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Alibaba Deepening U.S. Startup Foray With Investment Team

Alibaba Holding Group Ltd. is deepening its foray into the U.S. through the firepower of its Silicon Valley investment team.

Set up a year ago and led by former Liberty Media Corp. executive Michael Zeisser, the team is using Alibaba’s balance sheet to invest in startups that complement its existing e-commerce and digital businesses. In the latest example, Hangzhou, China-based Alibaba has discussed investing in Snapchat Inc., the mobile application for disappearing photo messages, at a $10 billion valuation, people with knowledge of the situation said.

Alibaba’s push across the Pacific helps it benefit from the $262 billion in U.S. online retail sales last year while putting it increasingly into competition with Google Inc., Facebook Inc. and Inc., which also are taking stakes in or acquiring startups. The Chinese company, which has filed to go public and plans to list on the New York Stock Exchange, will have to prove to shareholders once it’s publicly traded that the investments are a good use of capital.

“The company’s investments certainly will come under greater scrutiny as a public company,” said Paul Sweeney, an Internet analyst at Bloomberg Intelligence. “However, I still expect them to be aggressive on the investment, and perhaps acquisition, front after they go public.”

Representatives for Alibaba declined to comment.

Ma’s Relationships

Apart from Zeisser, the U.S. investment team includes Peter Stern, a former Credit Suisse Group AG investment banker who advised Alibaba on its $7.6 billion stock repurchase from Yahoo! Inc. in 2012; and Danielle Wong, a Yale University MBA, the company said in a statement last year. The team reports to Joe Tsai, Alibaba’s co-founder in charge of strategy.

The group works closely with Alibaba’s finance team in Hong Kong to scout investments, said a person with knowledge of the matter who asked not to be identified because the team operates behind-the-scenes. The team also benefits from Alibaba founder Jack Ma’s relationships in Silicon Valley with executives including Yahoo co-founder Jerry Yang.

The team has already left a mark on the U.S. startup landscape. In April, Alibaba led a $280 million investment in messaging app TangoMe Inc., which was introduced to the Chinese company by Yang, the startup has said. That same month, Alibaba led a $250 million investment in San Francisco-based ride-sharing app Lyft Inc.

“Alibaba was incredibly supportive of the vision that we outlined, and they have a culture that puts founders at the forefront of their organization,” Tango co-founder Eric Setton said at the time.

Instant Messaging

Instant messaging and mobile apps have been a key part of Alibaba’s strategy, especially in China where more than 84 percent of Internet users regularly access those services, according to data compiled by Bloomberg.

In 2004, Alibaba started Aliwangwang, a personal computer-based instant messenger for buyers and sellers that is now used for negotiating prices, customer services and delivery notifications on its Taobao marketplace. The mobile version is known as Wangxin.

Alibaba started offering a messaging app called Laiwang in September, and Ma has said that bonuses wouldn’t be paid to staff who didn’t gain 100 clients for the app before Nov. 30 last year, according to a post on the company’s microblog.

Alibaba has other U.S. investments that it made prior to the formation of the Silicon Valley team, including stakes in online retailer Fanatics Inc., online retail platform ShopRunner Inc., and search technology provider Quixey Inc.

Acquisition Strategy

In the company’s filing for its IPO, Alibaba said it will continue to make investments and acquisitions to expand its user base and add complementary products. The areas being targeted include mobile, digital media and logistics services, it said.

U.S. competitors are watching Alibaba’s investments into the country closely, and some are ready to fight back to gain equal access to investments in China.

“Alibaba has the world’s largest Chinese domestic business, and I don’t think it takes an incredible leap of faith to imagine in the next few years Alibaba will try to globalize its business,” Devin Wenig, president of EBay Inc.’s marketplaces business, said in an interview earlier this week. “I think what’s going to be important for us is having a discussion about fair trade.”

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