Deal focus: All-Stars backs Tujia’s consolidation agenda

In March this year, Airbnb reportedly raised $1 billion at a $31 billion valuation as it set its sights on China with the launch of Aibiying. Expectations around the company’s latest attempt at cross-border conquest remain muted, however, as private equity interest in China’s homegrown online accommodation industry heats up.

This activity includes a $300 million Series E round from All-Stars Investment and Ctrip in Tujia – China’s largest homestay player by transaction volume – at a valuation of more than $1.5 billion. All-Stars is now the company’s second-biggest shareholder, having participated in a $300 million round in 2015. Earlier backers include Lightspeed China Partners, CDH Investments, and Expedia.

The round demonstrates investor confidence in homegrown leaders despite the encroachment of international giants. Google, Amazon, and eBay have all failed to make meaningful traction in China due to regulatory difficulties and a lack of local knowhow. Airbnb is expected to be no different.

“Home sharing is matchmaking between online tourist traffic and room supply, and since Tujia has semi-exclusive access to both of these resources, the entry barriers become very high,” says Richard Ji, managing partner and CIO of All-Stars Investment. “The overall hotel industry is growing at 10-15% a year, but Tujia is growing at 300% a year in terms of transaction volumes because of this advantage.”

Tujia’s key differentiator is its connections to local governments, which in turn provide access to swaths of idle property development – the overflow of China’s ongoing construction boom. At the same time, the company has gained access to large channels of online customer traffic by acquiring the homestay businesses of Ctrip and Qunar. 

The fresh capital will support technology development, including big data applications that optimize room recommendations according to individual pricing and service preferences. The company is also working with Expedia to tap China’s outbound tourism spend by furthering its international growth.

While Airbnb has about three million listings globally, Tujia has more than 650,000 apartments on its platform covering 345 destinations in China and about 1,000 overseas. It also runs a property management business that helps maintain properties.

Closing this gap will likely be more a matter of consolidating the local sharing economy than expanding overseas. China’s tourism market is already the second-largest globally. As these travelers are increasingly introduced to the homestay concept, Tujia could replicate Airbnb’s runaway primacy where it matters most.  

“Online marketplaces tend to have that winner-take-all phenomenon because there’s a network effect,” says Ji. “If more rooms can be supplied, it attracts more tourists and vice versa, so there’s a virtuous cycle going on that clearly favors the dominant players like Tujia.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Expansion
• Real estate
• Technology
• China
• Growth capital
• All-Star Investments