Warburg Pincus walks away from Lianjia funding round over valuation bubble concern

Warburg Pincus’s valuation bubble concern stems from a cooling Chinese tech financing environment.

Warburg Pincus recently backed out of the latest financing round by Chinese property tech startup Homelink Real Estate Agency Co., known as Lianjia (链家), as the latter is seeking a new US$2 billion funding.

The U.S. private equity reportedly scrapped its $500 million plan with Lianjia, citing concerns over a valuation bubble.

Warburg Pincus’s concern stems from a cooling Chinese tech financing environment. Additionally, Tencent and Alibaba’s stock prices dropped 36% and 17% this year respectively. Shen Meng, a board member of Chanson Capital, thinks that the plunging of big Chinese tech stocks and some newly listed ones prompted investors’ suspicion of the unicorns’ valuations.

Apart from the spreading pessimism towards Chinese internet tech companies in the capital market, Lianjia also ran into one after another glitch this year.

The company first spent heavily on an online real estate platform which didn’t really take off and failed to raise new rounds, then its long-term rental brand Ziroom got exposed for leasing apartments with unsafe formaldehyde levels to tenants. The series of issues cost Lianjia its market share, as data on Chinese media showed that the company’s market share dropped below 50% by July, further weighed down investors’ confidence in the company.

KRA Comment: Investors are becoming more cautious with Chinese internet companies amidst China’s macroeconomy downturn. The startups’ market is turning into the investors’ market, meaning it’s getting harder for less good companies to obtain capital from the venture capital funds.

Editor: Ben Jiang