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TABLE OF CONTENTS
Gridsum Holding Inc. Index to Consolidated Financial Statements

Table of Contents

As filed with the Securities and Exchange Commission on September 9, 2016

Registration No. 333-213348

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Gridsum Holding Inc.
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  7372
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Jade Palace Hotel Office Building, 8th Floor
76 Zhichun Road
Haidian District, Beijing 100086
People's Republic of China
(86-10) 8261-9988

(Address, including zip code and telephone number, including area code, of Registrant's principal executive offices)



Law Debenture Corporate Services Inc.
4th Floor, 400 Madison Avenue
New York, New York 10017
(212) 750-6474

(Name, address, including zip code and telephone number, including area code, of agent for service)



Copies to:

Gordon K. Davidson, Esq.
Horace L. Nash, Esq.
Fenwick & West LLP
801 California Street
Mountain View, CA 94041
United States of America
(650) 988-8500

 

Niping Wu, Esq.
Eva H. Wang, Esq.
Fenwick & West LLP
Unit 908, 1155 Fang Dian Road
Pudong, Shanghai 201204
People's Republic of China
(86-21) 8017-1200

 

Chris K.H. Lin, Esq.
Daniel Fertig, Esq.
Simpson Thacher & Bartlett LLP
c/o 35th Floor, ICBC Tower
3 Garden Road Central
Hong Kong
(852) 2514-7600



Approximate date of commencement of proposed sale to the public:
as soon as practicable after the effective date of this registration statement.

          If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o



CALCULATION OF REGISTRATION FEE

               
 
Title of each class of
securities to be registered

  Amount to be
registered(1)(3)

  Proposed maximum
offering price per
share(1)

  Proposed maximum
aggregate offering
price(1)(2)

  Amount of registration
fee(4)

 

Class B ordinary shares, US$0.001 par value per share(2)(3)

  7,500,001   US$12.50   US$93,750,012.50   US$9,440.63

 

(1)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

(2)
Includes Class B ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public, and also includes Class B ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional shares. These Class B ordinary shares are not being registered for the purpose of sales outside the United States.

(3)
American depositary shares issuable upon deposit of the Class B ordinary shares registered hereby are registered under a separate registration statement on Form F-6 (Registration No. 333-213560). Each American depositary share represents one Class B ordinary share.

(4)
US$7,552.50 of which was previously paid.

          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated September 9, 2016.

6,521,740 American Depositary Shares

GRAPHIC

Gridsum Holding Inc.

Representing 6,521,740 Class B Ordinary Shares


        This is an initial public offering of American depositary shares, or ADSs, of Gridsum Holding Inc.

        We are offering 6,521,740 ADSs. Each ADS represents one Class B ordinary share, US$0.001 par value per share. We anticipate the initial public offering price of the ADSs will be between US$10.50 and US$12.50 per ADS.

        Prior to this offering, there has been no public market for the ADSs or our Class B ordinary shares. We have applied to list the ADSs on the NASDAQ Global Market under the symbol "GSUM."

        We are an "emerging growth company" under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

        See "Risk Factors" beginning on page 13 for factors you should consider before buying the ADSs.


        Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 
  Per ADS   Total  

Initial public offering price

  US$                    US$                   

Underwriting discounts and commissions(1)

  US$                    US$                   

Proceeds, before expenses, to us

  US$                    US$                   

(1)
We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See "Underwriting (Conflicts of Interest)."

        To the extent we sell more than 6,521,740 ADSs in this offering, the underwriters have a 30-day option to purchase up to additional 978,261 ADSs from us at the initial public offering price less underwriting discounts and commissions.

        Upon the completion of this offering, 4,543,461 Class A ordinary shares and 24,008,445 Class B ordinary shares will be issued and outstanding, assuming the underwriters do not exercise their option to purchase additional ADSs. Holders of Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class A ordinary share will be entitled to ten votes and will be convertible into one Class B ordinary share, and each Class B ordinary share will be entitled to one vote. Accordingly, Guosheng Qi, our chief executive officer and chairman, the sole holder of our Class A ordinary shares, will beneficially own 4,543,461 of our Class A ordinary shares and 4,481,470 of our Class B ordinary shares, collectively representing 70.9% of our aggregate voting power.

        The underwriters expect to deliver the ADSs against payment in U.S. Dollars in New York, New York on                        , 2016.

Goldman Sachs (Asia) L.L.C.

  Citigroup

Stifel


        Prospectus dated                        , 2016


Table of Contents

GRAPHIC


Table of Contents


TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

Risk Factors

  13

Special Note Regarding Forward-Looking Statements and Industry Data

  42

Use of Proceeds

  43

Dividend Policy

  44

Capitalization

  45

Dilution

  47

Exchange Rate Information

  49

Enforceability of Civil Liabilities

  50

Corporate History and Structure

  51

Selected Consolidated Financial Data

  55

Management's Discussion and Analysis of Financial Condition and Results of Operations

  58

Business

  87

PRC Regulation

  109

Management

  117

Principal Shareholders

  126

Related Party Transactions

  129

Description of Share Capital

  130

Description of American Depositary Shares

  141

Shares Eligible for Future Sale

  153

Taxation

  155

Underwriting (Conflicts of Interest)

  162

Expenses Related to This Offering

  169

Legal Matters

  170

Experts

  171

Where You Can Find Additional Information

  172

Index to Consolidated Financial Statements

  F-1



        You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs.

        We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of the prospectus outside the United States.

        Until                        , 2016 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under "Risk Factors," before deciding whether to buy the ADSs.

Our Business

        Gridsum is a leading provider of sophisticated data analysis software for multinational and domestic enterprises and government agencies in China. Our proprietary distributed data architecture allows our customers to efficiently collect and analyze vast amounts of information that is collected, indexed and stored in an organized manner, or structured data, and information that is not organized, or unstructured data. Our core technology, the Gridsum Big Data Platform, with its machine learning capability, performs multi-dimensional correlation analysis and analyzes complex real-time events. With the support of our Big Data Platform, our customers use our data visualization and data-mining technologies to identify complex relationships within their data and gain new insights that help them make better business decisions.

        Our leading position is based on our solutions and our core technologies. Our software products are designed for a variety of commercial and governmental applications. To help our enterprise customers reach China's large and growing online and mobile population, our initial products have focused on digital marketing analytics and automation solutions. We were among the first companies to offer web analytics solutions based on data warehouse technology, and we were among the first digital intelligence companies in China to build solutions entirely on a distributed data warehouse architecture using the open-source Hadoop framework. In addition, we believe we are the only China-based company to provide solutions to enterprise customers that cover web, video and mobile analytics. Our solutions analyze data from approximately 61 million internet and mobile sessions per day from users operating on over 233 million desktop and mobile devices. By leveraging the analytic capabilities of our Big Data Platform, we have developed additional software solutions, including new media analytics and information discovery solutions, to address a broad range of customer needs. In 2015, our customers included Fortune 500 and China 500 enterprises, comprising more than 300 customers across diverse industries, including over 30 Chinese government agencies.

        We have grown rapidly in recent periods, with net revenues in 2013, 2014 and 2015 of RMB62.5 million, RMB124.5 million and RMB234.8 million (US$35.3 million), respectively, representing year-over-year growth of 99% and 89%, respectively, and net revenues in the six months ended June 30, 2015 and 2016 of RMB84.6 million and RMB148.1 million (US$22.3 million), respectively, representing period-over-period growth of 75%. We have continued to make expenditures and investments, including in our technologies, personnel, sales and marketing, infrastructure and operations, and incurred net losses of RMB30.7 million, RMB37.3 million, RMB48.8 million (US$7.3 million) and RMB29.7 million (US$4.5 million) in 2013, 2014, 2015 and the six months ended June 30, 2016, respectively. Our customers increased in number from 141 in 2013 to 211 in 2014 and 307 in 2015, and over the same period, our average customer contribution increased 33% and 30% year over year. We enjoy high customer loyalty and revenue retention, with 168%, 116% and 138% revenue retention rates in 2013, 2014 and 2015, respectively. We calculate average customer contribution by dividing total net revenues in a period by total number of customers in the same period. Our revenue retention rate consists of aggregate net revenues from all customers in the prior period that remain customers in the current period, divided by total net revenues from all customers in that prior period.

Key Advantages of our Solutions

        We deliver our solutions as cloud-based software-as-a-service, or SaaS, offerings that are easy to deploy, easy to access, automatically updated without disruption, and enable our customers to reduce

 

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IT support costs by outsourcing hardware and software maintenance and support. The key advantages of our solutions include:

    fast and efficient multi-dimensional drill-down that enables customers to derive valuable intelligence from both structured and unstructured data quickly and easily;

    simple, customizable visualization that is intuitive and user-friendly;

    fully integrated solution suites that share a common user interface accessible across all screen formats;

    easy and rapid deployment, without specialized training requirements, and ready integration with customers' management and operating systems;

    lower total cost of ownership without investment in additional hardware or IT infrastructure; and

    designed with the China market in mind and readily customizable for the needs of specific enterprise customers.

Our Core Technology

        We offer suites of solutions that are built on our core technology. These end-to-end solution suites address customer needs in marketing automation, e-Government, new media, information discovery and visualization. Our solutions and core technologies are built on our distributed data warehouse architecture using the open-source Hadoop framework. Our data architecture offers high scalability and high performance characteristics. Our core technology consists of our data visualization and interactive data mining technologies, the Gridsum Big Data Platform and our data acquisition and data pre-processing technologies.

Our Competitive Strengths

        Our mission is to help enterprises and government organizations in China use data in new and powerful ways to make better informed decisions and be more productive. The competitive strengths that we believe enable us to achieve our mission include:

    our position as a digital intelligence pioneer;

    powerful cumulative data assets;

    our diversified customer base;

    high customer loyalty and revenue retention;

    scalable business model; and

    experienced and visionary management team.

Our Growth Strategy

        In order to grow our business and to fulfill our mission, we have implemented a number of key strategies, including:

    continuing to innovate;

    increasing market penetration;

    growing our customer base; and

    expanding our share of customer IT and marketing budgets.

 

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Corporate History and Structure

        We commenced operations in December 2005 with the establishment of Beijing Gridsum Technology Co., Ltd., or Beijing Gridsum, in China. We have established five additional operating companies: Beijing Moment Everlasting Ad Co., Ltd., in January 2011, and its wholly owned subsidiary, Beijing Yunyang Ad Co., Ltd., in March 2013, Guoxinjunhe (Beijing) Technology Co., Ltd., in April 2012, Beijing Guoxinwangyan Technology Co., Ltd., in August 2015, and Beijing Gridsum Yizhun Technology Co., Ltd., in February 2016. We refer to these operating companies as Beijing Moment, Beijing Yunyang, Guoxinjunhe, Beijing Guoxinwangyan and Beijing Yizhun, respectively.

        From July to December 2014, we undertook a reorganization of our group of companies in preparation for our proposed initial public offering in the United States. We incorporated Gridsum Holding Inc., or Gridsum Cayman, under the laws of the Cayman Islands on July 21, 2014, as the parent holding company of our group of related companies. Gridsum Cayman established a wholly-owned subsidiary in Hong Kong, Gridsum Holding (China) Limited, or Gridsum HK, which in turn established a wholly owned subsidiary in the PRC, Dissector (Beijing) Technology Co., Ltd., which we refer to as the WFOE. Also as part of this reorganization, we established Gridsum Holding (Beijing) Co., Ltd., or Gridsum PRC Holding, in China, which acquired full ownership of Beijing Gridsum, Beijing Moment and Guoxinjunhe. The beneficial owners of Gridsum PRC Holding are our founders, Guosheng Qi and Guofa Yu, and other key employees.

