Billion Dollar Unicorn Zhihu - Imitates Quora and Builds a Valuation Without Revenue Company

For a while now, VCs’ delusional competitive bidding in startup investing had resulted in skyrocketing valuations. Last year, several venture funds re-evaluated their valuation and several startups saw valuations reduce to more realistic levels. But the market correction is not yet complete. There continue to exist Billion Dollar Unicorns that have no sustainable business or financial model and yet are members of the club. China’s Zhihu is one such case.

Zhihu’s Offerings

Beijing-based Zhihu was founded in 2010 by Shenshen Li, Jixin Huang, and Yuan Zhou. Originally Zhihu launched as a by-invitation platform for questions and answers forum. The platform was focused on technology and entrepreneurial questions. The application was launched in 2011 and remains a Chinese imitation of Quora’s knowledge sharing model. Since its launch, it has expanded its knowledge services beyond the tech and entrepreneurial segments. By 2013, it had opened registration to everyone and diversified into topics ranging from movies, games, and finance besides its traditional areas.

Zhihu has over 65 million registered users and boasts of 18.5 million daily unique visitors as of January 2017. In 2016, the site had recorded more than 6 million questions which generated over 23 million answers.

Zhihu’s Financials

Zhihu realizes the need for monetizing its services. Over the past year, it has been transforming its services to offer premium products that are available to consumers for a fee. One of the big services launched last year included Zhihu Live, which is a service that allows users to attend live one-on-one sessions on a topic with experts for a fee. Some of the other monetizing opportunities being created by Zhihu include institutional accounts for knowledge sharing and an advertising-based model.

Zhihu does not disclose any financial information. It is largely venture funded with $185 million raised in five rounds from investors including Capital Today, Qiming Venture Partners, SAIF Partners, Sinovation Ventures, Sogou, and Tencent Holdings. Its last round of funding was held in January this year when it raised $100 million at a valuation of $1 billion. The round helped it become China’s first knowledge sharing Unicorn. In an earlier round held in November 2015, Zhihu was valued at $300 million.

For comparison, Quora had a user base of 100 million monthly visitors and was valued at $900 million in 2014 when it did not have any revenue model. It has raiseed $141 million in funding so far. It is only recently that Quora ventured into revenue generating opportunities through advertisements and Q&A sessions. More recent valuation for Quora is not known.

Zhihu’s Competition 

Zhihu has managed to make a name for itself in China. But it has not been easy. The crowdsourced knowledge sharing industry in China has big competitors. Chinese tech giant Baidu has its own version of the service. There are other new comers joining the market at a fast pace as well. The one that Zhihu should worry about is Fen Da.

Beijing-based Fen Da operates a model similar to Zhihu Live. Users can post questions with a featured guest for a live, online, interactive interview. The answers are available to the user on the payment of a fee. Additionally, users who have not posted a question can also listen to the answers by paying a fee to listen in. The revenue earned through the latter model is shared with the poster and the respondent. The app attracted some big following. Within 24 days of the launch of the app, it had registered more than 5 million users. Within a month of launch, the service had processed $2.7 million in transactions. The company had raised $25 million in June and was valued at $100 million.

I am a huge skeptic of this model. Huge amounts of VC money funding large masses of free-riders is a story that usually has a tragic ending. All of the above companies, most likely, will go out of business eventually.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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Photo credit: Scott McLeod/Flickr.com.