Airbnb Joins Uber in Playing a Risky Growth Game in China

Uber isn’t the only sharing economy company betting big on the China market. Airbnb has joined it, with plans to find a CEO for its China operations.

To help in its CEO hunt, the residence-sharing company raised an undisclosed amount of funding from investors with China expertise — China Broadband Capital and Sequoia China. The firms were part of the most recent $1.5 billion funding round, which valued Airbnb at $25.5 billion.

In a blog post announcing the new investors, Airbnb said, “We want to be prudent in establishing our business there. … As we move into our next phase of expansion in China, we know we will need deep local knowledge and expertise to keep this momentum going.”

Airbnb’s commitment to China, just like Uber’s, is a bold move. It’s betting it will be able to succeed where almost every other American company — Google, Facebook, PayPal et al. — has failed. It is gambling it can do so despite battling homegrown China competitors and facing knottier regulatory issues with its physical, real-world businesses than those faced by digital-only companies.

If it spends billions trying to take China and doesn’t succeed, its income ledger will look very ugly just in time to go public. Failing in China could be the thing to topple the unstoppable unicorns.

So why take the risk?

For both Airbnb and Uber, China is too big an opportunity to pass up. With a population of 1.5 billion and major transportation and housing shortages in the urban areas, the nation gives Uber and Airbnb a chance to make a killing even if they win only a fraction of each of their markets. Furthermore, China is an easy sell to investors as these companies look to raise more and more capital and hold off on impending IPOs.

These late-stage investors want to know where their returns will come from. The U.S. and European markets are pretty saturated, so Airbnb and Uber can point to China as the new market of growth.

But the litany of reasons why American companies struggle in China is long, from the fact that the Chinese government favors local companies to the prevalence of fraudsters who game digital systems. Uber and Airbnb have their work cut out for them.

This article originally appeared on Recode.net.

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