was emailed to the officials on March 9, a day after the Malaysia Airlines (MAS) plane vanished during its flight from Kuala Lumpur to Beijing.

Attached to the email was an executable file that was made to look like a PDF document, which released the malware when a user clicked on it.

A source told The Star that officials in the Department of Civil Aviation, the National Security Council and MAS were among those targeted by the hackers.

“We received reports from the administration of the agencies telling us that their network was congested with email going out of their servers,” said CyberSecurity Malaysia chief executive Dr Amirudin Abdul Wahab.

“Those email contained confidential data from the officials’ computers including the minutes of meetings and classified documents. Some of these were related to the MH370 investigation.”

About 30 computers were infected by the malware, CyberSecurity Malaysia said. It discovered that the malware was sending the information to an IP address in China and asked the Internet service provider in that region to block it.

An IP (Internet Protocol) address is a unique numerical label assigned to each device on a computer network.

“This was well-crafted malware that antivirus programs couldn’t detect. It was a very sophisticated attack,” Amirudin said.

The agency and police are working with Interpol on the incident.

CyberSecurity Malaysia suspects the motivation for the hacking was the MH370 investigations.

“At that time, there were some people accusing the Government of not releasing crucial information,” Amirudin said. “But everything on the investigation had been disclosed.”

Flight MH370 with 239 on board went missing on March 8 about 45 minutes after take-off.

Expert: Spearphishing needs a lot of planning and work

Hacker Anatomy of Spearphishing attack

Spearphishing attacks such as the ones that targeted the Civil Aviation Department and the National Security Council require a lot of planning and work, said a cyber security expert.

These point to either a very skilled attacker or group of hackers who have the know-how to spoof an email address to make it appear as if the message is coming from a familiar sender, said Dhillon Kannabhiran.

He is chief executive of Hack In The Box which organises the annual HITBSecConf series of network security conferences.

He said that sensitive and confidential documents should always be encrypted as an added layer of security against hackers.

How sophisticated an attack was, Kannabhiran said, depended on which version of the Microsoft Windows operating system was on the victim’s computer and how up to date the system security was.

By Nicholas Cheng, The Star/Asia News Network

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China’s Internet giants, Tencent to undercut Alibaba with billion chat app users


CHINA's Internet giants


Tencent Holdings Ltd. (700) faces the prospect of losing its position as Asia’s most-valuable Internet company this year after Alibaba Group Holding Ltd. (BABA) goes public. The Shenzhen-based company isn’t going to concede quietly.

Tencent is taking on Alibaba in almost every business related to the Web, from games to security to search. In the latest escalation of the battle, Tencent is expanding in messaging services and using the technology to drive customers to its e-commerce partners — in a direct challenge to its rival.

The fight exposes a rare vulnerability for Alibaba, which is planning an initial public offering that may be the largest in U.S. history.

Tencent has an enormous lead in messaging, with about a billion users for its QQ and WeChat products, compared with Alibaba’s last target of 100 million for its offerings.

Tencent is projected to report a 52 percent surge in profit when it announces second-quarter results today, bolstered by messaging.

“Tencent is using Mobile QQ and WeChat to take traffic away from Alibaba and direct people to e-commerce platforms backed by itself,” said Bill Fan, a Hong Kong-based analyst at China Securities Co. “Instant messaging hasn’t been Alibaba’s strong point, but it sees the viral effect that Tencent’s app is having so it’s trying to develop similar services.”

Photographer: Brent Lewin/Bloomberg Alibaba Group Holding Ltd., 24 percent owned by Yahoo! Inc., is competing with Tencent… Read More

Tencent’s two technologies let people trade messages over mobile phones and tablets, akin to the WhatsApp service that Facebook Inc. (FB) agreed to acquire this year for $19 billion.

QQ, which began as an instant-messaging service on desktop computers and was repurposed for use on mobile devices, has about 848 million monthly active users. WeChat, known as Weixin in China, has 396 million. (WhatsApp has more than half a billion active users.)

Most Valuable

The success of the messaging services has helped boost Tencent’s market value to about $161 billion, making it the most valuable Internet company in Asia.

Alibaba will compete for that title after it goes public. The latest estimate is that after the IPO the company could be valued at $187 billion, according to a survey of 11 analysts by Bloomberg. Tencent shares declined 0.2 percent as of 9:52 a.m. in Hong Kong trading, while the benchmark Hang Seng Index was unchanged.