        To comply with applicable PRC laws and regulations, we conduct our operations in China principally through Beijing Gridsum, Guoxinjunhe, Beijing Moment, Beijing Yunyang, Beijing Guoxinwangyan and Beijing Yizhun, all of which are subsidiaries of Gridsum PRC Holding. The WFOE has entered into a series of contractual arrangements with Gridsum PRC Holding, the parent of our PRC operating companies, and the shareholders of Gridsum PRC Holding. These contractual arrangements allow us to exercise effective control over Gridsum PRC Holding and receive substantially all of the economic benefits of Gridsum PRC Holding. As a result, we are the primary beneficiary of Gridsum PRC Holding and treat it as our variable interest entity, or VIE, under accounting principles generally accepted in the United States, or U.S. GAAP. We have consolidated the financial results of Gridsum PRC Holding and its subsidiaries in our consolidated financial statements.

 

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        The following diagram illustrates our corporate structure, including our significant subsidiaries, our consolidated VIE and its subsidiaries:

GRAPHIC

Implications of Status as an Emerging Growth Company

        As a company with less than US$1.0 billion in revenues for our last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specific reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the required auditor attestation of the emerging growth company's internal controls. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to "opt out" of this provision, and as a result we will comply with new or revised accounting standards when they are adopted and compliance is required for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

        We will remain an emerging growth company until the earliest of: the last day of our fiscal year during which we have total annual gross revenues of at least US$1.0 billion; the last day of our fiscal year following the fifth anniversary of the completion of this offering; the date on which we have,

 

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during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, which would occur on the first day of our next fiscal year after the market value of the ADSs held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will no longer be entitled to the exemptions provided in the JOBS Act discussed above.

Corporate Information

        Our principal executive offices are located at Jade Palace Hotel Office Building, 8th Floor, 76 Zhichun Road, Haidian District, Beijing, People's Republic of China. Our telephone number at this address is (86-10) 8261-9988. Our registered office in the Cayman Islands is located at the offices of International Corporation Services Ltd., Harbour Place 2nd Floor, 103 South Church Street, P.O. Box 472, George Town, Grand Cayman KY1-1106. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 4th Floor, 400 Madison Avenue, New York, New York 10017.

        Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our website is www.gridsum.com. The information contained on our website is not a part of this prospectus.

        GRIDSUM, the term "Dissector," the slogan "Empower your e-performance," GRAPHIC and our other registered or unregistered trade names, trademarks or service marks appearing in this prospectus are our intellectual property. This prospectus also contains trade names, trademarks and service marks of other companies that are the property of their respective owners.

Conventions That Apply to this Prospectus

        Except where the context otherwise requires and for purposes of this prospectus only:

    "ADSs" refers to our American depositary shares, and each ADS represents one Class B ordinary share;

    "China" and "PRC" refer to the People's Republic of China, excluding Taiwan, Hong Kong and Macau;

    "RMB" and "Renminbi" refer to the legal currency of the People's Republic of China;

    "shares" and "ordinary shares" refer to our Class A and Class B ordinary shares, US$0.001 par value per share;

    "US$" and "U.S. Dollar" refer to the legal currency of the United States; and

    "we," "us," and "our company" refer to Gridsum Holding Inc., a Cayman Islands company, and its predecessor Cayman Islands entity, subsidiaries and consolidated affiliated entities.

        We use RMB as our reporting currency in our financial statements and in this prospectus. This prospectus contains translations of RMB amounts into U.S. Dollars at specific rates solely for the convenience of the readers. Unless otherwise noted, any RMB amounts are translated into U.S. Dollars at the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2016, which was RMB6.6459 to US$1.00. We make no representation that any RMB or U.S. Dollar amounts could have been, or could be, converted into U.S. Dollars or RMB, as the case may be, at any particular rate, at the rate stated above, or at all. The exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 2, 2016 was RMB6.6790 to US$1.00. See "Exchange Rate Information."

 

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THE OFFERING

Offering price

  We currently estimate that the initial public offering price will be between US$10.50 and US$12.50 per ADS.

ADSs offered

 

6,521,740 ADSs

ADSs to Class B ordinary share ratio

 

Each ADS represents one Class B ordinary share, US$0.001 par value per share.

ADSs outstanding immediately after this offering

 

6,521,740 ADSs (or 7,500,001 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares outstanding immediately after this offering

 

4,543,461 Class A ordinary shares and 24,008,445 Class B ordinary shares (or 4,543,461 Class A ordinary shares and 24,986,706 Class B ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).

The ADSs

 

Each ADS represents one Class B ordinary share. The depositary will be the holder of the Class B ordinary shares underlying the ADSs and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and owners and beneficial owners of ADSs from time to time.
You may surrender the ADSs to the depositary to withdraw the Class B ordinary shares underlying your ADSs. The depositary will charge you fees for such exchange.
We may amend or terminate the deposit agreement without your consent. If an amendment becomes effective, you will be bound by the deposit agreement as amended if you continue to hold your ADSs.
To better understand the terms of the ADSs, you should carefully read the "Description of American Depositary Shares" section of this prospectus. You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Option to purchase additional
ADSs

 

We have granted to the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to additional 978,261 ADSs.

 

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Use of proceeds

 

We expect that we will receive net proceeds from this offering of approximately US$64.8 million, or approximately US$75.2 million if the underwriters exercise their option to purchase additional ADSs from us in full, assuming an initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds to invest in technology, infrastructure and product development, to expand sales and marketing efforts, and for working capital and other general corporate purposes. See "Use of Proceeds" for more information.

NASDAQ symbol

 

"GSUM"

Depositary

 

Citibank, N.A.

Lock-up

 

We, our directors and executive officers, our existing shareholders and certain of our option holders have agreed with the underwriters not to sell, transfer or dispose of any ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus, subject to certain exceptions. In addition, we will not authorize or permit Citibank, N.A., as depositary, to accept any deposit of any Class B ordinary shares or issue any ADSs for 180 days after the date of this prospectus unless we expressly consent to such deposit or issuance and we have agreed not to provide such consent without the prior written consent of Goldman Sachs (Asia) L.L.C. and Citigroup Global Markets Inc. The foregoing does not affect the right of ADS holders to cancel their ADSs and withdraw the underlying Class B ordinary shares. See "Shares Eligible for Future Sale" and "Underwriting (Conflicts of Interest)."

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

 

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Conflict of Interest

 

Certain affiliates of Goldman Sachs (Asia) L.L.C. beneficially own 10% or more of our ordinary shares. Goldman Sachs (Asia) L.L.C. is an underwriter in this offering and Goldman, Sachs & Co. will be deemed to have a "conflict of interest" within the meaning of Rule 5121 of the Financial Industry Regulatory Authority, Inc. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 5121, which requires that a "qualified independent underwriter" meeting certain standards participate in the preparation of the registration statement and prospectus and exercise the usual standards of due diligence with respect thereto. Citigroup Global Markets Inc. has agreed to act as a "qualified independent underwriter" within the meaning of Rule 5121 in connection with this offering. Goldman, Sachs & Co. will not confirm sales of the shares to any account over which they exercise discretionary authority without the prior written approval of the customer.

        The number of ordinary shares that will be outstanding immediately after this offering is based upon 4,543,461 Class A ordinary shares and 17,486,705 Class B ordinary shares outstanding as of the date of this prospectus, assuming the conversion of all outstanding preferred shares into 12,030,166 Class B ordinary shares immediately upon the completion of this offering, and excluding:

    2,468,661 Class B ordinary shares issuable upon the exercise of outstanding options at a weighted average exercise price of US$0.42 per share;

    31,339 Class B ordinary shares reserved for future issuance under our 2014 Stock Option Plan; and

    2,500,000 Class B ordinary shares reserved for future issuance under our 2016 Equity Incentive Plan.

        Except as otherwise indicated, all information in this prospectus assumes:

    the automatic conversion of all outstanding preferred shares into Class B ordinary shares immediately upon the completion of this offering;

    the filing and effectiveness of our fifth amended and restated memorandum and articles of association, which will become effective upon the completion of this offering; and

    no exercise of the underwriters' option to purchase additional ADSs.

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

        The following summary consolidated statements of operations data for the years ended December 31, 2013, 2014 and 2015, and summary consolidated balance sheet data as of December 31, 2013, 2014 and 2015, have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

        The following summary consolidated statements of operations data for the six months ended June 30, 2015 and 2016, and summary consolidated balance sheet data as of June 30, 2016, have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the periods presented. Results for the six months ended June 30, 2016 are not necessarily indicative of results that may be expected for the full year.

        You should read this Summary Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.

 
  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share, per share and per ADS data)
 

Consolidated Statements of Operations Data:

                                           

Revenues:

                                           

Enterprise

    57,025     104,891     208,157     31,321     75,483     133,918     20,150  

e-Government and other

    6,414     21,340     29,467     4,434     10,029     16,648     2,505  

Less: Business tax and surcharges

    (892 )   (1,711 )   (2,785 )   (419 )   (878 )   (2,499 )   (376 )

Net revenues

    62,547     124,520     234,839     35,336     84,634     148,067     22,279  

Cost of revenues(1)

    (13,810 )   (21,143 )   (35,237 )   (5,302 )   (11,500 )   (20,023 )   (3,013 )

Gross profit

    48,737     103,377     199,602     30,034     73,134     128,044     19,266  

Operating expenses:

                                           

Sales and marketing expenses(1)

    (29,012 )   (46,880 )   (84,548 )   (12,722 )   (33,351 )   (52,214 )   (7,857 )

Research and development expenses(1)

    (20,385 )   (38,137 )   (100,186 )   (15,075 )   (40,178 )   (66,956 )   (10,075 )

General and administrative expenses(1)

    (30,276 )   (54,931 )   (60,540 )   (9,109 )   (27,861 )   (37,466 )   (5,637 )

Total operating expenses

    (79,673 )   (139,948 )   (245,274 )   (36,906 )   (101,390 )   (156,636 )   (23,569 )

Loss from operations

    (30,936 )   (36,571 )   (45,672 )   (6,872 )   (28,256 )   (28,592 )   (4,303 )

Other income/(expense):

                                           

Foreign currency exchange gain/(loss)

    296     (766 )   1,339     201     672     (889 )   (134 )

Interest income, net

    87     180     80     12     26     189     28  

Other income, net

    9     373     111     17         (417 )   (63 )

Loss before income tax

    (30,544 )   (36,784 )   (44,142 )   (6,642 )   (27,558 )   (29,709 )   (4,472 )

Income tax expense

    (130 )   (476 )   (4,693 )   (706 )            

Net loss

    (30,674 )   (37,260 )   (48,835 )   (7,348 )   (27,558 )   (29,709 )   (4,472 )

Less: Net loss attributable to noncontrolling interests

            (16 )   (2 )       (27 )   (4 )

Net loss attributable to Gridsum Holding Inc. 

