May 17 2014, 8:03am CDT | by Forbes
Venture capital and angel investors in China’s online cosmetics retailer Jumei, which went public May 16 on the NYSE, scored huge returns from small investments made in the startup founded just four years ago by Stanford MBA grad Leo Ou Chen, now China’s newest billionaire. The IPO again showcases the billions can be made in a short period of time in China’s tech race both by entrepreneurs and their venture backers as China tech IPOs in the U.S. add up this year.
Returns are in the high “hundreds” range from a $6.5 million Series A investment in 2011 by Sequoia Capital China, K2 Capital and Success Origin, a fund by angel investor Xu Xiaoping. Xu’s returns are in the “thousands” range from an initial bet he made on Jumei– the largest win yet for Xu, who has backed several Chinese tech startups since scoring his own startup success with NYSE listing in 2006 of New Oriental Education & Technology Group. Sequoia and K2 owned 18.7 percent and 10.3 percent of Jumei respectively while Xu held 8.8 percent.
None of the VC investors sold in the Jumei IPO, which raised $245 million and saw shares trade up nearly 29 percent at their market debut and close at a near 10 percent gain. In the recent market volatility, the IPO was downsized from an initial $400 million.
The public market trading debut of this latest venture-backed China startup – the fifth this year in the U.S. — bodes well for a series of Chinese tech companies preparing to list in New York. Job-hunting website Zhaopin filed last week for a $100 million IPO, and others in the pipeline include retailing website JD.com, mobile gaming company Chukong, and the one getting all the buzz, e-commerce conglomerate Alibaba.
Jumei shows the dragon power for startups with a well-formed strategy and team who can quickly capitalize on the commerce boom in China. Formed in 2010, Jumei claims to be the top online retailer of beauty products in China with a market share of 22 percent. Its revenues doubled in 2013 to $483 million and the startup has been profitable since 2012. In an indication of the power of mobile commerce in China, nearly half of Jumei’s merchandise volume was generated through its mobile application.
The story of western-educated young Chinese heading east to strike it rich continues to be a strong theme. Stanford grads have played a leading role in this unfolding story.
Founder Chen, 30, who has a 40.7 percent stake in Jumei, is a 2009 MBA graduate of Stanford, and its youngest China CEO. Jumei’s CFO Mona Meng Gao, 33, is also a 2009 MBA Stanford grad, class of 2009.
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