Alibaba just reported a very impressive quarter of business, but there was a small nugget of notable funding news tucked away in its announcement. Koubei, an Alibaba affiliate company focused on enabling local commerce, closed a $1.1 billion financing round this month.
The funding was led by Silver Lake, CDH Investments, Yunfeng Capital and Primavera Capital, Alibaba said. It isn’t clear what date it was completed other than it happened in January.
In October, The Wall Street Journal reported that Koubei was in the process of raising $1 billion, but this is the first time it has been confirmed. The Journal claimed Koubei would be valued at nearly $8 billion, but we haven’t been able to verify that yet.
Koubei is a joint venture founded in 2015 by Alibaba and Ant Financial, an Alibaba offshoot that manages its Alipay service and other financial tech initiatives. The idea behind it is to generate business for local retailers by bringing them online, while also offering new commerce opportunities for consumers. For example, helping a local pizza chain reach new customers or making a pop grocer more accessible to people with limited time to go in person.
Alibaba and Ant Financial both put RMB 3 billion (worth around $480 million at the time) into Koubei when it was created, but this round marks the first money from external investors.
According to Alibaba’s latest data, $10.5 million (RMB 73.1 billion) was spent through Alipay alone on the Koubei service during Alibaba’s Q3 period. The firm said that figure was a 52 percent increase on the previous quarter, but it isn’t saying how much money Koubei is losing right now. You can bet your bottom dollar that it is burning a lot right now since there is plenty of competition in the market. Plus, Alibaba can afford to speculate to accumulate and it is actively diversifying its revenue streams to lessen its dependency on its core e-commerce services.
Meituan-Dianping, a company formed by a multi-billion dollar merger, is the biggest fish in China’s offline-to-online pond. One year ago, it raised a $3.3 billion funding round at a valuation of $18 billion. Back then in January 2016, it claimed to have processed RMB 170 billion ($25.84 billion) in gross merchandise volume during 2015. It added that it was serving 150 million monthly users and handling around 10 million orders each day. That puts some perspective on Koubei’s data.
There’s also Ele.me which counts Alibaba as one of its investors. Alibaba and Ant Financial — those two again — made a $1.25 billion investment in the company last summer, but it appears that the idea is for Ele.me to work with, not against, Koubei.
Given that competition it is no surprise that Alibaba was keen to bring in further investment. The e-commerce giant said that the funding round “provides Koubei with a strong capital base to execute on its aggressive growth strategy.”
There’s plenty of precedent for Alibaba affiliate companies raising money from investors. Ant Financial, which is tipped to go public, pulled in $4.5 billion at a massive $60 billion valuation last year, while logistics affiliate Cainiao raised a round that values it at a reported $7.7 billion.