Li Xiaoyang was promoted to corporate vice-president and effectively second-in-command to China-based and Nasdaq-listed online classifieds marketplace 58.com’s chairman and CEO, Jinbo (Michael) Yao, in June.
The promotion reflected his work over the previous three years as initially senior investment manager than head of mergers and acquisitions and strategic investment at 58.
Li, a speaker at the inaugural Global Corporate Venturing Asia Congress in Hong Kong September, said: “I helped the corporate to expand beyond the current industry boundaries through equity investment and M&A. Since I joined 58, I have led over 40 deals across different sectors.”
These deals include Anjuke and Ganji, which have helped 58 to a market share in domestic real estate of more than 80% and helped the company to dominance of China’s rental and classifieds businesses.
In turn, these deals have helped take 58’s revenues to more than $410m in the third quarter of last year (up by a third from the same three months in 2016) and a market capitalisation of more than $10bn on the New York Stock Exchange as at 22 December.
From a position of one of more than 500 Chinese copycats to US peer Craigslist when 58 was founded in 2005, Yao’s company was already nearly twice as large as Craigslist by its annual revenues in 2016 and continued to innovate in its marketing and services to maintain its market share and growth rates while returning to net profits last year.
Of its minority, corporate venturing investments, 58 invested $25m in Beijing-based online designated driver reservation services provider eDaijia in October 2014, $34m in March 2015 for a minority stake in To8to as part of its $200m series C round, and completed a swap of its 65.7% stake in Mighty Talent (Mayi), a China-based short-term and vacation rental platform that was owned by Ganji, for a minority stake in peer Tujia.
The speed and sophistication Li has brought to 58’s dealmaking has been impressive. In November 2014, 58.com acquired Chinese recruitment platform M91.cn for an undisclosed amount. In March 2015, 58 acquired Anjuke for $267m to become the Chinese version of Zillow with a “dominating market share in online real estate,” according to Li.
A month after that and 58 bought 43.2% of Falcon View Technology (the holding company for Ganji) for 34 million shares and $412.2m in cash. Over a three-year period management of Ganji and 58 was effectively merged and 58 effectively was able to consolidate its oversight of the remaining shares in Ganji in August through a complicated structure: as a limited partner, 58 committed an aggregate of 46.5 million newly issued ordinary shares and $406.7m in cash to several private equity funds that, together with China-based media group Tencent, acquired all the remaining equity interests in Ganji.
And Tencent has been instrumental in funding 58’s growth. Concurrent to its April 2015 purchase of a stake in Ganji, 58.com also announced a $400m additional investment by Tencent in 58.
Similarly, in April 2017, 58.com agreed to spin out its second-hand goods mobile commerce platform Zhuan Zhuan with $200m of funding and resources from Tencent.
Tencent has been a long-term investor in New York Stock Exchange-listed 58.com, having paid $736m for a 19.9% stake in 2014 (at a plus-$3.5bn valuation) before adding $100m later in the year and then the $400m at $52 per American depository share (which is worth about two ordinary shares) to own 25.1% of the total issued and outstanding shares of 58.com on a fully-diluted basis.
Given 58’s current share price of $70 compared with an original flotation price of $17 each and the investment in 58 has been a success, worth at least $2.5bn on paper but also providing insights into the data and traffic on ecommerce in China in competition to online shopping service Alibaba.
However, 58 through Li has stayed open to Tencent’s peers. In late 2015, 58.com agreed a $300m series A round for 58 Daojia, its 58 Home subsidiary, with participation from Alibaba, private equity firm KKR and China-based insurer Ping An Group.
Founded in September 2014, 58.com maintained majority ownership of 58 Home after the A round, which valued the subsidiary at more than $1bn.
From its 2016 annual report, 58 said: “We generated net income in 2014 but incurred losses in 2015 and 2016. Our loss in 2015 was attributable to increased competition and the fact that we had new initiatives such as 58 Daojia, or 58 Home, a mobile-based closed-loop transactional platform for home services, and Guazi.com, or Guazi, a subsidiary that operated our consumer-to-consumer used car trading platform, that were still in early stages of development.
“We have ceased consolidating 58 Home’s financial results in our consolidated financial statements since its completion of series A equity financing round on November 27 2015 [but take its share of any losses as an investor], and we divested Guazi on December 31 2015.” In June last year, Guazi raised $400m in its series B round from a host of financial investors.
Within China’s burgeoning economy and online market, the close ties and guanxi – the relationships individuals cultivate with other individuals – of leading investors has been instrumental in the growth of certain companies and individuals.
For 58 to have stood out from its rivals required significant funding from venture capital firms, such as Warburg Pincus, DCM Ventures and SAIF Partners.
SAIF, which initially started out as SoftBank Asia Infrastructure Fund in 2001 with a $400m fund in which US-listed networking equipment maker Cisco Systems was the sole limited partner, invested 58.com in 2006 as a series A investor right after the foundation of 58, Li said, who joined SAIF in 2011 and was “deeply involved in portfolio management for 58”.
After studying electrical engineering at Tsinghua and Cornell universities, from 2011 to 2013, Li had been an associate at SAIF Partners, which had also invested in Anjuke as well as 58. Li then moved to technology firm Qihoo 360 as a senior investment manager for a year before joining 58.
And he has enjoyed the shift to corporate venture capital. Li said: “There are many reasons that attract me to CVC: CVC is industry-backed, it not only provides me with the vision to distinguish a project with great potential, but also with valuable industry insights; CVC enables me to get more comprehensive network exposure in the industry; and CVC allows me to empower emerging leaders who have the next generation of industrial technology with strong potential, contributing to a better world.”
Li added that although “all CVCs have their own specialties and strategic focus, and they all performed quite well in their industries which in return accelerates the upgrading of business”, to make a stronger industry “CVCs should work harder to make a better world through offering quality services and creating more value for customers, along with healthier competition”.
His own ambitions remain to help a “Chinese company to globally expand through M&A, as well as partner foreign corporates which dominate in their local industry for win-win solution”.
But to do this he is focusing on his biggest challenges, “opportunity cost and talent retention”.
Li said he was looking for ways to “minimise the opportunity cost, which includes enhancing time efficiency and maximise the contribution of projects” and “create more room for the talented” people in the investment team.
This hard work is likely to lead to another big project to be completed before the Chinese new year holiday in mid-February and see Li’s star rise even higher.