Alibaba the Investor: How Its Startups View the Company

Chinese online retail giant Alibaba founder Jack Ma smiles as he waits for the trading to open on the floor at the New York Stock Exchange in New York on Friday.

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Alibaba Group Holdings Ltd. is more than just an enormous e-commerce conglomerate that just held history’s biggest IPO. It is also an increasingly active investor in startups, with the ability to influence its portfolio companies’ business models and strategies, entrepreneurs say.

The company has backed 12 startups raising a combined total of more than $1 billion so far this year, up from three startups that raised a combined $22 million in 2009, according to industry tracker DowJones VentureSource.

Among its 27 total technology investments since the beginning of 2009, this year Alibaba invested $215 million in messaging platform TangoMe Inc. and took part in a $250 million round for ride-sharing service Lyft Inc. The financing rounds were among the largest Alibaba has joined as an investor.

Entrepreneurs whose companies are backed by Alibaba say the company consistently counsels them to forego short-term revenue goals for longer-term strategies.

Peel Technologies Inc., a Mountain View, Calif.-based company that enables smartphones to be used as remote controls, raised an undisclosed amount from Alibaba in June. Around that time it was considering hiring a vice president of monetization to boost advertising revenue, according to Peel Chief Executive Thiru Arunachalam.

He held off in part because Alibaba Capital Partners Managing Director and Peel board member Hongping Zhang encouraged him to reconsider.

“He said, ‘Don’t worry about the revenue, focus on the user base,’” Mr. Arunachalam said, referring to Mr. Zhang. “He said, ‘Let’s get to one billion users, then we’ll be in a better position [to monetize].

“They are a very different type of investor,” Mr. Arunachalam said. “They are in it for the long haul.”

That strategy has worked well for Alibaba. The Chinese e-commerce giant steadily expanded its user base during the past decade by diversifying from shopping to include payment, messaging, cloud computing and entertainment services.

Transaction on its e-commerce sites totaled $248 billion last year, or more than eBay and Amazon combined.

It has also sought to back startups in a wide variety of sectors with future strategic value for Alibaba.

Last year, Alibaba led a $50 million financing round in Quixey Inc., a Mountain View, Calif.-based company that is building deep-linking technology to improve mobile search. This would enable consumers to search for information on their mobile devices similar to the way they do on desktops, without having to download or launch individual apps to get the specific information.

The function also means consumers could shop and take other actions within various Alibaba apps without ever downloading them from GooglePlay or the Apple’s App Store.

Among Quixey’s decisions around the time of the financing was whether to generate revenue or stay the course and pursue longer-term strategic goals.

“Certain investors tried to pressure us into short-term monetization like ‘the app of the day,’” said Quixey Chief Executive Tomer Kagan. “It seems like a short-term win but it can actually derail the focus, and so it’s good to have a board meeting when Alibaba reminds us [of that],” Mr. Kagan said. “They support the idea of not going for the short-term wins when the long-term wins can be earth-shattering.”

Kabam Inc. Chief Operating Office Kent Wakeford said working with Alibaba executives has been “eye opening.” The free-to-play mobile game startup raised a $120 million round from Alibaba in July that included a deal to publish and distribute games. Like Tencent Holdings Ltd., Baidu Inc. and others that are building their game portfolio, Alibaba sees mobile games as a way to continue to build its user base and keep them engaged.

Conversations with Alibaba also included the possibility of leveraging Kabam’s IP deals with Hollywood franchises such as “The Hunger Games” and “Lord of the Rings.”

“They are seeking to provide 360-degree touchpoints with consumers,” said Mr. Wakeford, adding this could include playing movie trailers, options to purchase movie tickets and buy related merchandise while a user is playing a game. “They seem to be thinking years out in terms of what their objectives are and putting the pieces in place now to get there.”

Having a patient, deep-pocketed strategic investor has its benefits, but it can also make it more difficult to partner with Alibaba competitors. Peel’s Mr. Arunachalam said his team is sensitive to what he calls a “perception challenge” when meeting with potential Chinese partners like Baidu, Tencent and electronics company Xiaomi Inc.

While he doesn’t omit the fact that Peel is backed by Alibaba, his team doesn’t emphasize it either.

“Some people use the ‘Ali company’ as a business card. We don’t,” he said.

Write to Lizette Chapman at lizette.chapman@wsj.com. Follow her on Twitter at @zettewil