Alibaba is trying to close the gap in messaging. In September, it started offering a service called Laiwang. Still, Tencent has continued to expand the features available through its apps to maintain its lead

Photographer: Brent Lewin/Bloomberg
QQ and WeChat helped triple Tencent’s mobile-game revenue to 1.8 billion yuan in the… Read More

“In the latest version of QQ, we have upgraded it to a platform for food, drinking and entertainment, and the number of cities we cover is also expanding,” said Dowson Tong, president of the company’s social network group that oversees QQ, in a recent interview.

Revenue Boost

Tencent has integrated games more tightly into its messaging services to capitalize on the China online gaming market, which IResearch projects will expand to 225 billion yuan by 2017.

QQ and WeChat helped triple Tencent’s mobile-game revenue to 1.8 billion yuan in the first quarter from the previous three months.

That trend likely continued in the second quarter. Tencent’s profit rose to 5.59 billion yuan in the three months ended June, according to the average of 11 analysts’ estimates compiled by Bloomberg.

That would make the second successive quarter with profit growth of more than 50 percent. Earnings climbed 61 percent in the three months ended March 2011.

QQ was the first iconic product billionaire Ma Huateng created at Tencent in 1999, two years after AOL Inc. (AOL)’s messaging service took off.

As more Chinese accessed the Internet, instant messaging became the most popular online app. Ma restructured QQ’s divisions in 2012 to take it mobile and the effort paid off.

Photographer: Brent Lewin/Bloomberg
QQ was the first iconic product billionaire Ma Huateng created at Tencent in 1999, two… Read More

Last year, 83 percent of China’s Internet users subscribed to Mobile QQ and 80 percent to WeChat, compared with Laiwang’s 23 percent, according to a survey among almost 4,000 people by Shanghai-based IResearch in June.

Stake Purchases

Tencent is now leveraging its vast user base to go after a bigger share of the China e-commerce market, which IResearch estimates will more than double from last year to 21.6 trillion yuan ($3.5 trillion) in 2017.

The company in March took a 15 percent stake in JD.com Inc., a direct competitor to Alibaba, and folded its own e-commerce assets into the venture. This year, Tencent has also agreed to buy 19.9 percent of Craigslist-like 58.com Inc. and take a 20 percent stake in Dianping.com, a website similar to Yelp Inc. that users review restaurants in China.

Single Click

Tencent has been working closely with JD.com and Dianping, directing traffic from Mobile QQ and WeChat to the websites, said Tong.

Those steps are beginning to yield results. A new single-click link to JD.com from Weixin produced an eightfold increase in daily transaction volumes compared with an earlier access that took two clicks, JD.com said in June. This month a similar integration with JD.com was provided to users of Mobile QQ.

Still, Tencent and its partners are far behind in e-commerce. Alibaba, which operates platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers, accounted for 76.4 percent of total mobile retail transactions in China, according to its IPO filing to the U.S. Securities and Exchange Commission.

The fact that Tencent wrapped its e-commerce assets into JD.com shows it wants to limit its investment in the segment, said Yao Yue, a Shenzhen-based analyst with Morningstar Inc.

“Even if Tencent’s instant messaging apps can direct a lot of traffic to JD.com, at the end of the day it still depends on who has the better shopping service, and Alibaba’s Taobao is dominant,” said Yao.

Alibaba hasn’t been able to achieve the same success in mobile messaging so far. The company in 2004 started Aliwangwang, a PC-based instant messenger for buyers and sellers, that is now used for negotiating prices, customer services and delivery notifications on its Taobao marketplace. It also has a mobile version called Wangxin.

Lagging Behind

Laiwang was started by Alibaba to broaden its reach, after billionaire founder Jack Ma alluded to Tencent being ahead in the messaging race at a Credit Suisse conference in March 2013.

“We also invested heavily, but we are not that lucky and not creative, so creative like Tencent, which has WeChat, such a powerful thing,” Ma said at the conference.

Ma has vigorously tried to promote Laiwang and said the company wouldn’t pay bonuses to staff who didn’t get 100 clients for the app before Nov. 30 last year, according to a post on the company’s microblog.

In an attempt to generate revenue from Laiwang, Alibaba said in January it would offer games on the app. A month later Alibaba’s Ma said the company’s achievement on mobile applications wasn’t satisfactory.

Alibaba spokeswoman Florence Shih declined to comment on the company’s mobile strategies, citing pre-IPO restrictions.

Jin Yuan, a Shenzhen mobile phone user, underscores the lead that Tencent has in messaging. Jin has been a QQ subscriber for the past 13 years and says Tencent does a better job of making messaging apps that are easy to use.

“I use QQ to keep in touch with friends I’ve known since the PC age and I use it for a lot of group chats,” Jin said. “I like to use WeChat a lot for sharing information about good places for food.”