    (30,674 )   (37,260 )   (48,819 )   (7,346 )   (27,558 )   (29,682 )   (4,468 )

Accretion to preferred shares redemption value

    (3,849 )   (9,480 )   (19,707 )   (2,965 )   (9,131 )   (11,050 )   (1,663 )

Cumulative dividend to preferred shareholders(2)

    (8,215 )   (16,327 )   (16,642 )   (2,504 )   (8,240 )   (8,659 )   (1,303 )

Net loss attributable to Gridsum's ordinary shareholders(2)

    (42,738 )   (63,067 )   (85,168 )   (12,815 )   (44,929 )   (49,391 )   (7,434 )

 

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  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share, per share and per ADS data)
 

Weighted average number of ordinary shares used in net loss per share calculations:

                                           

Basic and diluted

    10,000,000     10,000,000     10,000,000     10,000,000     10,000,000     10,000,000     10,000,000  

Net loss per ordinary share:

                                           

Basic and diluted(2)

    (4.27 )   (6.31 )   (8.52 )   (1.28 )   (4.49 )   (4.94 )   (0.74 )

Net loss per ADS:(3)

                                           

Basic and diluted

    (4.27 )   (6.31 )   (8.52 )   (1.28 )   (4.49 )   (4.94 )   (0.74 )

Non-GAAP Financial Data:(4)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Adjusted net loss

    (28,380 )   (33,378 )   (40,029 )   (6,023 )   (23,605 )   (24,437 )   (3,679 )

EBITDA

    (26,885 )   (29,927 )   (31,174 )   (4,691 )   (21,626 )   (19,046 )   (2,867 )

Adjusted EBITDA

    (24,591 )   (26,045 )   (22,368 )   (3,366 )   (17,673 )   (13,774 )   (2,074 )

(1)
Share-based compensation was allocated in costs and operating expenses as follows:

   
  For the Year Ended
December 31,
  For the Six
Months Ended
June 30,
 
   
  2013   2014   2015   2015   2016  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
  (in thousands)
 
 

Cost of revenues

    32     71     335     50     146     182     27  
 

Sales and marketing expenses

    86     370     1,651     248     650     1,075     162  
 

Research and development expenses

    163     449     3,347     504     1,515     1,966     296  
 

General and administrative expenses

    2,013     2,992     3,473     523     1,642     2,049     308  
 
 

Total

    2,294     3,882     8,806     1,325     3,953     5,272     793  
 
 
 
(2)
Cumulative dividend to preferred shareholders, net loss attributable to ordinary shareholders and net loss per ordinary share, basic and diluted, for the years ended December 31, 2013 and 2014 and six months ended June 30, 2015 have been revised. See Note 2(a) to our audited consolidated financial statements and Note 2(a) to our unaudited interim consolidated financial statements included elsewhere in this prospectus.

(3)
Each ADS represents one Class B ordinary share.

(4)
See "—Non-GAAP Financial Measures."


 
   
   
   
   
  As of June 30, 2016  
 
  As of December 31,  
 
   
   
   
   
  Pro forma,
as adjusted(2)
 
 
  2013   2014   2015   Actual   Pro forma(1)  
 
  RMB
  RMB
  RMB
  US$
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                                                             

Cash and cash equivalents

    77,960     61,830     198,523     29,871     115,663     17,404     115,663     17,404     546,105     82,172  

Total assets

    198,634     227,597     625,907     94,179     702,895     105,764     702,895     105,764     1,133,337     170,532  

Total liabilities

    121,982     182,192     360,133     54,187     460,180     69,243     460,180     69,243     460,180     69,243  

Total mezzanine equity

    163,324     176,941     476,018     71,626     499,607     75,174                  

Ordinary shares

    68     68                                  

Class A ordinary shares

            31     5     31     5     31     5     31     5  

Class B ordinary shares

            37     6     37     6     117     18     160     25  

Additional paid-in capital(3)

    8,034     2,436                     499,527     75,162     929,926     139,923  

Accumulated deficit(3)

    (97,100 )   (134,360 )   (191,644 )   (28,836 )   (227,104 )   (34,172 )   (227,104 )   (34,172 )   (227,104 )   (34,172 )

Total Gridsum's shareholders' (deficit)/equity

    (86,672 )   (131,536 )   (210,628 )   (31,692 )   (257,249 )   (38,707 )   242,358     36,467     672,800     101,235  

Noncontrolling interests

            384     58     357     54     357     54     357     54  

Total shareholders' (deficit)/equity

    (86,672 )   (131,536 )   (210,244 )   (31,634 )   (256,892 )   (38,653 )   242,715     36,521     673,157     101,289  

(1)
The consolidated balance sheet data as of June 30, 2016 are presented on a pro forma basis to give effect to the automatic conversion of all of our outstanding preferred shares into 12,030,166 Class B ordinary shares immediately upon the completion of this offering.

 

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(2)
The consolidated balance sheet data as of June 30, 2016 are presented on a pro forma, as adjusted basis to give effect to: (i) the automatic conversion of all of our outstanding preferred shares into 12,030,166 Class B ordinary shares immediately upon the completion of this offering; and (ii) the sale by us of 6,521,740 Class B ordinary shares in the form of ADSs in this offering at an assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)
Additional paid-in capital and accumulated deficit have been revised as of December 31, 2013 and December 31, 2014. See Note 2(a) to our audited consolidated financial statements included elsewhere in this prospectus.

Non-GAAP Financial Measures

        In evaluating our business, we consider and use the following non-GAAP financial measures as supplemental measures to review and assess our operating performance: adjusted net loss, EBITDA and adjusted EBITDA. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared in accordance with U.S. GAAP. We define adjusted net loss as net loss before share-based compensation, EBITDA as net loss before interest income and expenses, income tax expenses and depreciation expenses, and adjusted EBITDA as EBITDA before share-based compensation.

        We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance and formulate our business plans. These non-GAAP financial measures enable our management to assess our operating results without considering the impact of non-cash charges, including depreciation expenses and share-based compensation, and without considering the impact of non-operating items such as interest income and expenses and income tax expenses. We also believe that the use of these non-GAAP measures facilitates investors' assessment of our operating performance.

        These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools. One of the key limitations of using these non-GAAP financial measures is that they do not reflect all items of income and expense that affect our operations. Interest income and expenses, income tax expenses, depreciation expenses and share-based compensation have been and may continue to be incurred in our business and are not reflected in the presentation of adjusted EBITDA. Further, these non-GAAP financial measures may differ from the non-GAAP financial measures used by other companies, including our peer companies, so their utility for comparison purposes may be limited.

        We compensate for these limitations by reconciling our non-GAAP financial measures to the most directly comparable U.S. GAAP financial measures, which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.

        The following tables reconcile our adjusted net loss, EBITDA and adjusted EBITDA in 2013, 2014, 2015 and the six months ended June 30, 2015 and 2016 to the most directly comparable financial measure calculated in accordance with U.S. GAAP, which is net loss:

 
  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Reconciliation of Net Loss to Adjusted Net Loss:

                                           

Net loss

    (30,674 )   (37,260 )   (48,835 )   (7,348 )   (27,558 )   (29,709 )   (4,472 )

Share-based compensation

    2,294     3,882     8,806     1,325     3,953     5,272     793  

Adjusted net loss

    (28,380 )   (33,378 )   (40,029 )   (6,023 )   (23,605 )   (24,437 )   (3,679 )

 

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  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA:

                                           

Net loss

    (30,674 )   (37,260 )   (48,835 )   (7,348 )   (27,558 )   (29,709 )   (4,472 )

Interest income, net

    (87 )   (180 )   (80 )   (12 )   (26 )   (189 )   (28 )

Income tax expenses

    130     476     4,693     706              

Depreciation and amortization expenses

    3,746     7,037     13,048     1,963     5,958     10,852     1,633  

EBITDA

    (26,885 )   (29,927 )   (31,174 )   (4,691 )   (21,626 )   (19,046 )   (2,867 )

Share-based compensation

    2,294     3,882     8,806     1,325     3,953     5,272     793  

Adjusted EBITDA

    (24,591 )   (26,045 )   (22,368 )   (3,366 )   (17,673 )   (13,774 )   (2,074 )

 

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RISK FACTORS

        Investing in the ADSs involves significant risks. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes, before making an investment in the ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of the ADSs could decline, and you could lose all or part of your investment.

Risks Related to Our Business

We have a history of losses and we may not achieve or sustain profitability.

        We have incurred net losses in each year since our inception in 2005, including net losses of RMB30.7 million, RMB37.3 million, RMB48.8 million (US$7.3 million) and RMB29.7 million (US$4.5 million) in 2013, 2014, 2015 and the six months ended June 30, 2016, respectively. We expect to continue to expend substantial financial and other resources on, among other things:

        These efforts may prove more expensive than we currently anticipate and may not result in increased revenues or growth of our business. We also expect that our revenue growth rate will decline over time and that our costs will increase. We may not be able to generate sufficient revenues to offset higher costs and achieve or sustain profitability. If we fail to achieve or sustain profitability, our business and operating results would be adversely affected.

Our limited operating history makes it difficult to evaluate our current business and future prospects, and increases the risk of your investment.

        We launched our first data analytics solution, Web Dissector, in 2009, and introduced our other solutions to the market more recently. This limited operating history and the dynamic nature of the market in which we operate limit our ability to forecast future operating results and subject us to many uncertainties, including our ability to plan for and anticipate future growth. Our historical revenue growth should not be considered indicative of our future performance. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as determining appropriate investments of our limited resources, market reception of our existing and future solutions, competition from other companies, attracting and retaining customers, hiring, integrating, training and retaining skilled personnel, developing new solutions, determining prices for our solutions and unforeseen expenses. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results and our business could be adversely affected.

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We have experienced rapid growth in recent periods and expect our growth to continue. If we are not able to manage growth of our business, or if our business does not grow as we expect, our operating results may be adversely affected.

        We have experienced rapid growth in our customer base and have expanded and intend to continue to expand our operations significantly. Our customer base increased from 141 customers in 2013 to 211 customers in 2014 and 307 customers in 2015, and our employee headcount increased from 268 employees as of December 31, 2013 to 425 employees as of December 31, 2014, 733 employees as of December 31, 2015, and 868 employees as of June 30, 2016. The majority of our revenues in 2013, 2014 and 2015 were generated by sales to existing customers. This growth has placed, and any further growth will place, significant demands on our management and our operational and financial infrastructure.

        To manage this growth effectively, we must continue to improve our operational, financial and management systems and controls by, among other things:

        If we fail to manage our growth, or if we fail to implement improvements or maintain effective internal controls, our costs and expenses may increase more than we plan and our abilities to expand our customer base, enhance our existing solutions, develop new solutions, satisfy existing customers, attract new customers, respond to competitive pressures or otherwise execute our business plan may be diminished, and our operating results would be adversely affected.

Our solutions may become less useful, and our business may be harmed, if we fail to adapt and respond effectively to rapidly developing technology, evolving industry standards and practices, and changing customer needs, requirements or preferences.

        The software industry is subject to rapid technological development, evolving industry standards and practices and changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop and sell new solutions that satisfy our customers and provide enhancements and new features for our existing solutions that keep pace with rapid technological change and industry developments, our revenues and operating results could be adversely affected. If new technologies emerge that are able to deliver competitive solutions and applications at lower prices, more efficiently, more conveniently or more securely than our solutions, those technologies could adversely impact our ability to compete and adversely affect our operating results.

To grow our business, we must achieve a high level of customer satisfaction and contract renewals, extend our relationships with existing customers over time and sell our solutions to new customers.

        We have no long-term customer contracts, and most of our customer contracts may be renewed on an annual basis. In addition, our top 20 customers accounted for 71%, 58%, 56% and 60% of our total revenues during the years ended December 31, 2013, 2014, 2015 and the six months ended June 30, 2016, respectively. For our business to grow and succeed we must achieve a high level of customer satisfaction so that our customers will renew their contracts with us and increase their utilization of the solutions they purchase from us. This requires that our solutions perform up to customer expectations and customers achieve the return on investment that they expect. Even if our products perform to specifications, customers may choose not to renew or to cancel early. Our success also depends on our

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ability to extend our relationships with existing customers, both by growing their utilization of solutions they have purchased and by selling additional products in our solution suites. Finally, our ability to achieve significant revenue growth in the future also depends on our ability to attract new customers.

        Our ability to achieve customer renewals, expansions and new customer sales depends on many factors, including customer satisfaction with the performance of our solutions, our prices, the prices of competing solutions, mergers and acquisitions affecting our customer base, the effects of global economic conditions and reductions in customer spending levels generally. Our success with customers also depends on our ability to maintain a consistently high level of customer service and technical support to retain existing customers and attract new customers. If we are unable to hire and train sufficient support resources to provide adequate and timely support to our customers, our customers' satisfaction with our solutions will be adversely affected. To the extent that our customers do not renew their contracts, terminate early or renew on less favorable terms or if our efforts to sell additional solutions to existing customers or new customers are not successful, our revenues may decline and our operating results could be adversely affected.

