VC-backed China tech firm YY jumps 7% on NASDAQ debut

YY's offering raised $81.9 million after selling 7.8 million shares at $10.50 apiece, the bottom end of its indicative range. The stock reached $11.75 during trading before eventually closing at $11.31. Of the three Chinese companies that have listed in the US this year, YY is the only one not to fall below the IPO price on its opening day.

The company was set up in 2005 and launched its core product, YY Client, three years later. It acts as a social platform that allows real-time group-based engagement between users through voice, text and video. As of September 2012, it has 400.5 million registered users and, in August, achieved 10 million peak concurrent users and approximately 70.5 million monthly active users.

The platform now comprises YY Client, a free-to-download, PC-based networking software program, web portals YY.com and Duowan.com and Mobile YY. The company claims to go further than existing instant messaging services by fully integrating voice, text and video. According to iResearch, YY had an 84.2% market share in real-time voice communications in China by user time spent.

YY has seen its revenues increase from RMB32.7 million ($5.2 million) in 2009 to RMB319.7 million in 2011 and then RMB553.2 million for the first nine months of 2012. It posted operating losses until this year, with an unaudited profit of RMB55.9 million.

The company is said to have received angel funding from Kingsoft founder Jun Lei, who now serves as chairman and is credited as co-founder alongside CEO David Xueling Li.

After restructuring as an offshore entity in 2006, YY (then known as Duowan) received its first institutional funding - a $4 million round from Morningside Technologies, an investment company set up by the Chan family, owners of Hong Kong real estate developer Hang Lung Group - in 2007. Walt Disney Company reportedly led the Series B round in 2008.

GGV Capital and Steamboat Ventures joined Morningside in a Series C round worth $23 million in late 2009. This was followed by a $75 million fourth round of funding last year, led by Tiger Global Management.

Prior to the IPO, Lei and Li each owned 23.7% of the company, with Morningside entities, Steamboat, GGV and Tiger Global holding, 18.6%, 12.2%, 8.8% and 8.4%, respectively. According to the prospectus, none of these parties completed a whole or partial exit via the IPO.

Ever since accounting irregularities were exposed at several US-listed Chinese firms - and short sellers went to work trying to uncover similar problems in other companies - IPOs have been difficult. In 2010, 38 Chinese companies went public in the US; in 2011, it was 13; this year it is just three.

Online retailer Vipshop Holdings raised $72.7 million in March, but VC backers DCM and Sequoia Capital had to buy an additional $20 million shares in the offering, and then the company closed down 15% on its first day of trading. China Auto Rental didn't even get that far: the company pulled the plug on its offering in May and ended up securing a $200 million equity investment from Warburg Pincus.

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• Topics
• Technology
• Greater China
• North America
• Venture
• IPO
• TMT
• China
• USA
• Morningside Technologies
• GGV Capital
• Tiger Global Management