Xiaomi Ventures invests in Kingsoft gaming unit Westhouse
Xiaomi Ventures, a corporate VC unit of Chinese mobile phone maker Xiaomi, has invested $20 million in Westhouse Group, a game developer controlled by Kingsoft Corporation.
Kingsoft Entertainment, the Hong Kong-listed company's entertainment software division and majority owner of Westhouse, is putting in a further $5 million to minimize the dilution effect. According to a regulatory filing, Xiaomi Ventures will hold 4.7% of Westhouse while Kingsoft Entertainment's stake will fall to 76.5%.
The balance of the company is owned by WestGame Holdings, a vehicle controlled by founding employees of the Westhouse. It took a 20% stake - now diluted to 18.8% - in Westhouse when Kingsoft completed a restructuring of the business in 2011.
The restructuring was one of a raft of changes at Kingsoft led by Lei Jun, a co-founder and former CEO of the company who now serves as its chairman. This saw Kingsoft's three major subsidiaries - enterprise software division Kingsoft Office Software, security software provider Kingsoft Internet Security and Kingsoft Entertainment - spun out so they could operate with greater independence.
As with Westhouse, Kingsoft remains the major shareholder in each business.
Lei, one of China's best known superangel investors, has founded or co-founded a string of start-ups, including VC-backed Xiaomi. He is also co-founding partner and chairman of Shunwei Capital Partners, a venture capital firm founded in 2011 that raised more than $200 million for its debut fund.
Shunwei teamed up with GGV Capital and Morningside Technologies to invest $50 million in Kingsoft Office Software in November 2013. The funds will be used to take Kingsoft Office's longstanding battle with Microsoft Office for supremacy in China across borders and onto new platforms.
Another part of the Kingsoft business - cloud computing provider Kingsoft Cloud - sold a 10% stake to Xiaomi for $1.82 million in December 2012.
The Westhouse board said that Xiaomi's investment represents a validation of the Westhouse business, and in particular its online gaming operations, an area in which the two companies are expected to cooperate. "Westhouse Group and Xiaomi will further explore the opportunity of cooperation in the area of mobile games," the board added, "whereby Xiaomi would be a strategic distribution partner of Westhouse Group's mobile games."
Westhouse had a book value of approximately RMB156.5 million ($25.8 million) as of December 2012. It posted a net profit of RMB107.4 million in 2012, up from RMB83.5 million the previous year, while revenues came in at RMB250.4 million, a year-on-year gain of 23.4%.
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