After a lull in the market, Chinese internet content producers have caught the attention of investors again.
Zhihu, the Chinese version of Quora, completed a $434 million Series F round of funding on Monday – the biggest fundraising for an internet content producer in the past two years.
Kuaishou, one of the world’s leading short video social platforms, led the round. Internet giant Baidu and Tencent also joined, together with Capital Today. China Renaissance is the financial advisor for the deal.
Founded in 2010, Zhihu allows users to share information and knowledge through raising and answering questions on its website. Partly censored, like everything in China, Zhihu does allow users to discuss both sophisticated topics such as religion and philosophy, as well as causal topics like lifestyle, games, movies and TV programmes.
Zhihu was one of the 10 promising companies featured in FinanceAsia's coverage of Asia's hottest startups two years ago.
It is rare to see more than one Chinese internet giant invest in the same company, as it has proved difficult for internet companies not to pick sides. But traditional internet giants are cooperating with newcomers to explore how to grow traffic.
“We’ve seen fierce competition in China for traffic volume,” Zhihu chief executive Zhou Yuan said in a statement on the company website. “It is chaotic and full of uncertainty.”
Online traffic competition has evolved from a mere volume contest to a competition for better-quality content. Zhou said that it is better for participants to open up their resources and to create a win-win situation. After this round of funding, Zhihu intends to be more open towards Kuaishou and Baidu users to build a closer content distribution network.
The interaction between internet giants goes back a long way. Baidu and Tencent invested in Kuaishou in 2016 and 2018 respectively.
Some investors still question Zhihu’s profitability. This is also a question for unicorn companies with huge volumes of traffic, such as Toutiao. How can you make users pay for content when you have quality content and huge traffic volume? Unlike other social media platforms, Zhihu has high customer loyalty and frequent users who are willing to pay for content.
“Zhihu’s value can turn into profit in the future,” Lixing Wang, China Renaissance’s head of investment banking told FinanceAsia. “Zhihu’s advertisements and paid members have grown rapidly and revenue is used to pay authors to generate even more valuable content.”
Profitability may not be Zhihu’s only priority, Wang said. He believes that Zhihu will have an even greater value in the future.
Zhihu has gone through a long process of capital raising. Before this, it raised around $478 million in six rounds of funding. Well-known investors in previous rounds include Qiming Venture Partners, Sinovation Ventures, Sogou, Tencent and SAIF Partners.
When asked about the company's future capital operations, Wang admitted that Zhihu has had a lot of discussions with China Renaissance. But he said that the main focus for Zhihu’s team currently is to grow the company.