We depend upon sales of our marketing automation solutions to enterprise customers for a significant portion of our revenues. A portion of the revenue from our marketing automation solutions is generated based on the volume of keyword placements with a small number of premium search engines in China. The loss of any of these customers or search engines, or the reduction in their activities, could materially adversely affect our business, results of operations and financial condition.

        In 2013, 2014, 2015 and the six months ended June 30, 2016, 91%, 84%, 89% and 90% of our net revenues, respectively, were derived from enterprise customers that purchased our marketing automation solutions, which include data analytics and bid management solutions for digital marketing services. We expect that, for the foreseeable future, we will continue to depend upon these customers for a significant portion of our revenues. A decline in sales to these customers would adversely affect our business, financial condition and operating results.

        Our marketing automation solutions allow our customers to automate the bidding for and purchase of keywords on search engines. A relatively small number of premium search engines, such as Baidu, Sogou and Qihoo 360, have historically accounted for a significant portion of the keyword inventory that customers purchased through our marketing automation solutions. In 2013, 2014, 2015 and the six months ended June 30, 2016, a majority of the search keyword impressions placed by customers using our marketing automation solutions were placed on Baidu websites. We expect that we will continue for the foreseeable future to depend upon a relatively small number of premium search engines for a significant portion of our customers' purchases of search keywords. Because we have no long-term commitments from these search engines, they may reduce the inventory they sell to our customers. If we fail to retain or replace premium search engine platforms, our business, results of operations and financial condition could be materially adversely affected. Revenues from Baidu's incentive program associated with keyword placements by our customers through our marketing automation solutions accounted for 18% of our revenues in 2013 and for less than 10% of our revenues in 2014, 2015 and the six months ended June 30, 2016. If Baidu were to change its incentive programs or to cease doing business with us for any reason, our revenues and our financial results would be materially adversely affected.

Our strategic relationships are an important part of our ability to grow our revenues, and if we do not maintain and strengthen those relationships, our results of operations and financial condition could be adversely affected.

        Under our cooperation agreement with the State Information Center of China, or the SIC, we established a non-governmental entity, the Research Center for e-Government, to serve the website and critical business application system needs of PRC local, municipal, provincial and central governmental agencies. In June 2015, we entered into a framework agreement and a collaboration agreement with an

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entity that is wholly owned by the SIC, or the SIC Entity. Under these agreements, we and the SIC Entity have established a joint venture company, Beijing Guoxinwangyan, to oversee the business operations, sales and marketing and financial management of the Research Center. Beijing Gridsum and Guoxinjunhe each own 40%, and the SIC Entity owns 20%, of the equity interest in Beijing Guoxinwangyan.

        A significant portion of our e-Government revenues has been generated by sales to public sector agencies due in part to our strategic relationship with the SIC. Our ability to continue to sell our solutions to public sector agencies will depend on continued cooperation of the SIC and is subject to many uncertainties, such as the SIC may change its focus and reduce or terminate its support for e-Government initiative, and the fact that PRC public sector agencies may face funding reductions or delays, reducing sales of our solutions. In the event that any of these risks materialize, our revenues and results of operations could be materially adversely affected.

        In January 2016, we entered into a strategic cooperation agreement with the PRC Supreme People's Court Press, or People's Court Press, which established a framework for the application of our sophisticated data analytics and information recommendation technology to legal information services. We have collaborated with the People's Court Press to develop the Chinese Legal Information Platform (or "Faxin" in Chinese), which we launched in March 2016. Faxin is designed with tools in our Information Discovery Suite to manage legal information and resources and enable access to judicial precedents and legal information for the legal profession. Faxin is a new offering and there can be no assurance that it will be successful.

        Selling to public sector customers in the PRC involves a number of inherent risks. These sales often require significant upfront time and expense without any assurance that these efforts will generate a sale. Governmental agencies may require us to comply with various national and local regulations that are not applicable to sales to commercial enterprises, and compliance with those regulations may require us to put in place controls and procedures that may be costly to administer. Failure to comply with any such regulations could adversely affect our business, operating results and financial condition.

If we are not able to develop and introduce new solutions and enhancements of existing solutions that achieve market acceptance, our business could be adversely affected.

        Our ability to attract new customers and increase revenues from existing customers depends in large part on our ability to enhance and improve our existing solutions, increase adoption and usage of our solutions and introduce new solutions. As such, the continued growth in market demand of these solutions is critical to our continued success. In addition, our ability to grow our business depends in part on our ability to increase market acceptance of our other solutions, which are unproven. The success of new solutions and enhancements of existing solutions depend on many factors, including timely completion, adequate quality testing, introduction and market acceptance. Any new solutions that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects or may not achieve the broad market acceptance necessary to generate sufficient revenues. If we are unable to successfully enhance our existing solutions to meet customer requirements, increase adoption and usage of our solutions or develop new solutions, our business and operating results will be adversely affected.

Our future quarterly operating results may fluctuate significantly due to a wide range of factors, which makes our future results difficult to predict.

        Our revenues and operating results could vary significantly from quarter to quarter as a result of various factors, many of which are outside of our control, including:

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        Any one of these factors may result in fluctuations in our revenues and operating results, meaning that quarter-to-quarter comparisons of our revenues, operating results and cash flows may not necessarily be indicative of our future performance.

        We believe that quarter-to-quarter comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an indication of future performance. If our revenues or operating results fall below the expectations of investors or securities analysts in a particular quarter or below any guidance we may provide, the price of the ADSs could decline.

If the market for our cloud-based SaaS offerings develops more slowly than we expect, our growth may slow or stall, and our operating results would be adversely affected.

        The market for business software that is delivered as cloud-based software-as-a-service, or SaaS, offerings is less mature than traditional on-premises software applications, and the adoption rate of SaaS business software may be slower among customers in industries with heightened data security concerns or business practices requiring highly customizable application software. Our success will depend to a substantial extent on the widespread adoption of SaaS business software in general, but we cannot be certain that the trend of adoption of SaaS solutions will continue in the future. In particular, many organizations have invested substantial personnel and financial resources in integrating legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to SaaS. It is difficult to predict customer adoption rates and demand for our solutions, the future growth rate and size of the SaaS business software market or the entry of competitive applications. The expansion of the SaaS business software market depends on a number of factors, including the cost, performance and perceived value associated with SaaS, as well as the ability of SaaS providers to address data security and privacy concerns. If SaaS business software does not continue to achieve market acceptance, or there is a reduction in demand for SaaS business software caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and solutions or decreases in information technology spending, it would result in decreased revenues and our business would be adversely affected.

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Our growth prospects will be adversely affected if we fail to successfully execute our mobile strategy, including developing, maintaining and enhancing the capabilities of our mobile solutions.

        The use of mobile devices to access the online content that our customers offer to their users, is growing rapidly and displacing personal computer-based access to those customer offerings. Our experience with Web Dissector may not provide a meaningful basis for you to evaluate our current business and prospects in mobile. We introduced Mobile Dissector in 2011, so our experience with it is limited and we cannot be certain that it will be successful. If we cannot provide effective functionality through our mobile solutions, as required by our customers, we may experience difficulty retaining and attracting customers.

        To deliver high quality applications, it is important that our solutions integrate with a wide range of other mobile technologies, systems, networks and standards that we do not control. We may not be successful in developing solutions that operate effectively with these technologies, systems, networks or standards. We have devoted and we expect to continue to devote substantial resources to our mobile solutions, and we cannot guarantee that the capabilities of our mobile solutions will be attractive to existing or potential customers. If we do not succeed in continuing to develop, maintain and enhance the capabilities of our mobile solutions, our growth prospects in the mobile sector will be adversely affected.

Our future growth, if any, depends on being able to expand our direct sales force and customer service and technical support team successfully.

        Our ability to increase our customer base, sell more of our solutions and achieve broader market acceptance of our solutions depends, to a significant extent, on our ability to expand our marketing and sales operations. To date, most of our growth has been attributable to the efforts of our direct sales force, which consists of a limited number of quota-carrying sales personnel and a limited number of customer service consultants. We intend to increase substantially the number of our direct sales personnel and customer service consultants. We believe there is significant competition for personnel with the skills and technical knowledge that we require, and from time to time we have experienced and expect to continue to experience significant turnover within our sales force. To the extent we experience unusual levels of turnover within our sales force or lose particularly valuable contributors, it may limit our ability to grow revenues and may harm our sales force productivity, which could lead to revenue declines. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient numbers of sales personnel and customer service consultants to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Newly hired personnel may not become productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. In addition, as we continue to grow rapidly, a large percentage of our sales force will be new to our company and our solutions, which may make it more difficult to train our sales force effectively and may adversely affect our sales. If we are unable to hire and train sufficient numbers of effective sales personnel and customer service consultants or if our sales force is not successful in obtaining new customers or increasing sales to our existing customer base, our business will be adversely affected.

Failure to protect our customers' proprietary data could expose us to risks of liability, loss of business and reputational damage.

        Our operations involve protection of our intellectual property, along with the storage, transmission and processing of our customers' proprietary data, including some personally identifiable information. Security breaches, computer malware and computer hacking attacks could expose us to risks of loss of important customer information, which could result in loss of business, reputational damage, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for

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violation of applicable laws or regulations and significant costs for remediation and incentives to customers or other business partners in an effort to maintain business relationships after a breach.

        Cyberattacks and other malicious internet-based activity continue to increase generally. If our security measures are perceived as weak or are actually compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials or otherwise, our customers may curtail or stop using our solutions, our reputation could be damaged, our business could be adversely affected, and we could incur significant liability. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer base and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers' data.

        Many of our contracts do not have limitations of liability provisions for a security lapse or breach, and we cannot assure you that any contractual limitations of liability provisions would be enforceable or would otherwise protect us from any liabilities or damages with respect to any particular claim. We do not have insurance to cover such liabilities and damages, and cannot be sure that insurance coverage will be available on acceptable terms, will be available in sufficient amounts to cover one or more large claims related to a security breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including expansion rates, financial condition, operating results and reputation.

Our business collects and processes a large amount of data, and the improper use or disclosure of such data could harm our reputation as well as have a material adverse effect on our business and prospects.

        In the course of performing data analysis for our customers, we collect and process a large quantity of personal, transactional, demographic and behavioral data. Although we do not store any personally identifiable information, we nevertheless face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a number of challenges relating to data about internet users who visit our customers' websites:

        Any systems failure or security breach or lapse on our part that results in the release of user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs. If additional capital is not available, we may have to delay, reduce or cease operations.

        We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure or possible acquisitions of complementary businesses and technologies. We do not currently have any specific acquisition plans or targets. We may also require additional capital to respond to declines in demand for our products or other unforeseen circumstances. We may not be

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able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing shareholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of the ADSs. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to support our business and to respond to business opportunities and challenges could be significantly limited, and our business, operating results, financial condition and prospects could be adversely affected.

If we lose key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business could be adversely affected.

        Our success and future growth depend largely upon the continued services of our executive officers and other key employees in the areas of research and development, marketing, sales, services and general administrative functions. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. The loss of one or more of our executive officers, particularly our chief executive officer and chairman, Guosheng Qi, or the failure of our executive team to work with our employees and lead our company effectively, could adversely affect our business.

        In addition, we must attract and retain highly qualified personnel to execute our growth plan. Competition for these personnel in Beijing, where our headquarters and the majority of our research and development personnel are located, and in other locations where we maintain offices is intense, especially for engineers experienced in designing and developing data analysis and digital intelligence solutions software and experienced sales professionals. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel are larger and have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines or experiences significant volatility, it may be more difficult for us to recruit and retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

We have identified a material weakness and certain other deficiencies in our internal controls as of December 31, 2015, and if we fail to maintain an effective system of internal controls, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of the ADSs may be adversely affected.

        Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal controls. In the course of auditing our consolidated financial statements, we and our independent registered public accounting firm identified a material weakness and certain other deficiencies in our internal controls. A material weakness is a deficiency, or combination of deficiencies, in internal controls, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness relates to our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of U.S. GAAP and the Securities and Exchange Commission, or the SEC, reporting requirements to properly address complex accounting issues and to

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prepare and review our financial statements and related disclosures in accordance with U.S. GAAP and SEC financial reporting requirements. Although we have begun to implement measures to address the material weakness, implementation of those measures may not fully remediate the material weakness in a timely manner. In the future we may determine that we have additional material weaknesses, or our independent registered public accounting firm may disagree with our management assessment of the effectiveness of our internal controls.

        If we fail to establish and maintain adequate internal controls, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could limit our access to capital markets, adversely affect our results of operations and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal controls could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list or to other regulatory investigations and civil or criminal sanctions. We could also be required to restate our historical financial statements.

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.

        The market for digital intelligence solutions is rapidly evolving, fragmented and highly competitive, with relatively low barriers to entry in some segments. Our competitors fall into three primary categories:

        Most recently, each of IBM, Oracle and Salesforce.com have begun offering "marketing cloud" solutions to customers, and we believe these companies and Adobe are our primary competitors in the market for marketing automation solutions.

        Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, larger budgets, significantly greater resources and more operating flexibility to bundle competing solutions and services with other software offerings at little or no perceived incremental cost, including offering them at a lower price as part of a larger sale. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. In addition, some competitors may offer solutions or services that address one or a limited number of functions at lower prices or with greater depth than our solutions. Our current and potential competitors may develop and market new technologies with comparable functionality to our solutions, and this could lead to us having to decrease prices in order to remain competitive.

        With the introduction of new technologies and new market entrants, we expect competition to intensify in the future. As we expand the scope of our solutions, we may face additional competition. Additionally, some existing and potential customers, particularly large enterprises, may elect to develop their own internal solutions. If one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively. If we are unable to maintain our current pricing due to the competitive pressures, our margins will be reduced and our operating results will be adversely affected. Pricing pressures and increased competition generally could result in reduced sales and margins, losses or the failure of our solutions to achieve or maintain more widespread market acceptance, any of which could adversely affect our business.

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Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

        Our success depends in part on reliable customer access to our solutions and reliably high performance by our solutions. We may experience disruptions, outages and other performance problems due to a variety of factors, including downtime at leased data center facilities, infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our solutions simultaneously, denial of service attacks or other security related incidents. In addition, the availability and performance of our solutions are important to our customers, but it may become more difficult over time to maintain and improve our performance levels, especially during peak usage times, and as our solutions become more complex and our usage volume increases. If our solutions are unavailable to customers when needed or our solutions do not perform up to expected levels for any reason, our business will be adversely affected. Addressing these problems will require us to address capacity constraints, continually upgrade our systems and continually develop our technology and network architecture, which will increase our costs and may adversely affect our operating results.

Defects in our solutions could diminish demand for our solutions, adversely affect our financial results and subject us to liability.

        Our customers depend on our solutions for important aspects of their businesses, and any errors, defects or disruptions to our solutions or other performance problems with our solutions may damage our customers' businesses and could hurt our brand and reputation. We provide regular updates, which may contain undetected errors when first introduced or released. In the past, we have discovered software errors, failures, vulnerabilities and bugs in our solutions after they have been released, and additional errors in our existing solutions may be detected in the future. Real or perceived errors, failures or bugs in our solutions could result in negative publicity, loss of or delay in market acceptance of our solutions, loss of competitive position, delay of payment to us, lower renewal rates or claims by customers for losses sustained by them. In such an event, we may be required, or may choose for customer relations reasons or otherwise, to expend additional resources in order to help correct the problem. As a result, we could lose future sales and our reputation and our brand could be adversely affected. In addition, we currently do not and may not in the future carry insurance sufficient to compensate us for any losses that may result from claims arising from defects or disruptions in our solutions.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology.

        Our success depends to a significant degree on our ability to protect our proprietary technology. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business could be adversely affected.

        We rely on a combination of patents, trademarks, trade secrets, copyrights, service marks, contractual restrictions and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We may be unable to obtain any patent protection for our technology subject to the pending patent applications. Any patents, trademarks or other intellectual property rights that we obtain may be challenged by others or invalidated through administrative process or litigation. We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. There is no assurance that these agreements will be effective in controlling access to and distribution of our proprietary information.

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        Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. The laws of the PRC are not as protective of intellectual property rights as those in the United States, and legal procedures for enforcement of intellectual property rights may be inadequate in China. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

        We may be required to spend significant resources in monitoring and protecting our intellectual property rights. We may be required to pursue litigation to protect our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management, and it could also result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting less effective or more costly technologies into our solutions or injure our reputation.

We may be sued by third parties for alleged infringement of their proprietary rights.

        There are considerable patent, copyright, trademark, trade secret and other intellectual property development activities in our industry. Our success depends in part on not infringing on the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our solutions or require that we comply with other unfavorable terms.

        Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources spent in resolving them, could divert the resources of our management and adversely affect our business and operating results. We expect that the occurrence of infringement claims is likely to grow as the market for digital intelligence solutions grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further divert our financial and management resources.

Our use of open source software could negatively affect our ability to sell our solutions and subject us to possible litigation.

        We use open source software in our solutions and expect to continue to use open source software in the future. We may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our technologies, any of which would have a negative effect on our business and operating results. In addition, if the license terms for the open source software we utilize change, we may be forced to reengineer or discontinue our solutions or incur additional costs. We cannot be certain that we have incorporated open source software in our solutions in a manner that is consistent with our policies.

Natural disasters and other events beyond our control could adversely affect our business.

        Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages,

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pandemics and other events beyond our control. We rely on our network and third-party data center infrastructure, customers' internal technology systems and our website for our development, marketing, operational support, hosted solutions and sales activities. Although we maintain crisis management and disaster response plans, in the event of a major earthquake, hurricane or other catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorism, we may be unable to continue operations without interruption and may suffer lost revenues, delays in developing important software, reputational harm, breaches of data security and loss of critical data, all of which could have an adverse effect on our results of operations.

Risks Relating to Our Corporate Structure

We conduct our businesses in China through our variable interest entity and its subsidiaries by means of contractual arrangements. If the PRC government determines that such arrangements do not comply with applicable PRC laws and regulations, our business could be materially adversely affected.

        PRC laws and regulations impose restrictions on foreign ownership of companies that engage in internet, market survey and other related businesses from time to time. Specifically, foreign ownership of an internet content provider may not exceed 50% and the primary foreign investor of such provider must have a record of good performance and operating experience in managing internet content service.

        We are a company registered in the Cayman Islands and Dissector (Beijing) Technology Co., Ltd., our wholly owned PRC subsidiary that we refer to as the WFOE, is considered a foreign-invested enterprise, or FIE. To comply with PRC laws and regulations, we conduct our business in China through Gridsum Holding (Beijing) Co., Ltd., or Gridsum PRC Holding, and its subsidiaries, based on a series of contractual arrangements among the WFOE, Gridsum PRC Holding and its shareholders. The shareholders of Gridsum PRC Holding are our founders, Guosheng Qi and Guofa Yu, and a holding company owned by Guosheng Qi and other key employees. As a result of these contractual arrangements, we exert control over Gridsum PRC Holding, which is our variable interest entity, or VIE, and its subsidiaries, and we consolidate their operating results in our financial statements under U.S. GAAP. The subsidiaries of Gridsum PRC Holding hold the licenses and key assets that are essential for our business operations. For a detailed description of these contractual arrangements, see "Corporate History and Structure."

        In the opinion of our PRC counsel, Commerce & Finance Law Offices, (a) the ownership structures of the WFOE, Gridsum PRC Holding and the subsidiaries of Gridsum PRC Holding, both currently and immediately after giving effect to this offering, do not and will not violate applicable PRC laws, and (b) each agreement documenting the contractual arrangements among the WFOE, Gridsum PRC Holding and its shareholders, is valid, binding and enforceable in accordance with its terms under applicable PRC laws, and does not violate applicable PRC laws. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations and there can be no assurance that the PRC government will take a view that is not contrary to or otherwise different from the opinion of our PRC counsel. If the contractual arrangements among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding are determined to be illegal or invalid, the relevant governmental authorities would have broad discretion in dealing with such violation, including revoking our business and operating licenses, requiring us to discontinue or restrict operations, restricting our rights to collect revenues, confiscating our income, requiring us to restructure our ownership structure or operations, imposing additional conditions or requirements with which we may not be able to comply or levying fines. These actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and operating results.

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We rely on contractual arrangements with Gridsum PRC Holding and its shareholders for our operations in China, which may not be as effective in providing operational control as direct ownership.

        We have relied and expect to continue to rely on contractual arrangements with Gridsum PRC Holding, in which we have no ownership interest, and the shareholders of Gridsum PRC Holding to conduct our business in China. These contractual arrangements are intended to provide us with effective control over Gridsum PRC Holding and its subsidiaries and allow us to obtain economic benefits from them, but may not be as effective as direct ownership. If Gridsum PRC Holding or its shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantial costs and expend substantial resources to enforce our rights.

        All of these contractual arrangements are governed by and interpreted in accordance with PRC law, and disputes arising from these contractual arrangements will be resolved through arbitration in China. There are very few precedents and little official guidance as to how contractual arrangements in the context of a VIE should be interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate outcome of arbitration should legal action become necessary. The relevant PRC arbitration panel may conclude that our contractual arrangements violate PRC law or are otherwise unenforceable. In addition, arbitration awards are final and can only be enforced in PRC courts through arbitration award recognition proceedings, which could cause additional expenses and delays. In the event that we are unable to enforce these contractual arrangements or we experience significant delays or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exert effective control over Gridsum PRC Holding, and may lose control over the assets owned by it and its subsidiaries. As a result, we may be unable to consolidate Gridsum PRC Holding and its subsidiaries in our consolidated financial statements, our ability to conduct our business may be adversely affected, and our business operations could be severely disrupted.

The beneficial owners of Gridsum PRC Holding may have potential conflicts of interest with us, which may materially adversely affect our business.

        The beneficial owners of Gridsum PRC Holding, our VIE, include Guosheng Qi, Guofa Yu and other key employees. Conflicts of interest may arise between the roles of these individuals as shareholders, directors and officers of our company on the one hand and as beneficial owners of Gridsum PRC Holding on the other. We rely on these individuals to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to our company to act in good faith and in the best interest of our company and not to use their positions for personal gain. We cannot assure you that when conflicts of interest arise, beneficial owners of Gridsum PRC Holding will act in the best interest of our company or that conflicts will be resolved in our favor. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements with our consolidated affiliated entities may result in adverse tax consequences to us.

        Under applicable PRC tax laws and regulations, arrangements and transactions among related parties may be subject to audit or scrutiny by the PRC tax authorities. We could face adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding are not on an arm's length basis and therefore constitute favorable transfer pricing. The PRC tax authorities could require that Gridsum PRC Holding adjust its taxable income upward. Such an adjustment could adversely affect us by increasing Gridsum PRC Holding's tax expenses without necessarily reducing the tax expenses of the WFOE, and subjecting Gridsum PRC Holding to late payment fees and other penalties for under-payment of taxes. As a result, our consolidated operating results could be adversely affected.

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We may lose the ability to use assets held by Gridsum PRC Holding or its subsidiaries that are important to the operation of our business if any of them goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

        Gridsum PRC Holding and its subsidiaries hold assets and perform functions that are important to the operation of our business. In particular, the subsidiaries of Gridsum PRC Holding hold almost all patents for our proprietary technology, domain names, trademarks, copyrights and other intellectual property rights. In the event that Gridsum PRC Holding or any of its subsidiaries enters into bankruptcy or undergoes a voluntary or involuntary liquidation proceeding, all or part of its assets will become subject to liens or rights of third-party creditors. As a result, we may be unable to continue some or all of our business operations, which could materially adversely affect our business, financial condition and operating results.

