Vipshop buys majority stake in VC-backed China cosmetics site

The seller is Ovation Entertainment, the holding company for Lefeng. It received an undisclosed sum in Series A funding from Sequoia in 2008 and then a $40 million Series B round from China International Capital Corp. (CICC) and China Broadband Capital in 2012. Ovation's other assets include e-commerce platform Lafaso.com and several proprietary brands.

As part of the transaction, Vipshop entered into agreements with the Chinese affiliates of Lefeng and Ovation that will see cosmetics, apparel and other consumer products developed under Ovation's brands sold via vip.com and lefeng.com. Vipshop has committed to sell at least RMB900 million ($148 million) of Ovation products in 2014.

"The acquisition of Lefeng supports our goals of diversifying our product offerings, expanding our customer reach and further enhancing our customers' experience," Eric Shen, chairman and CEO of Vipshop, said in a statement. "With this addition to the Vipshop platform, we will be able to immediately augment our cosmetics offering, further expanding upon our leadership in China's discount retail market."

Founded in 2008, Vipshop specializes in flash sales - offering branded goods online at sharp discounts, but only for a limited period of time. It had 26.8 million registered members and had sold products for more than 5,800 domestic and international brands as of year-end 2012.

The company wasn't profitable when it listed, having incurred net losses of $8.4 million and $107.3 million in 2010 and 2011. Revenues jumped more than threefold in 2012 to $692.1 million, narrowing the net loss to $9.5 million. Vipshop recorded a profit of $6.3 million for the fourth quarter of the year.

DCM and Sequoia committed $20 million to the company's Series A round in late 2010 and followed up with $50 million in the Series B round in 2011. They bought an additional $20 million of shares in the IPO, which raised $72.7 million, and started to trim their holdings last year.

Vipshop's investment in Lefeng follows acquisitions by two other VC-backed Chinese tech companies that have listed in the last year or so. Sungy Mobile bought US-based mobile ad network GetJar last week, while LightInTheBox picked up social e-commerce site Ador in January.

The Vipshop deal is broadly in keeping with expectations that China's online platform owners will invest more in online brand owners. The idea is that merchants will effectively move horizontally along the value chain - claiming a larger share of the revenues as they go - by designing products themselves and driving the online marketing.

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• Topics
• Exits
• Venture
• Greater China
• Technology
• Consumer
• Consumer
• TMT
• China
• Sequoia Capital
• M&A
• Exit
• DCM-Doll Capital Management
• CICC
• CBC Partners / CBC Capital