Interpretation of Silicon Valley: Why do China Internet companies go public in the United States?

Therefore, every listing will be accompanied by many netizens' questions: Why are China Internet companies listed in the United States instead of in China? And give all the growth gains to foreign investors for nothing? Nasdaq listing has become the glory of many Internet companies in China. Since the first batch of Internet companies landed in the US capital market, there have been four waves of China Internet companies going public in the US. Last year alone, 360, Century Internet, Renren, NetQin, jiayuan, Phoenix New Media, Taomi, Tudou and many other companies went public one after another. Just three days ago, the e-commerce website Vipshop also successfully landed on the NYSE. Many China Internet companies listed in the United States are high-quality enterprises with global competitiveness. Therefore, every listing will be accompanied by many netizens' questions: Why are China Internet companies listed in the United States instead of in China? And give all the growth gains to foreign investors for nothing? Today, eNet Silicon Valley Power will give you a special explanation: Why do China Internet companies go public in the United States? Here, the author tries to make everyone understand this transnational business behavior in the simplest and most understandable language. First of all, let's understand why Internet companies in China are so keen to go public. Internet companies in China generally learn from the business models of American Internet companies, such as the earliest portal and later e-commerce. At the initial stage of the company's business, the development prospect is broad, but it is faced with problems such as lack of funds and vague profit model. In order to solve the capital problem in the development process, many enterprises choose to attract venture capital. Venture capitalists demand returns. They usually choose to quit after investing 5- 10 years, and the best way to quit and get huge profits is to go public. Therefore, the listing of many Internet companies is a helpless choice under the pressure of investors' huge equity realization. Of course, in addition to the influence of investors, there is also the need for the company to continue to grow and develop. In order to solve the funding gap caused by the inability to attract venture capital, listing financing is undoubtedly the best choice. In addition, even the initial entrepreneurs and investors are eager to get realistic returns on their shares, and they will also be eager to go public. The above reasons have caused Internet companies to be so keen on listing. Next, let's analyze why Internet companies in China choose American capital market instead of China. First of all, although they are all Internet companies in China, in fact, if you pay attention to the places where companies are registered, you will find that most of them are registered in Virgin Islands, British Jersey, Nauru, Panama and other places, not Chinese mainland. These areas are called tax havens, and the mainland of China resolutely opposes the tax avoidance policy. These enterprises are listed as foreign-funded enterprises in China. At present, the international board has not been launched, and these China enterprises with the aura of foreign companies cannot land in the China capital market. Furthermore, even if they are registered in the mainland of China, if they go public, these enterprises will definitely land on the Growth Enterprise Market. However, China's capital market adopts an audit system, and the regulatory authorities have a set of detailed hard indicators on the profitability and growth of the Growth Enterprise Market, so the entry threshold is very high. For example, the listing conditions of the GEM IPO require the issuer to make profits continuously in the last two years, with a cumulative net profit of not less than10 million yuan, or to make profits in the last year, with a net profit of not less than 5 million yuan and an operating income of not less than 50 million yuan. This alone makes it difficult for domestic Internet companies to meet the standards. However, the entry threshold of the US capital market is much lower, and the exchange can go public with the consent, so there is no profit threshold. As long as we are optimistic about the company's business model and business growth, even loss-making companies can be listed on Nasdaq. For example, Youku and Tudou are listed at a loss. It is common for startups in the Internet field not to make money in the early stage. If they want to raise funds, they can only choose overseas. In addition, the United States has always been the forefront and center of Internet development. Investors' valuation of Internet companies is generally high, and the P/E ratio is generally not lower than that in China. In addition, there are various other financing instruments in the US capital market. Initial entrepreneurs can raise funds for subsequent development without diluting their equity, which is also very attractive to pre-listed enterprises.