Substantial uncertainties exist with respect to the enactment timetable and final content of a draft new PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations.

        In January 2015, the Ministry of Commerce of the PRC, or the MOFCOM, published a discussion draft of the Foreign Investment Law for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company should be treated as an FIE. It specifically provides that entities established in China (without direct foreign equity ownership) but "controlled" by foreign investors, through contract or trust for example, will be treated as FIEs. Once an entity falls within the definition of FIE, it may be subject to foreign investment "restrictions" or "prohibitions" set forth in a "negative list" to be separately issued by the State Council later. If an FIE proposes to conduct business in an industry subject to foreign investment "restrictions" in the "negative list," the FIE must go through a MOFCOM pre-approval process.

        Under the draft Foreign Investment Law, VIEs that are controlled via contractual arrangements would be deemed as FIEs if they are ultimately "controlled" by foreign investors, and any of their operations in the industry categories included in the "negative list" without MOFCOM pre-approval may be considered illegal. Conversely, for any companies with a VIE structure engaged in a "restricted" business included in the "negative list," the VIE structure may be deemed legitimate if it is ultimately controlled by PRC nationals. The draft Foreign Investment Law is not specific on what will happen to companies with an existing VIE structure.

        The internet content service and market survey businesses that we conduct through subsidiaries of Gridsum PRC Holding, which is our VIE, are subject to foreign investment restrictions set forth in the Guidance Catalogue of Industries for Foreign Investment (2015 Revision) issued by the MOFCOM and the National Development and Reform Commission, or the Catalogue. It is unclear whether the new "negative list" will be different from the relevant categories in the Catalogue. Substantial uncertainties exist with respect to the enactment timetable and final content of the draft Foreign Investment Law. To date, there is no timetable for the enactment of the draft Foreign Investment Law. If the enacted version of the Foreign Investment Law and the final "negative list" mandate further actions to be taken by us, such as a MOFCOM pre-approval process, there is no assurance that we can obtain such pre-approval on a timely basis, or at all.

Risks Relating to Doing Business in China

Adverse changes in economic and political policies of the PRC government could have a material adverse effect on overall economic growth in China, which could materially and adversely affect our business.

        Substantially all of our operations are conducted in China and substantially all of our revenues are generated in China. Accordingly, our operating results, financial condition and prospects are influenced by the economic, political and legal conditions and developments in China. China's economy differs

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from the economies of most developed countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates, foreign exchange control and allocation of resources. While the Chinese economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors. The PRC government exercises significant control over China's economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policies and providing preferential treatment to particular industries or enterprises. Any adverse changes in the policies of the Chinese government or in PRC laws and regulations could have a material adverse effect on the overall economic growth of China, result in decreased demand for our solutions and adversely affect our business and operating results. In addition, our revenues are dependent on the number of our customers and the scope of the solutions used by our customers. Historically, during economic downturns there have been reductions in spending on digital intelligence as well as pressure for extended billing terms and other financial concessions. These conditions affect the level of information technology spending and could adversely affect our customers' ability or willingness to purchase our solutions, delay prospective customers' purchasing decisions, reduce the value or duration of their contracts or affect renewal rates, all of which could adversely affect our operating results.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

        The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters. Since then, the legislation has enhanced the protections of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. The interpretation and enforcement of these laws and regulations involve uncertainties. Since the PRC administrative authorities and courts have significant discretion in interpreting and implementing statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection available to you and us.

        Furthermore, the PRC legal system is partly based on government policies and internal rules, some of which are not published in a timely manner or at all, and some of which may have retroactive effects. As a result, we may not be aware of our violation of any of these policies or rules until sometime after the violation. Such uncertainties, including the uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights could materially adversely affect our business and impede our ability to continue our operations.

The PRC regulations on offshore holding companies providing loans to and making direct investments in PRC entities may delay or prevent us from using the proceeds of this offering to fund the WFOE.

        Upon completion of this offering, we may finance and transfer funds to the WFOE by means of shareholder loans or capital contributions. Any loans we make to the WFOE cannot exceed statutory limits based on the difference between the total investment amount and the registered capital of the WFOE and must be registered with the State Administration of Foreign Exchange, or SAFE, or its local counterparts. Any capital contributions we make to the WFOE must be approved by appropriate governmental agencies. We may not be able to obtain these approvals on a timely basis, if at all. If we fail to obtain such approvals, our ability to provide loans or capital contributions to the WFOE in a timely manner may be adversely affected, which could materially adversely affect our liquidity and our ability to fund and expand our business.

        Moreover, the registered capital of the WFOE settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and may

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not be used to grant loans through entrustment arrangements with a bank, repay inter-company loans or repay bank loans that have been transferred to a third party. This may significantly limit our ability to fund our business operations in China.

The failure of our PRC-resident beneficial owners to comply with PRC foreign exchange regulations may subject the WFOE to liability or penalties, limit our ability to inject capital into the WFOE or limit the WFOE's ability to distribute profits.

        On July 4, 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents' Outbound Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the former circular commonly known as "SAFE Circular 75" promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires a PRC resident to make SAFE registration prior to contributing assets or interests to an overseas special purpose vehicle, or SPV, that is directly established or indirectly controlled by such PRC resident for the purpose of conducting investment or financing. SAFE Circular 37 further requires the PRC resident to make amendment registrations in the event of any major changes or events with respect to the SPV, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger or division. In the event that a PRC-resident shareholder holding interests in a SPV fails to complete the required SAFE Circular 37 registration, the PRC subsidiary of such SPV may be prohibited from making profit distributions to its offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the SPV may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under the PRC law for evading foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment which came into effect on June 1, 2015, initial and amendment registrations under SAFE Circular 37 are handled by qualified local banks.

        The beneficial owners of Generation Gospel Limited, Garden Enterprises Ltd. and Fairy Spirit Limited who are PRC residents have completed initial registrations under SAFE Circular 37 with the local counterparts of SAFE relating to their investments in us. However, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners have complied and will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our existing or future beneficial owners who are PRC residents to comply with the registration requirements and procedures set forth in SAFE Circular 37 and subsequent implementation rules may subject the WFOE to fines and legal sanctions, limit our ability to contribute additional capital to the WFOE and limit the WFOE's ability to distribute dividends or make other distributions to our company, which could adversely affect our business and prospects.

We and our Hong Kong subsidiary may be classified as a "PRC resident enterprise" for PRC enterprise income tax purposes, which would likely result in unfavorable tax consequences to us and our non-PRC shareholders.

        The PRC Enterprise Income Tax Law, or the EIT Law, provides that an enterprise established outside China whose "de facto management body" is located in China is considered a "PRC resident enterprise" and will generally be subject to the uniform 25% PRC enterprise income tax on its global income. Under the implementation rules of the EIT Law, "de facto management body" is defined as the organizational body which effectively manages and controls the production and business operation, personnel, accounting, properties and other aspects of operations of an enterprise.

        Pursuant to the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, issued by the PRC State Administration of Taxation, or the SAT, in 2009, an overseas incorporated enterprise controlled by PRC enterprises or PRC enterprise groups is considered a PRC resident enterprise if all

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of the following conditions are met: (i) the senior management and core management departments in charge of daily operations are located mainly in the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders' meetings are located or kept in the PRC; and (iv) at least half of the enterprise's directors or senior management with voting rights habitually reside in the PRC. Although the notice states that these standards only apply to offshore enterprises that are controlled by PRC enterprises or PRC enterprise groups, such standards may reflect the general view of the SAT in determining the tax residence of overseas incorporated enterprises.

        If the PRC tax authorities determine that our company or any of our non-PRC subsidiaries is a PRC resident enterprise for PRC enterprise income tax purposes, we or any such non-PRC subsidiary could be subject to PRC enterprise income tax at a rate of 25% on our or its global income, which could materially reduce our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the PRC tax authorities determine that our company is a PRC resident enterprise, dividends paid by us and gains realized on the sale or other disposition of the ADSs or our ordinary shares may be subject to PRC tax, at a rate of 10% if the shareholder is a non-PRC resident enterprise or 20% in the case of a non-PRC individual shareholder (in each case, subject to the provisions of any applicable tax treaty). Such tax may materially reduce the value of the ADSs.

Any limitation on the ability of the WFOE to make distributions to us, or the tax implications thereof, could have a material adverse effect on our business or financial condition.

        We are a holding company, and we rely principally on dividends and other distributions from the WFOE for our cash needs, including the funds necessary to pay dividends to our shareholders or to service any debt we may incur. Current PRC regulations permit the WFOE to pay dividends only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, the WFOE is required to set aside at least 10% of its after tax profits each year, if any, to fund statutory reserve funds until the aggregate amount of such reserve funds reaches 50% of its registered capital. Apart from these reserves, the WFOE may allocate a discretionary portion of its after-tax profits to staff welfare and bonus funds at its discretion. These reserves and funds are not distributable as cash dividends. We cannot assure you that the WFOE will generate sufficient earnings and cash flows in the near future to pay dividends or otherwise distribute sufficient funds to enable us to meet our obligations, pay interest and expenses or declare dividends.

        Distributions made by a PRC company to its offshore parent are generally subject to a 10% withholding tax under the EIT Law. Pursuant to the EIT Law and the Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion With Respect to Taxes on Income, the withholding tax rate on dividends paid by the WFOE to Gridsum HK would generally be reduced to 5%, provided that Gridsum HK is the beneficial owner of the income sourced from China. However, the Notice on How to Understand and Determine the Beneficial Owners in Tax Treaties, promulgated by the SAT in 2009, provides that a beneficial owner generally must engage in substantive business activities. An agent or a conduit company (meaning a company that is set up for the purpose of avoiding or reducing taxes or transferring or accumulating profits) will not be regarded as a beneficial owner and, therefore, will not qualify for treaty benefits. If Gridsum HK is regarded as a conduit company, it will not be able to enjoy the lower 5% withholding tax rate with respect to any dividends or distributions made by the WFOE.

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Governmental control of currency conversion may limit our ability to pay dividends and other obligations and affect the value of your investment.

        The PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China. We receive substantially all of our revenues in RMB, and substantially all of our cash inflows and outflows are denominated in RMB. We primarily rely on dividend payments from the WFOE to fund any cash and financing requirements we may have.

        Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments, and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as routine procedural requirements are fulfilled. Therefore, the WFOE is allowed to pay dividends in foreign currency to us without pre-approval from SAFE. However, approval from or registration with competent government authorities is required where the RMB is to be converted into foreign currency and remitted out of China to pay capital account items such as the repayment of loans denominated in foreign currencies. Also, the PRC government may at its discretion restrict access to foreign currencies for current account items in the future. If the foreign exchange control system in China prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.

Failure to comply with PRC regulations regarding the registration requirements for share option plans may subject PRC plan participants or us to fines and other legal or administrative sanctions.

        Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly listed SPVs due to their position as director, senior management or employees of the PRC subsidiaries of the overseas SPVs may submit applications to SAFE or its local branches for the foreign exchange registration with respect to such overseas SPVs. Upon completion of this offering, we and our directors, executive officers and other employees who are PRC residents and who have been granted options will be subject to the Circular on Relevant Issues Concerning the Foreign Exchange Administration for Domestic Individuals' Participation in Equity Incentive Plans of Overseas-Listed Companies issued by SAFE in February 2012, or SAFE Circular 7. Under SAFE Circular 7, PRC residents who participate in an employee share ownership or option plan of an overseas publicly listed company are required to register with SAFE and complete other procedures through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise or sale of share options. In addition, the PRC agent is required to make amendment registrations with respect to the share incentive plan if there is any material change to the share incentive plan, the PRC agent or the overseas entrusted institution or other material changes. Failure to comply with such requirements will subject us or our PRC resident option holders to fines and other legal or administrative sanctions.

