How a Chinese anti-virus software maker builds a fintech firm to wrestle with giants

360 Finance, an online consumer loan platform that spun off from China’s anti-virus service giant 360 Group, has joined a raft of Chinese fintech companies to go public in the U.S. over the last two years. The company priced its initial public offering at $16.50 per share last Friday, raising $51 million by selling 3.1 […]

360 Finance, an online consumer loan platform that spun off from China’s anti-virus service giant 360 Group, has joined a raft of Chinese fintech companies to go public in the U.S. over the last two years.

The company priced its initial public offering at $16.50 per share last Friday, raising $51 million by selling 3.1 million American depositary shares. The stock ended its first day unchanged when escalating trade tensions have threatened to beat down shares of U.S.-listed Chinese firms.

360 Finance’s net loss widened to 572 million yuan, or $86.4 million, for the six months ended June 30 compared to 67 million yuan for the same period of 2017. The company notes in a regulatory filing that the jump was partly due to increased expenses from share-based compensation.

Meanwhile, the net income climbed from 60 million yuan in 2016 to 309 million yuan in 2017. 360 Finance drove most of its revenues from loan facilitation and post-origination services for consumers, although microcredit lending targeted at small enterprises will be a future focus, chief executive officer Xu Jun told TechCrunch.

360 Group, of which founder and CEO Zhou Hongyi owns a 14.1 percent stake in 360 Finance, marks the first in a clutch of Chinese internet-focused companies — including Alibaba, Tencent, Baidu and JD.com — to see their consumer finance affiliates go public. Some of these services have mulled a flotation while others are pulling in fresh capital to fuel growth.

Ant Financial, the payments juggernaut controlled by Alibaba founder Jack Ma, reportedly postponed its U.S. IPO plans amid regulatory pressure and growing rivalry in China. Market watchers put its valuation at a whopping $150 billion after it snagged $14 billion from a Series C round in June.

WeBank, an online-only bank that counts Tencent as a major shareholder, has kept its valuation in the dark but an auction in November revealed that it was worth about $21.3 billion.

JD Finance, the financial affiliate of Alibaba’s main rival, said in June that it didn’t have an IPO plan as it raised $1.96 billion at a valuation of nearly $20 billion.

In April, search titan Baidu sold the majority of its financial services — which it rebranded to Du Xiaoman — to a consortium of investors in a deal worth $1.9 billion.

Despite its IPO milestone, 360 Finance faces intense rivalry at home. A report by management consulting firm Oliver Wyman shows that 360 Finance ranked fifth among China’s fintech platforms in terms of loan origination volume in the second quarter. Ant Financial took the top spot while WeBank, JD Finance and Baidu’s financial arm followed behind.

360 Finance is vying for consumer attention in an online world dominated by larger peers who are capitalizing on the enormous user base of their allies. Ecommerce behemoth Alibaba, for instance, had 666 million monthly active users on mobile devices as of September and Tencent’s WeChat messenger reached over 1 billion MAUs.

By comparison, 360 Group has about 500 mobile MAUs, which its financial partner believes could lead to an edge in marketing and risk management.

“As the largest cybersecurity company in China, 360 Security has an unfair advantage in fighting frauds,” said Xu.

That’s because 360 Security gleans reams of user behavioral data from its security browsers to determine borrowers’ “willingness” to repay loans.

“For instance, we flag those who often visit gambling sites or have installed a lot of personal lending apps,” said Xu. “On the other hand, companies such as ecommerce services only have insights into whether users are ‘able’ to repay by looking at their shopping history. The willingness to repay becomes very relevant when you are giving out smaller loans. People are usually able to repay 4,000 yuan [$580], but not everyone is willing to do so.”

The executive added that the 360 Security partnership also helps lower user acquisition costs, though he doesn’t want to rely on one marketing channel in the long run. 40 percent of the proceeds raised in the IPO will go towards promotion.

360 Group currently contributes over 22.7 percent of the lending firm’s borrowers. App stores bring about two-thirds of the traffic while the remaining comes from news feed ads in popular apps like TikTok and user engagement on social media, according to the CEO.

The SaaS VC gap: China & other markets trail the US

Jason Rowley Contributor Jason Rowley is a venture capital and technology reporter for Crunchbase News. More posts by this contributor Early-stage SaaS VC slip snaps recovery as public software stocks soar International growth, primarily in China, fuels the VC market today Chinese startups rule the roost when it comes to total reported venture dollars raised […]

Chinese startups rule the roost when it comes to total reported venture dollars raised so far in 2018. That is, mostly. In one key category at least — software-as-a-service, better known as SaaS — they do not.

Ant Financial raised the largest-ever VC round in June, a mind-boggling $14 billion in Series C funding. And nearly a dozen privately held Chinese companies, including SenseTimeDu Xiaoman FinancialJD Finance and ELEME, raised $1 billion (yes, with a “b”) or more in single venture rounds thus far in 2018.

But if there’s one thing to note from that shortlist of 2018’s largest China venture rounds, it’s this: almost all of them involve consumer apps and services. Despite being one of the largest economies in the world and currently holding the top spot in the national venture dollar ranks, China doesn’t seem to have too much in the way of enterprise-focused software funding.

But why trust your gut when the trend is borne out in the numbers? In the chart below, we show the top five global markets for SaaS investment (plus the rest of the world). We compare each market’s share of SaaS-earmarked funding against their share of total venture dollars raised in 2018 so far.

As of mid-October (when we pulled the data for the above chart), Chinese companies accounted for about 39.3 percent of venture funding raised in 2018. Compare that to 38.4 percent for U.S.-based companies, overall. In this respect, the venture markets in the U.S. and China are running neck-and-neck.

Yet for SaaS funding, the China-U.S. gap is about as wide as the Pacific Ocean. The U.S. — top ranked by this measure — accounted for approximately 70.1 percent of known SaaS startup funding. China, by contrast, accounted for just 11.7 percent. No even matchup here. It’s not even close.

This asymmetry goes beyond just aggregate dollar figures. The contrast is starker when we use a slightly more exotic measure for the market.

One of our favorite (if somewhat arbitrary) metrics at Crunchbase News is the count of supergiant venture rounds. These VC deals weigh in at $100 million or more, and they’re reshaping both sides of the venture market for founders and funders alike.

Whereas the United States played host to at least 15 supergiant SaaS VC rounds so far this year, just four rounds raised by three different Chinese SaaS companies crossed the nine-figure mark:

Keep in mind that, in general, U.S. and Chinese markets are fairly even in their output of supergiant venture rounds. However, that’s not the case when we look specifically at SaaS rounds, where the counts and dollar volumes involved are so different.

These disparities suggest a structural difference, not just between the U.S. and Chinese markets, but between the U.S. and the rest of the world when it comes to building and backing SaaS businesses.

At this point it’s unclear, apart from funding metrics, what differentiates the U.S. SaaS market from the rest of the world’s. What conditions exist in this market that don’t exist elsewhere? And are those conditions replicable in a local market with a still-nascent SaaS ecosystem? These are questions meriting a follow-up. Even though its cause might be unclear, for now, it’s nonetheless important to mind the gap. 🚇