By Lulu Yilun Chen Bloomberg

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  Showtime for Alibaba world-wide

Showtime for China’s E-commerce giant, Alibaba world-wide


Alibaba_Chinese_logoAlibaba, China’s eCommerce giant, has quickly come onto everyone’s radar as it presents the possibility of being the largest tech IPO ever. According to the New York Times, the company is expected to go on the market at a value of roughly $200 billion – larger than US tech companies Amazon, eBay or Facebook. This week, we bring you articles to explain who Alibaba is and what you can expect from them in the future.

Two weeks, three continents, and 100 meetings. That — and founder Jack Ma celebrating his 50th birthday on the road — is what it will take for Alibaba Group Holding Ltd. to pull off the largest initial public offering in U.S. history.

The Chinese e-commerce company is weighing a plan to start marketing the share sale to investors on Sept. 3, with management traveling across Asia, Europe and the U.S. before an initial public offering in the middle of the month, people with knowledge of the matter said.

The schedule, put forth by banks managing the IPO, would have meetings begin in Hong Kong and Singapore before executives travel to London and eventually host their first U.S. event in New York on Sept. 8, the people said, asking not to be identified discussing private information. The timeline has Alibaba targeting a Sept. 16 trading debut, the people said.

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The investor meetings — called a roadshow — will give Alibaba the opportunity to answer questions from the world’s biggest fund managers and build demand for its shares. With Alibaba and selling shareholders expected to raise as much as $20 billion, the IPO has the potential to be the largest in the U.S. The company’s official price range is expected to be revealed on Sept. 2.


Photographer: Tomohiro Ohsumi/Bloomberg

Jack Ma, chairman of Alibaba Group Holding Ltd., speaks at SoftBank World 2014 in Tokyo, Japan.

 

Monday Pricing

For trading to start on Sept. 16, Alibaba would have to set a final price the day before — a Monday. It is uncommon for companies in the U.S. to price IPOs on a Monday, in case news over the weekend negatively impacts market sentiment in the final day of the deal.

The plan is tentative and could change, although Alibaba wants to avoid debuting near the Jewish holiday the following week, one of the people said.

With six financial advisers already managing the sale, Alibaba plans to name additional banks that will have smaller roles on the deal, according to people familiar with the matter. The company will also update investors with earnings from the quarter through June, those people said.

Credit Suisse Group AG (CSGN), Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. are the most senior banks on the IPO. Alibaba may end up using more than 20 financial advisers in total, one person said.

Shares of Japanese wireless carrier SoftBank Corp. (9984), Alibaba’s largest shareholder, rose 2.4 percent at the close in Tokyo. Florence Shih, a Hong Kong-based spokeswoman for Alibaba, declined to comment.

Birthday Celebration

At $20 billion, Alibaba’s sale would edge past Visa Inc.’s $19.65 billion IPO in 2008 as the largest in U.S. history, data compiled by Bloomberg show.

Alibaba plans to divide executives into two separate teams, which will lead to about 100 meetings in total, according to the people. The teams will mostly be together for the larger group meetings, while separating to meet with individual investors, they said. The company hasn’t yet determined who from management will be attending each meeting, the people said.

In the U.S., Alibaba will also visit with investors in Boston, the Mid-Atlantic region, Kansas City, Chicago, Denver, Los Angeles and San Francisco, the people said.

On Sept. 10, when Ma celebrates his birthday, investor meetings will be held in New York, they said.

Alibaba is waiting until September to begin marketing the share sale as it seeks regulatory approval of its prospectus, a person with knowledge of the matter said last month. The company, which originally targeted an early August trading debut, is holding off to avoid rushing the deal as it continues discussions with the U.S. Securities and Exchange Commission, according to the person.

Discounted Valuation

The Chinese e-commerce operator may set its set its IPO value at $154 billion, or 22 percent below analyst valuations, in a move that could avoid repeating Facebook Inc. (FB)’s listing flop, according to the average estimate of five analysts surveyed by Bloomberg last month. The same analysts give Alibaba an average post-listing valuation of $198 billion, the survey shows.

Alibaba said yesterday it will sell its small-business lending arm to the company that already controls payments affiliate Alipay, separating itself from the last of its major financial units ahead of the IPO.

The sale takes financial and regulatory risk relating to the operations off of Alibaba’s balance sheet, while increasing the pool of profits the company can generate from them, the filing shows. The agreement also lifts a $6 billion cap, under certain conditions, on funds that Alibaba could receive if Alipay or its parent company go public, the filing shows.

By Zijing Wu and Leslie Picker Bloomberg

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China’s Internet giants, Tencent to undercut Alibaba with billion chat app users

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