        Furthermore, the SAT has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares or restricted share units, or RSUs, vest, will be subject to PRC individual income tax. Our PRC subsidiary and controlled affiliated entities will be required to file documents related to employee share options, restricted shares or RSUs with the relevant tax authorities and to withhold individual income taxes of those employees related to their share options, restricted shares or RSUs. If the employees fail to pay, and our PRC subsidiary and controlled affiliated entities fail to withhold, such PRC individual income taxes, our PRC subsidiary and controlled affiliated entities may face sanctions imposed by the PRC tax authorities.

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Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment.

        The value of the RMB against the U.S. Dollar and other currencies is affected by changes in China's political and economic conditions and China's foreign exchange policies, among other things. In 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the U.S. Dollar, and the RMB appreciated more than 20% against the U.S. Dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the fluctuation of the exchange rate between the RMB and the U.S. Dollar remained within a narrow range. The PRC government then allowed the RMB to appreciate slowly against the U.S. Dollar again, and as of June 30, 2016, the RMB had appreciated approximately 2.0% against the U.S. Dollar since June 30, 2010, though there also have been periods when the RMB depreciated against the U.S. Dollar. During a three-day period in August 2015, the RMB depreciated approximately 3.0% against the U.S. Dollar. It is difficult to predict how market forces or PRC or U.S. government policies may impact the exchange rate between the RMB and the U.S. Dollar in the future.

        Substantially all of our revenues and costs are denominated in RMB, and substantially all of our financial assets are also denominated in RMB. Any significant depreciation of the RMB may materially adversely affect the value of, and any dividends payable on, our ADSs in U.S. Dollars. To the extent that we need to convert U.S. Dollars we receive from this offering into RMB for our operations, appreciation of the RMB against the U.S. Dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. Dollars for the purpose of paying dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. Dollar against the RMB would have an adverse effect on the U.S. Dollar amount available to us.

Registered public accounting firms in China, including our independent registered public accounting firm, are not inspected by the U.S. Public Company Accounting Oversight Board, which deprives us and our investors of the benefits of such inspection.

        Auditors of companies whose shares are registered with the SEC and publicly traded in the United States, including our independent registered public accounting firm, are required to be registered with the U.S. Public Company Accounting Oversight Board, or PCAOB, and are required to undergo regular inspections by the PCAOB to assess their compliance with the U.S. laws and professional standards applicable to auditors. Our independent registered public accounting firm is located in and organized under the laws of the PRC, which is a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of PRC authorities. This lack of PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our independent registered public accounting firm. As a result, we and investors in the ADSs are deprived of the benefits of such PCAOB inspections and it is more difficult to evaluate the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures, compared to auditors that are subject to PCAOB inspections. This could cause investors in the ADSs to lose confidence in our audit procedures and our reported financial information, which could result in declines in the market acceptance of the ADSs.

If additional remedial measures are imposed on major PRC-based accounting firms, including our independent registered public accounting firm, we could be unable to file our financial statements in compliance with SEC requirements.

        In December 2012, the SEC instituted administrative proceedings against several major PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC's rules and regulations thereunder by failing to provide to the SEC the firms' audit work papers with respect to certain PRC-based companies that are publicly traded in the United States. On January 22, 2014, the administrative law judge, or the ALJ, presiding

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over the matter rendered an initial decision that each of the firms had violated the SEC's rules of practice by failing to produce audit work papers to the SEC. The initial decision censured each of the firms and barred them from practicing before the SEC for a period of six months. The firms appealed the ALJ's initial decision to the SEC. The ALJ's decision does not take effect unless and until it is endorsed by the SEC. On February 6, 2015, the firms each agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC and audit U.S.-listed companies. The settlement required the firms to follow detailed procedures and to seek to provide the SEC with access to Chinese firms' audit documents via the China Securities Regulatory Commission, or the CSRC, in response to future document requests by the SEC made through the CSRC. If these accounting firms, including our independent registered public accounting firm, fail to comply with the documentation production procedures that are in the settlement agreement or if there is a failure of the process between the SEC and the CSRC, the SEC retains authority to impose additional remedial measures on the firms, such as imposing penalties on the firms and restarting the proceedings against the firms, depending on the nature of the failure. If the accounting firms are subject to additional remedial measures, our ability to file our financial statements in compliance with SEC requirements could be impacted. A determination that we have not timely filed financial statements in compliance with SEC requirements could ultimately lead to the delisting of the ADSs from the stock exchange on which they trade or the termination of the registration of the ADSs under the Securities Exchange Act of 1934, as amended, or the Exchange Act, or both, which would substantially reduce or effectively terminate the trading of the ADSs in the United States.

Any change in the preferential tax treatment we enjoy in the PRC may materially adversely impact our net income.

        Two of the subsidiaries of Gridsum PRC Holding, Beijing Gridsum and Guoxinjunhe, have been granted the status of "high and new technology enterprise" by PRC government agencies since 2014, with a three-year term of validity. As a result, the income tax rate of these entities is reduced to a preferential rate of 15% under applicable laws and regulations. However, the government agencies may decide not to renew the "high and new technology enterprise" status of these entities after the initial term expires, and therefore we cannot assure you of the continuance of the preferential tax treatment. The discontinuation of such preferential tax treatment could increase our operating and other expenses and adversely affect our net income.

We may have to register our encryption software with Chinese regulatory authorities, and if they request that we change our encryption software, our business operations could be disrupted as we develop or license replacement software.

        Pursuant to the Regulations for the Administration of Commercial Encryption promulgated in 1999, foreign and domestic companies operating in China are required to seek approval from the Office of the State for Cipher Code Administration, for the commercial encryption products they use. Companies operating in China are allowed to use only commercial cipher code products approved by this authority and are prohibited from using self-developed or imported cipher code products without approval. In addition, all cipher code products shall be produced by those producers appointed and approved by this authority. Because applicable regulations do not specify what constitutes a cipher code product, we are unsure as to whether or how they apply to us and the encryption software we utilize. We may be required to register or apply for permits for our current or future encryption software. If PRC authorities request that we register our encryption software or change our current encryption software to an approved cipher code product produced by an appointed producer, it could disrupt our business operations.

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Risks Relating to the ADSs and This Offering

There has been no public market for our shares or ADSs prior to this offering, and you may not be able to resell the ADSs at or above the price you paid, or at all.

        Prior to this offering, there has been no public market for our shares or ADSs. We have applied to list the ADSs on the NASDAQ Global Market. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for the ADSs does not develop after this offering, the market price and liquidity of the ADSs will be materially adversely affected.

        Negotiations with the underwriters will determine the initial public offering price for the ADSs which may bear no relationship to their market price after this offering. We cannot assure you that an active trading market for the ADSs will develop or that the market price of the ADSs will not decline below the initial public offering price.

The market price for the ADSs may be volatile, which could result in substantial losses to our investors.

        The trading price of the ADSs is likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other companies with business operations located mainly in China that have listed their securities in the United States. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Chinese companies' securities after their initial public offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of the ADSs.

If securities or industry analysts do not publish research or reports about our business or if they publish inaccurate or unfavorable research about our business, the market price and trading volume of the ADSs could decline.

        The trading market for the ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the market price for the ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline, which could result in substantial losses for our investors.

Substantial future sales of the ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

        Additional sales of the ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of the ADSs to decline. Upon completion of this offering, we will have 4,543,461 Class A ordinary shares and 24,008,445 Class B ordinary shares

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outstanding (or 24,986,706 Class B ordinary shares if the underwriters exercise their option to purchase additional ADS in full). All shares sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. Ordinary shares outstanding after this offering will be available for sale, upon the expiration of the applicable lock-up period, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these shares can be released prior to expiration of the lock-up period at the discretion of the representatives of the underwriters for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of the ADSs could decline.

        In addition, some holders of our ordinary shares after the completion of this offering will have the right to cause us to register the sale of those shares under the Securities Act, subject to the applicable lock-up period in connection with this offering. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price of the ADSs to decline.

Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for each ADS than the corresponding amount paid by existing shareholders for their ordinary shares. As a result, you will experience immediate and substantial dilution of US$7.95 per ADS (assuming that no outstanding options to acquire ordinary shares are exercised). This number represents the difference between our pro forma as adjusted net tangible book value per ADS of US$3.55 as of June 30, 2016, after giving effect to this offering, and the assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon the completion of this offering.

We have wide discretion in how to use the net proceeds from this offering, and we may use these proceeds in ways with which you may not agree.

        We have wide discretion in how to use the net proceeds of this offering. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our operating results or increase the ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

Our dual-class ordinary share structure will limit your ability to influence corporate matters and could discourage others from pursuing change of control transactions that holders of our Class B ordinary shares and ADSs may view as beneficial.

        We adopted a dual-class ordinary share structure in January 2015. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Upon completion of this offering, holders of Class A ordinary shares will be entitled to ten votes per share, while holders of Class B ordinary shares will be entitled to one vote per share. We will issue Class B ordinary shares represented by the ADSs in this offering. Generation Gospel Limited, which is owned and controlled by Guosheng Qi, our chief executive officer and chairman, will hold 4,543,461 Class A ordinary shares as of the completion of this offering. Immediately upon the completion of this offering, all of our preferred shares will automatically convert into Class B ordinary shares at a conversion ratio of one preferred share to one

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Class B ordinary share. Class B ordinary shares will not be convertible to Class A ordinary shares under any circumstances.

        Due to the disparate voting powers attached to these two classes of shares, we anticipate that our founders, officers and directors will beneficially hold an aggregate of 81.1% of the voting power of our outstanding ordinary shares after this offering and will have considerable influence over matters requiring shareholder approval, including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of our Class B ordinary shares and ADSs may view as beneficial.

Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of the ADSs for return on your investment.

        We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

        Our Board of Directors has complete discretion as to whether to distribute dividends. Even if our Board of Directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future operating results and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our Board of Directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value after this offering or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

        The depositary of the ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on Class B ordinary shares or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class B ordinary shares the ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

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You may experience dilution of your holdings due to inability to participate in rights offerings.

        We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of the ADSs.

        The ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, on weekends and on public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body or under any provision of the deposit agreement, or for any other reason.

You, as holders of ADSs, may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.

        Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Class B ordinary shares in accordance with the provisions of the deposit agreement. Under the memorandum and articles of association that we expect to become effective upon completion of this offering, the minimum notice period required to convene a general meeting is 14 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your Class B ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if the ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

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The depositary for the ADSs will give us a discretionary proxy to vote the Class B ordinary shares underlying your ADSs if you do not vote at shareholders' meetings, except in limited circumstances, which could adversely affect your interests.

        Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote the Class B ordinary shares underlying your ADSs at shareholders' meetings unless:

        The effect of this discretionary proxy is that if you do not vote at shareholders' meetings, you cannot prevent the Class B ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and substantially all of our directors and officers reside outside the United States.

        We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our PRC subsidiary and consolidated affiliated entities. Substantially all of our directors and officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

        There are uncertainties as to whether Cayman Islands courts would:

        There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For more information regarding the relevant laws of the Cayman Islands and China, see "Enforceability of Civil Liabilities."

        Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and by the Companies Law (2013 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against us and our directors, actions by

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minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which provides persuasive, but not binding, authority in a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States and provides significantly less protection to investors. In addition, shareholders in Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

        As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in the United States.

We may be classified as a passive foreign investment company, or PFIC, under U.S. federal income tax law, which could result in material adverse U.S. federal income tax consequences to U.S. holders of the ADSs.

