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Posts Tagged ‘equity-partners’

Chinese search leader Baidu and Rakuten, Japan’s largest e-commerce player, have announced an agreement to jointly invest US$50 million over three years in a joint venture to build a huge online ‘B2B2C’ shopping mall for Chinese Internet users.

Under the terms of the agreement, Rakuten will become majority shareholder of the new, yet to be named joint venture (51%) with Baidu owning the remaining 49%.

B2B2C refers to an online marketplace that links and provides value-added services to both business to business and business to consumer.

The online mall, which is expected to go live in the second half of 2010, aims to provide customers with merchandise from well-known Chinese and foreign brands as well as small and medium sized enterprises at ‘competitive prices’. The mall is anticipated to quickly become the largest online B2B2C shopping mall in China.

Rakuten sure has the experience of running such ventures: founded in 1997 as MDM Inc., the company operates Rakuten Ichiba, Japan’s leading Internet shopping mall with over 30,000 participating merchants and over 47 million items registered on its e-commerce platform.

Baidu, meanwhile, has seen two top executives depart the company just this month (both CTO Yinan Li and COO Peng Ye bailed citing ‘personal reasons’), but that hasn’t stopped it from teaming up with other companies to strengthen its foothold in China.

Earlier this month, word got out that Baidu was setting up a new independent online video company in partnership with Hulu investor Providence Equity Partners.

Pittsburgh-based ticketing startup ShowClix recently raised Series A funding from Pittsburgh Equity Partners (PEP), a newly established venture capital firm with a focus on seed and early-stage information technology and life sciences investments in the region.

The amount invested was undisclosed, but as several blogs noted an SEC filing at the time the announcement was first made revealed that the company at the time had brought in $570,000 of an $850,000 round. Co-founder Joshua Dziabiak now says the round ultimately totaled ‘between $750k and $1.5M’. They had earlier raised about $400,000 in seed funding from Innovations Works.

The company says it will use the funds to expand its staff, for sales and marketing efforts, and to extend customer support.

ShowClix provides web-based solutions to event organizers, promoters and venue managers across the U.S., providing performing arts centers, nightclubs, live music venues, non-profit organizations etc. with a way to sell event tickets online, over the telephone or in-person through a point-of-sale/box office system. The startup thus taps into a multi-million dollar market but faces stiff competition from TicketMaster and others.

(Disclosure: I’m a minor investor in Oxynade, which is also into ticketing services yet aimed at European event organizers)

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Facebook has been pitching for a new round of funding these last few months to bridge itself to an IPO sometime in the future. We’ve known that since October, when (former) CFO Gideon Yu was in Dubai. In December CEO Mark Zuckerberg said the company was open to raising new money but only at the previous $15 billion valuation set by Microsoft.

But we’ve heard more recently that the company has been pitching hard for new cash at a much reduced valuation, hoping for at least $4 billion. And some investors are biting, but not at that price. A source with knowledge of the possible transaction tells us that Providence Equity Partners (who are also investors in Hulu) and General Atlantic have submitted term sheets at “around $2 billion” valuations.

Will Facebook take the expensive new money from Providence or General Atlantic? They may be forced to. They’re burning as much as $20 million a month in cash and are dealing with ridiculous growth. They likely have less than two years runway left, and possibly significantly less if they continue to add new users by the tens of millions that are currently flocking there every month.

The cost of taking money at such a low valuation is higher than it appears. In addition to the direct dilution to stockholders from the new money, old investors at the $15 billion valuation may need to be made whole. Venture rounds traditionally include anti-dilution provisions that give investors more stock if the company raises new money at a lower valuation. Those anti-dilution provisions are heavily negotiated and can end up anywhere from full protection (which is very rare) to no protection at all (which is also very rare). It’s likely that there will be some form of additional dilution, possibly a lot of it, from the $375 million Facebook has raised at that valuation.

As an interesting side note, Providence was heavily involved in the $15 billion round, and submitted a term sheet in the $10 billion range or higher at that time. The big rumor is that Facebook convinced Microsoft that the competition was Google, not a private equity firm, and it helped close the deal at a much higher rate. If there is truth to these rumors, and we believe there is, Providence dodged a big bullet by waiting patiently for the market to come down.

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