FYI
Buyer beware
First, if you buy shares of the Cayman Islands-based holding company, you
don't actually own the operating company in China. That company, Beijing
Qianxiang Tiancheng Technology Development, will remain 99% owned by Renren
CEO Joe Chen's wife, Jing Yang (a Chinese citizen). There will be a contract
in place that entitles you, a foreign shareholder, to the economic benefits
of the company. That may sound like a neat way to circumvent Chinese
restrictions on foreign ownership of telecommunication assets, but good luck
getting that contract enforced in Chinese court should Ms. Yang choose not
to honor it. Further, a dual-class share structure that limits the influence
of outside shareholders means that Joe Chen and his wife hold all of the
cards here.
Second, unlike Facebook here in the U.S., Renren is not the clear leader in
the social networking space in China. There are a number of competitors,
including two backed by cash-rich Chinese Internet giant Tencent.
Third, while Joe Chen is often called the "founder" of Renren, he's not
actually the heart and soul of the technology like Bill Gates was at
Microsoft or Mark Zuckerberg at Facebook. These zealots spearheaded years of
innovation at their respective companies and earned early investors
incredible returns in the process. Rather, Chen acquired the platform from
some Chinese college students in 2006. As Kai Lukoff reported at Mashable,
it's actually competitor kaixin101.com that has the innovative founder.
Finally, know that the reason Facebook isn't the Facebook of China is
because the site is blocked there by Chinese government censors. Recently,
however, it's been rumored that Facebook is looking to team up with Chinese
search giant Baidu (Nasdaq: BIDU ) to launch a new social networking
service in China. Having such an influential local partner might help
Facebook make inroads in China and would undoubtedly be a massive threat to
Renren's long-term position.
