Are Chinese Tech Startups Overvalued?
Technology startups in China are raising cash at a record pace from private investors, prompting concerns about potential overvaluation. The latest hot deal is an $800 million-plus round for Shanghai-based Dianping, an online-review site similar to Yelp Inc., as the WSJ’s Rick Carew and Juro Osawa report.
Late demand from new investors increased the fundraising, pushing Dianping’s valuation to around $4 billion, according to people familiar with the situation. That is twice what it was a year ago and more than publicly traded Yelp’s $3.4 billion market capitalization. The deal comes on the heels of Dianping’s chief rival, Meituan.com, raising $700 million in January.
Skeptics point out that Chinese technology companies are getting hefty price tags when they haven’t figured out how to generate revenue consistently, let alone make a profit. Investors and Internet entrepreneurs are using metrics such as user numbers and gross merchandise volume—a common yardstick for e-commerce transactions—rather than revenue and profit.
