Xiaozhu, China’s Airbnb, a unicorn after US$120m investment round led by Jack Ma-backed fund

Xiaozhu, China’s answer to Airbnb, announced on Wednesday it had raised US$120 million in a funding round, officially making the five-year-old start-up a “unicorn” – a private company with a valuation of US$1 billion or more.

The funding round was led by Jack Ma-backed Yunfeng Capital and included existing investors, such as Morningside Venture Capital and Capital Today. The investment is expected to offer Beijing-based Xiaozhu not only a war chest but also the strategic resources needed to consolidate its leading position in China’s rapidly growing home-sharing market amid the rise of San Francisco-based giant Airbnb.

“With the scale-effect of our home-sharing network, we are able to bring in profit ourselves. What we care more about are the strategic resources brought by our investors,” Kelvin Chen, the chief executive of Xiaozhu, told the Post in an exclusive interview.

It is the potential opportunities for cooperation with Alibaba Group, which owns the South China Morning Post, that will help Xiaozhu in its battle with the traditional hotel industry and in offering better experiences to Chinese travellers, he added.

The capital injection comes amid reinforced efforts by Airbnb to crack the China market. This year, the world’s largest home-sharing company, with a valuation of about US$30 billion, pledged to invest as much as it needed to expand in China, where it has 120,000 listings.

Xiaozhu is on track for 300,000 listings by the end of the year.

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Xiaozhu is often called China’s Airbnb, but Chen said the company does not benchmark its growth against any rivals in the home-sharing business. “What matters for us is how to provide our customers with better services than hotels. We have no reason to worry about the development of a US company in China. It will be a positive force, pushing the development of the industry forward, but it will never be the market leader in China,” said Chen.

With the latest round of funding, Xiaozhu has now raised a total of US$270 million in five rounds of financing, and the next step for the company is an initial public offering overseas. Chen confirmed that Xiaozhu had put an IPO plan on its agenda but no detailed timetable had been set up. The uncertainty over the timing of the IPO was because of regulatory concerns, he said.

The Chinese government has given its blessing to the development of the sharing economy, but the operation of home-sharing is still a grey area with no regulatory details.

Xiaozhu is expected to use Alibaba Group’s smart technologies to improve its customer experience.

“We have already established a service chain with a network of professional photographers and cleaners to make it easy for the Chinese to rent out their flats online, and to make it easy for travellers to enjoy standard services in homestyle flats. We are going to keep investing to make these services available in more cities in China,” said Chen.