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Backlink: http://www.slideshare.net/SaikatNandy/chinese-8498157

Here's What You're REALLY Getting When You Buy Those Chinese Internet Stocks

The current crisis facing Yahoo -- which just saw one of its prize Chinese assets slip through its fingers -- should make all investors in Chinese equity sit up straight.

We said yesterday that everyone should be asking themselves: What do you really own, when you buy stock in these companies?

StoneStreetAdvisors highlights this diagram from the F-1 filing of video site YouKu.com.

So to start, you're not buying a Chinese company. You're getting a Cayman Islands company, which through a series of subsidiaries is connected to companies in Beijing that actually operate and run the business. But at least your Cayman Islands company owns those companies, right? Not really.

The F-1 explains:

We do not have an equity interest in 1Verge Information or Jiaheyi. However, as a result of these contractual arrangements, we are considered the primary beneficiary of 1Verge Information and Jiaheyi, and we treat them as our consolidated affiliated entities under the generally accepted accounting principles in the United States, or U.S. GAAP. We have consolidated the financial results of these companies in our consolidated financial statements in accordance with U.S. GAAP.

So your Cayman Islands company doesn't own the equity. It's just connected through contractual relationships, which in an ideal world would be a perfect analogue for equity (hence treating them as consolidated entities). The full post at StoneStreetAdvisors delves further into the contractual relationships, which is murky stuff that the average investor thinking they're buying the "YouTube of China" or the "Facebook of China" is never going to appreciate. But again, if even Yahoo can lose out -- and they own a stake directly in an actual Chinese company -- everyone's guards should be higher.

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See Also:

• Serious Chinese Wage Inflation Has Barely Even Begun
• China, The Global Locomotive
• China Posts A Trade Surplus Blowout That Will Make Politicians Howl

Here's What You're REALLY Getting When You Buy Those Chinese Internet Stocks

Backlink: http://feedproxy.google.com/~r/typepad/alleyinsider/silicon_alley_insider/~3/FvtzspJP0_c/org-structure-of-chinese-internet-stocks-2011-5

Chinese social network Renren.com is planning a U.S. IPO to raise $500 million.

Chinese social network Renren.com is planning a U.S. IPO to raise $500 million.

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Chinese social network Renren.com is planning a U.S. IPO to raise $500 million.

Backlink: http://feedproxy.google.com/~r/typepad/alleyinsider/silicon_alley_insider/~3/0BwHSC11b_A/chinese-social-network-renrencom-is-planning-a-us-ipo-to-raise-500-million-2011-2

Skype Founder Wants To Invest In Chinese Startups

Niklas Zennstrom, who co-founded Skype among other companies, and now has a venture firm called Atomico Ventures, wants to invest in Chinese startups. (TheNextWeb)

The Chinese internet of course has a lot of hype, as successful recent IPOs have demonstrated, but also many pitfalls, starting with protectionist regulations, not to mention censorship.

But here's what's interesting about Zennstrom's approach: he says China lacks originality, and he wants to help remedy that. The charge certainly rings true: most of today's big Chinese internet startups started as clones of successful startups elsewhere, although they then evolved into something fit for the local market. But this is where Zennstrom can have an advantage: the me-too charge is all too often leveled against Europe. And it's Zennstrom among others who has shown with Skype that it's actually the original startups that have the biggest returns.

Want to meet another original European entrepreneur? Meet Vente Privée's eccentric billionaire founder →

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Skype Founder Wants To Invest In Chinese Startups

Backlink: http://feedproxy.google.com/~r/typepad/alleyinsider/silicon_alley_insider/~3/oersh5NAtG0/skype-founder-wants-to-invest-in-chinese-startups-2011-2

Sequoia And DCM Pour $20 Million Into Chinese Gilt

DCM and Sequoia Capital invested $20 million in Vipshop, a private sales company operating in China, the firms announced this morning.

Vipshop works on the familiar Gilt/Vente-Privee model, but for more mainstream brands. China doesn't have a huge market for high-end designer fashion yet. Instead, Vipshop offers brands like Nike and Adidas to China's massive new middle class. Ultimately, Vipshop hopes to use its own brand to begin introducing Chinese consumers to higher end labels.

More broadly, VCs like DCM and Sequoia are extremely bullish on Chinese ecommerce. The growth of the Chinese middle class has happened extremely quickly, and brick-and-mortar outlets haven't been able to keep up. Outside the centers of the countries biggest cities, there generally aren't physical stores that can offer the products Chinese want.

The $20 million round is actually a series A, but Vipshop is already fairly large, with around 700 employees. The money will go toward scaling up the companies infrastructure and making a big push in marketing and user acquisition.

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See Also:

• THE GOOGLE INVESTOR: Hey China, You're Not Going To Be Able To Police A Billion Phones
• Gilt-For-Indian-Fashion Site Exclusively.in Raises Venture Cash
• Mark Zuckerberg's Brutal Prank On Sequoia

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