Tudou.com raises $19m from US, Asian firms

Chinese internet video website Tudou.com has completed a $19 million (€14 million) financing round, co-led by Cambridge, Massachusetts-based venture firm General Catalyst Partners and Shanghai-based private equity firm Capital Today Group.

Also contributing to the funding round were US venture capital firm Granite Global, business publishing company IDG China, Japanese venture firm JAFCO Asia, KTB Ventures, the US arm of Korea-based private equity firm KTBnetwork, and Japan Asia Investment Company, a Japanese venture capital firm. Tudou said in a statement that it plans to use the capital to expand its technical infrastructure as well its advertising relationships with its existing clients. Each month, Tudou attracts 40 million Chinese internet users who view more than 1.2 billion videos, according to AC Nielson.

Though General Catalyst has made several prior investments in the new media sector, this is the firm’s first investment in China. General Catalyst principle Bill Kung and managing director David Orfeo led the transaction.

Kung told PrivateEquityOnline the firm carried out research on legal and copyright issues that could affect the site’s business before committing to its investment. While Kung said his firm will “continue to keep a keen eye on the development of conditions within the region,” Tudou has signed agreements with a large number of legal content providers, including some in the US.

Capital Today, one of the first locally based, independently owned private equity firms in China, made the investment through its debut fund, which closed on $280 million in October of last year. Its prior investments in the internet sector have been Netease.com, a Chinese online community forum, and ChinaHR.com, a recruiting website.

Chinese internet companies are attractive targets for private equity and venture capital firms due to the huge growth potential of the market. According to the China Internet Networks Information Centre, last year the country had 137 million internet users, a 23 percent increase from 2005. China is close to overtaking the US, which has the highest number of users in the world, even though China’s internet penetration is estimated by JP Morgan to be just 9 percent, compared to the US’s roughly 73 percent.

Many firms likely hope to replicate the success investors enjoyed with Baidu.com, China’s top search engine. In 2004, venture veteran Draper Fisher Jurvetson acquired a 28 percent stake in the company. In 2005, Baidu raised roughly $100 million in its initial public offering, making DFJ’s $12 million stake worth nearly $1 billion, according to the International Herald Tribune.