Alibaba Group Holding Ltd. is leading a $280 million investment in TangoMe Inc., joining a flurry of dealmaking in the messaging application market after Facebook Inc.’s $19 billion deal to purchase WhatsApp Inc.
The investment gives Alibaba a U.S.-based holding in a fast-growing industry as it prepares to file for an initial public offering in New York as soon as April. The financing values Mountain View, California-based Tango, which has 200 million registered users, at $1 billion to $2 billion, according to people with knowledge of the matter, who asked not to be identified because the information is private.
Alibaba’s investment follows Facebook’s agreement to buy WhatsApp last month, as well as Rakuten Inc.’s purchase of messaging service Viber for $900 million. SoftBank Corp. has also sought to buy a piece of Naver Corp.’s Line, people familiar with the matter have said. The deals underscore the rise of messaging apps, which smartphone users worldwide are increasingly using to communicate, rather than paying for text messages.
“It’s an incredibly competitive market, and a new era for these kinds of transactions and financing levels,” said Tango co-founder Eric Setton, who added that the company has received takeover offers and chose to remain independent. “Alibaba was very understanding that we wanted to keep leading the company.”
Alibaba contributed $215 million in the round, with the remaining $65 million from existing investors, which include Qualcomm Ventures and DFJ.
The Hangzhou, China-based e-commerce company has taken other stakes in U.S. companies in the past few months. In October, Alibaba led a $206 million investment in ShopRunner, a members-only site that aggregates offers from retail partners, and a $50 million investment in Quixey, a mobile-application search engine.
A stake in a messaging app may also help Alibaba on its home turf. Tencent Holdings Ltd., operator of the WeChat messaging service that is dominant in China, has been moving to compete with Alibaba by adding services including shopping and gaming.
“Tango has exhibited tremendous growth because of its unique approach to combine free communications, social and content,” Alibaba Executive Vice Chairman Joe Tsai said in an e-mailed statement. “They have a disruptive way of looking at the mobile and messaging opportunity.”
The terms of the deal were negotiated before Facebook’s acquisition of WhatsApp became public last month, according to the people with knowledge of the matter. Tango stuck with the original agreement, rather than negotiating a higher valuation, the people said.
Setton, who is also Tango’s chief technology officer, and Ashley Zandy, a spokeswoman for Alibaba, declined to comment on valuation or the timing of deal talks.
Alibaba’s minority holdings have occasionally turned into acquisitions. The company last month offered to buy the shares of AutoNavi Holdings Ltd. that it didn’t already own in a deal valuing the digital mapping service at about $1.6 billion.
Alibaba on March 16 said it decided to start its IPO process in the U.S. Investment banks value the company at as much as $200 billion, making it the second-biggest Internet company behind Google Inc. based on market value. Listing in the U.S. “will make us a more global company and enhance the company’s transparency,” Alibaba has said.
With the new financing, Tango will have raised a total of $367 million. The company, which was founded in 2009, plans to use the new funds to expand globally and attract engineers, Setton said. The company also wants to bring in new gaming content.
Tango makes money by sharing revenue from the games played on its platform and through advertising. The company has more than doubled revenue in the last three months, Setton said, without disclosing underlying numbers.
“Alibaba was incredibly supportive of the vision that we outlined and they have a culture that puts founders at the forefront of their organization,” he said. As the Chinese company goes through its IPO, “learning from an investor about their growth trajectory might be very relevant for us in the future,” he said.