DCM, Sequoia-backed Vipshop drops 15% on NYSE debut

Vipshop is the first Chinese company to list in the US since August 2011. Its weak performance - despite DCM and Sequoia agreeing to buy an additional $20 million of shares in the offering - is seen as an indication that investors are still uncomfortable with Chinese firms,following the spate of accounting irregularities that emerged in 2010 and continued into last year.

There is also uncertainty surrounding the variable interest entity (VIE) structure used by Vipshop to get around restrictions on direct foreign ownership in certain sectors in China, including the internet space. The government plans to change the VIE system and, while it is unlikely that the mechanism will be removed entirely, it is unclear what will happen.

Established in 2008, Vipshop has yet to post a profit. Net revenues came to $227.1 million in 2011, up from $2.8 million in 2009, but losses have widened in this period, rising from $1.38 million to $107.3 million.

This is not unusual among internet-related companies in China, with investors counting on the growth in the e-commerce industry. According to Frost & Sullivan, there were 187 million online shoppers in 2011, up from 80 million three years ago. This number is projected to hit 363 million in 2015, representing compound annual growth of 18% between 2011 and 2015. Online sales revenue is expected to reach RMB2,551 billion ($404 billion) by the end of this period.

As of December 31, 2011, Vipshop had 12.1 million registered members and over 1.7 million cumulative customers. It is known for selling branded domestic and international fashion wear at discount prices.

According to the IPO prospectus, entities controlled by DCM and Sequoia owned 20.1% and 21.4% of Vipshop respectively, ahead of the offering. The VC firms committed $20 million to the company's Series A round in late 2010 and followed up with $50 million in the Series B round last May. Hurst Lin, a partner at DCM and formerly COO of Sina Corporation, sits on the Vipshop board alongside Xing Liu, a managing director at Sequoia Capital China.

The company's independent directors include the CEO of 7 Days Groups Holdings and the COO of 51job, two Chinese VC-backed players that went on to list on NASDAQ.

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• Topics
• Technology
• Consumer
• Greater China
• IPO
• USA
• China
• TMT
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• DCM-Doll Capital Management
• Sequoia Capital