November 12, 2010 / 4:20 PM / 9 years ago

Chinese startups copy U.S. counterparts

SAN FRANCISCO (Venture Capital Journal) - DCM and Sequoia Capital China are betting they can take a successful model and apply it in China.

The homepages of Baidu and Google are seen on a computer screen in this illustration photo April 29, 2010. REUTERS/Bobby Yip

The two firms have invested $20 million in a Series A round of funding in Vipshop (http://www.vipshop.com), an online retailer in China, similar to the U.S.-based Gilt Groupe or the European-based Privalia and Vente Privee. The companies sell high-end apparel and accessories for discounts in limited-time opportunities, what’s known as flash sales.

The funding of Vipshop is the Beijing-based company’s first institutional round of funding. Vipshop, founded in 2008, had previously raised a small amount of money from friends and family, according to DCM General Partner Tom Blaisdell.

Vipshop currently works with more than 400 retail brands, including Adidas, Esprit, Nine West, Kappa, Ochirly, GEOX and Triumph, according to a company press release. The company has about 1.5 million members in China.

Blaisdell said many ecommerce sites are quickly taking hold in China, thanks in large measure to the absence of brick-and-mortar retail stores in the country. China doesn’t have the same infrastructure advantages as its Western counterparts. Plus, the consumer base is huge. Blaisdell said China has some 400 million Internet desktop users, plus an estimated 600 million cell phone users.

In addition, China has a growing and affluent middle-class, which now numbers more than 120 million, according to statistics provided by the company, and Blaisdell said Vipshop can serve as a distribution channel for out-of-season stock, in which there typically is no shelf space in Chinese stores.

“Given China’s unique marketplace, there is additionally an important need for brands and distributors to work with credible online retail channels to reach their target audience,” according to the company press release.

China is already ripe with many examples of Internet companies that may seem familiar to U.S. consumers.

For example, Beijing-based 58.com, a classified ads portal in China, is similar to a Craigslist with some Yelp-like services. It raised $15 million in its second round of venture funding from DCM and Softbank Asia Infrastructure Fund.

Ctrip is a travel site similar to Travelocity, while Baidu.com is often called the Google search engine of China. DongDong.com, an online bookseller, is comparable to Amazon.com.

“The Internet, social networking and ecommerce are all growing in China because (they are) so scalable,” Blaisdell said. “Fifteen to 20 years ago, there was no consumer-based economy in China, but that has changed over the years.”

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