The impending initial public offering of Alibaba is likely to be a boon to U.S. startups, but the accounting structure that the Chinese e-commerce giant is using could create some risk for investors, Inc. reports.

Alibaba Group headquarters in Hangzhou

Alibaba Group headquarters in Hangzhou.

Alibaba hopes to raise as much as $21 billion from the stock sale, which would value the company at about $160 billion — nearly on a par with Facebook and even much older tech companies such as IBM.

The IPO, which could be launched as early as this week and would be the largest in history, could provide opportunities for startups, Inc. says, noting that Alibaba “has shown an appetite for investing in U.S. startups,” including online gaming company Kabam. Maha Ibrahim, a general partner at venture capital firm Canaan Partners, said tech startups could benefit from Alibaba’s deep ties in China, with its burgeoning middle class, estimated at about 500 million people.

“You can’t point to Alibaba and say it does one thing,” Ibrahim told Inc. “It’s more massive than Amazon, and operates in a much larger market.”

Inc. warns, however, that if things go south, U.S. investors in Alibaba may have little recourse. The company is using an accounting structure known as a variable interest entity that was developed in the 1990s to allow foreign investors to have limited ownership in Chinese companies.

“I am not aware of a single instance in the past 15 years where U.S. investors have actually gotten their hands on Chinese assets in an adversarial environment when you have a VIE agreement,” Drew Bernstein, managing partner of the China affiliate for accounting firm Marcum Bernstein Pinchuk, told Inc.

The Alibaba IPO could also trim the sails of U.S. e-commerce leaders such as Amazon and eBay, according to Inc. “In much the same way that you see Facebook and Google encroaching on each other’s territory … Amazon and Alibaba will encroach on each other’s territory,” said Josh Green, co-founder and chief executive of Panjiva, a global trade information provider.

Source: Inc. What to Expect From Alibaba’s Big Fat IPO

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