Deal focus: Qiming sees Tuhu as agent of disruption

In addition to start-ups that connect drivers with potential passengers, online and mobile businesses extend into second-hand car sales and helping drivers find the best place to get a vehicle check-up or an oil change.

Tuhu Yangche falls into the latter category. It is a platform through which car owners can identify offline after-sales services providers, using the website or mobile app to purchase goods or make appointments.

"It is classic disruption," says J.P. Gan, managing partner at Qiming Venture Partners. "The major competitors are the offline dealerships. They want to do after-sales services for their customers but prices can be twice the factory cost. They try to maintain a high profit margin because they have an exclusive dealership but consumers can buy through Tuhu at a price that is 30-40% lower."

Tuhu was founded in 2011 and Qiming has supported the company through three rounds of funding. The most recent of these saw Hong Kong-listed leasing business Far East Horizon, Legend Capital, Joy Capital (formed following a spin-out from Legend Capital) and Qiming commit $100 million. This round is said to have valued the company at less than $500 million.

There are other mobile players in the market - in the last six months, GGV Capital has led a Series B round for Yangche Diandian while Lightspeed China Partners provided Series A funding to Yikuaixiu - but they can't match Tuhu for size. The company claims to be the largest automobile after-sales e-commerce platform in China, with a network of 1,200 third-party repair shops that spans 266 cities in 19 provinces.

Tuhu has also set up a number of wholly-owned service centers in key cities from which coordinates same-day delivery of products to consumers. Sales are said to have reached RMB300 million ($48.3 million) in 2014 and the target for this year is RMB1.5 billion.

The customer base and service functions are different to the auto-trading platforms that attracted so much private equity backing. However, Gan does not rule out consolidation within the broader automobile services market.

Indeed, last year when Warburg Pincus invested in Uxin, the auction company best known for B2B platform Youxinpai, there was talk of the company building itself in the image of Manheim. This company dominates the US used-car auction space and has also grown vertically to incorporate all kinds of financing, recovery, repair and information sharing components.

"It is not unusual for Chinese companies to try and enter new areas quickly and grab market share," Gan observes, although he notes that the priorities for Tuhu are customer acquisition and geographic expansion. "These businesses are all about cutting out the middle man and I can see why people talk about vertical integration. But it will take some time."

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