        Depending upon the value of our assets, which is generally determined based on the market value of the ADSs once we are a publicly traded corporation, and the nature of our assets and income over time, we could be classified as a PFIC for U.S. federal income tax purposes. Based on our current income and assets and projections as to the value of the ADSs pursuant to this offering, we do not believe we were a PFIC for the 2015 taxable year, and we do not expect to be classified as a PFIC for the current taxable year or in the foreseeable future. While we do not anticipate becoming a PFIC for the current taxable year, fluctuations in the market price of the ADSs or changes in the composition of our income or assets may cause us to become a PFIC for the current or any subsequent taxable year.

        We will be classified as a PFIC for any taxable year if either (i) 75% or more of our gross income for the taxable year is passive income or (ii) 50% or more of the value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. Although the law in this regard is unclear, we intend to treat Gridsum PRC Holding as being owned by us for U.S. federal income tax purposes, not only because we exercise effective control over the operation of this entity but also because we are entitled to substantially all of its economic benefits and burdens, and, as a result, we consolidate its operating results in our consolidated U.S. GAAP financial statements. If it were determined, however, that we are not the owner of Gridsum PRC Holding for U.S. federal income tax purposes, the PFIC tests would apply differently and we could be treated as a PFIC for our current taxable year and any subsequent taxable year. Because of the uncertainties in the application of the relevant rules in respect of our VIE structure and because PFIC status is a factual determination made annually after the close of each taxable year on the basis of the composition of our income and the value of our active versus passive assets, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year. The overall level of our passive assets will be affected by how, and how quickly, we spend our liquid assets and the cash raised in this offering. Under circumstances where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.

        If we were to be or become classified as a PFIC, a U.S. holder of the ADSs or Class B ordinary shares generally would be taxed at ordinary income rates on any sale of the ADSs or Class B ordinary shares and on any dividends treated as an "excess distribution" under the U.S. federal income tax rules. An interest charge also generally would apply if U.S. tax were deferred during the U.S. holder's holding period. Further, if we were a PFIC for any year during which a U.S. holder held the ADSs or ordinary shares, we generally would continue to be treated as a PFIC for all succeeding years during which such U.S. holder held the ADSs or ordinary shares. You are urged to consult your tax advisor concerning

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the U.S. federal income tax consequences of acquiring, holding and disposing of ADSs or ordinary shares if we are or become classified as a PFIC. For more information see "Taxation—Material United States Federal Income Tax Considerations—Passive Foreign Investment Company Rules."

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

        Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

        We will be required to file an annual report on Form 20-F within four months of the end of each fiscal year beginning with the fiscal year ending December 31, 2016. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the NASDAQ Stock Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a company incorporated in the Cayman Islands, we are permitted to adopt home country practices in relation to corporate governance matters that differ significantly from the NASDAQ corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NASDAQ corporate governance listing standards.

        As a Cayman Islands company listed on the NASDAQ Global Market, we are subject to the NASDAQ corporate governance listing standards. However, the NASDAQ rules permit a foreign private issuer like us to follow the corporate governance practices of our home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NASDAQ corporate governance listing standards. For example, neither the Companies Law of the Cayman Islands nor our memorandum and articles of association that will become effective upon the completion of this offering requires a majority of our directors to be independent, therefore we could include non-independent directors as members of our compensation committee and nominating and corporate governance committee, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. If we choose to follow home country practice, our shareholders may be afforded less protection than they otherwise would receive under the NASDAQ corporate governance listing standards applicable to U.S. domestic issuers. As of the date of this prospectus, we are relying on the home country practices stated above. As a result, we may have less independent oversight over the management of our company.

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Any requirement to obtain prior approval from the CSRC could delay this offering, and a failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and trading price of the ADSs and could create uncertainties for this offering.

        Six PRC regulatory agencies, including the CSRC, jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, in August 2006, which became effective in September 2006 and was amended in June 2009. The M&A Rules purport, among other things, to require offshore special purpose vehicles, or SPVs, that are formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.

        While the application of the M&A Rules remains unclear, based on the advice of our PRC legal counsel, we believe that no prior approval from the CSRC is required for this offering because (a) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours are subject to the M&A Rules, and (b) we established the WFOE by means of direct investment rather than by merger or acquisition of PRC domestic companies and no explicit provision in the M&A Rules classifies the contractual arrangements among the WFOE, Gridsum PRC Holding and its shareholders as a type of acquisition transaction falling under the M&A Rules. However, uncertainties still exist as to how the M&A Rules will be interpreted and implemented, and our PRC legal counsel's opinion stated above is subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. If the CSRC or another PRC regulatory body subsequently determines that we need to obtain CSRC approval for this offering, either by interpretation, clarification or amendment of the M&A Rules or by any new rules, regulations or directives or in any other way, we may face sanctions by the CSRC or other PRC regulatory agencies. In that event, the regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operations in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of the ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby.

We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make the ADSs less attractive to investors.

        We are an "emerging growth company," as defined in the federal securities laws, and we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not "emerging growth companies" including, but not limited to, not being required to provide auditor attestation of our internal control over financial reporting, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and our stock price may be more volatile.

We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be subject to the reporting requirements of the Exchange Act, and will be required to comply with other applicable securities laws, and rules and regulations implemented by the SEC and the NASDAQ Stock Market, including the establishment and

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maintenance of effective internal controls, disclosure controls and corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly, particularly after we cease to qualify as an emerging growth company. In addition, we expect that our management and other personnel may divert attention from operational and other business matters to devote substantial time to these public company requirements. We will need to prepare and maintain an effective contract tracking database, hire additional accounting and finance staff with sufficient U.S. GAAP accounting and SEC reporting experience, and we will need to establish our audit committee process and an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs. We also expect that operating as a public company will make it more expensive for us to obtain director and officer liability insurance on the terms that we would like. As a public company, it may be more difficult for us to attract and retain qualified people to serve on our Board of Directors, our Board committees or as executive officers.

As a result of becoming a public company, we will be obligated to maintain effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of the ADSs.

        As a public company, we will be required to furnish an annual management report on the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses in our internal control over financial reporting that are identified by our management.

        We are currently evaluating our internal controls, identifying and remediating deficiencies in those internal controls and documenting the results of our evaluation, testing and remediation. We will not complete our evaluation and testing, and any required remediation, prior to this offering. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the fiscal year in which the material weakness is identified, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm, when required, is unable to attest to management's report on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of the ADSs to decline.

        As a public company, we will be required to disclose material changes made in our internal control over financial reporting on a quarterly basis. However, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an "emerging growth company" as defined in the federal securities laws. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

        This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

        You should thoroughly read this prospectus and the documents that we refer to in this prospectus, with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties. Nor can we assess the impact of all factors on our business, or the extent to which any factor or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

        You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

        This prospectus also contains statistical data, estimates and forecasts that are based on industry publications or reports generated by third-party providers of market intelligence, a report prepared for us by Forrester Consulting, a third-party research organization, or other publicly available information, as well as other information based on our internal sources. This information involves a number of assumptions and limitations, is subject to risks and uncertainties and is subject to change based on various factors, including those discussed in the section titled "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us. The Forrester Consulting report described herein represents data, research, opinions or viewpoints prepared by Forrester Consulting for us and may not be representations of fact. We have been advised by Forrester Consulting that its report speaks as of its original date (and not as of the date of this prospectus) and any opinions expressed in the report are subject to change without notice.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$64.8 million, or approximately US$75.2 million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon an assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus. A US$1.00 increase or decrease in the assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus, would increase or decrease the net proceeds of this offering by US$6.1 million, or approximately US$7.0 million if the underwriters exercise their option to purchase additional ADSs in full, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

        The principal purposes of this offering are to increase our financial flexibility, increase our visibility in the marketplace and create a public market for our Class B ordinary shares. We intend to use the net proceeds of this offering for working capital and other general corporate purposes, including investments in technology and infrastructure, product development and expansion of sales and marketing efforts. Additionally, we may use a portion of the net proceeds to invest in or acquire complementary businesses, products, services or technologies. However, we do not have agreements or commitments for any material acquisitions as of the date of this prospectus. We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations and the rate of growth, if any, of our business.

        The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

        Pending use of the net proceeds, we intend to hold our net proceeds in demand deposits or invest them in interest-bearing government securities.

        In utilizing the proceeds of this offering, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiary only through loans or capital contributions, and to our VIE and its subsidiaries only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund its capital expenditures or working capital. We currently do not have any plans to use any of the proceeds from this offering as loans or capital contributions to our PRC subsidiary or to our VIE. However, if we need to utilize the proceeds of this offering to fund our PRC operations, we cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks Relating to Doing Business in China—The PRC regulations on offshore holding companies providing loans to and making direct investments in PRC entities may delay or prevent us from using the proceeds of this offering to fund the WFOE."

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DIVIDEND POLICY

        We have not previously declared or paid cash dividends and have no plan to declare or pay any dividends on our shares or ADSs for the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiary for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See "Risk Factors—Risks Relating to Doing Business in China—Any limitation on the ability of the WFOE to make distributions to us, or the tax implications thereof, could have a material adverse effect on our business or financial condition."

        Our Board of Directors has discretion as to whether to distribute dividends, subject to applicable laws. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant. If we pay any dividends, we will pay the ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. Dollars.

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CAPITALIZATION

        The following table sets forth our capitalization as of June 30, 2016:

        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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  As of June 30, 2016  
 
  Actual   Pro forma(1)   Pro forma,
as adjusted(2)
 
 
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Mezzanine equity:

                                     

Series A convertible preferred shares, US$0.001 par value, 3,125,000 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

    41,919     6,307                  

Series A-1 convertible preferred shares, US$0.001 par value, 1,302,084 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

    29,789     4,482                  

Series B convertible preferred shares, US$0.001 par value, 2,962,239 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

    134,334     20,213                  

Series C convertible preferred shares, US$0.001 par value, 4,640,843 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma or pro forma as adjusted

    293,565     44,172                  

Shareholders' (deficit)/equity:

   
 
   
 
   
 
   
 
   
 
   
 
 

Class A ordinary shares, US$0.001 par value, 4,543,461 shares authorized, issued and outstanding, actual, pro forma and pro forma as adjusted

    31     5     31     5     31     5  

Class B ordinary shares, US$0.001 par value, 33,426,373 shares authorized and 5,456,539 shares issued and outstanding, actual; 33,426,373 shares authorized and 17,486,705 shares issued and outstanding, pro forma; and 33,426,373 shares authorized and 24,008,445 shares issued and outstanding, pro forma as adjusted

    37     6     117     18     160     25  

Additional paid-in capital(2)

            499,527     75,162     929,926     139,923  

Accumulated other comprehensive loss

    (30,213 )   (4,546 )   (30,213 )   (4,546 )   (30,213 )   (4,546 )

Accumulated deficit

    (227,104 )   (34,172 )   (227,104 )   (34,172 )   (227,104 )   (34,172 )

Total Gridsum's shareholders' (deficit)/equity

    (257,249 )   (38,707 )   242,358     36,467     672,800     101,235  

Noncontrolling interests

    357     54     357     54     357     54  

Total shareholders' (deficit)/equity(2)

    (256,892 )   (38,653 )   242,715     36,521     673,157     101,289  

Total capitalization(2)

    242,715     36,521     242,715     36,521     673,157     101,289  

(1)
The pro forma as adjusted information discussed above is illustrative only. Our additional paid-in capital, total shareholders' equity and total capitalization following the completion of this offering are subject to adjustment based on the actual initial public offering price.

(2)
Assuming the number of ADSs offered by us as set forth on the cover page of this prospectus remains the same, and after deduction of estimated underwriting discounts and commissions and estimated offering expenses payable by us, a US$1.00 increase (decrease) in the assumed initial public offering price of US$11.50 per ADS, the midpoint of the estimated range of the initial public offering price set forth on the front cover of this prospectus, would increase (decrease) each of additional paid-in capital, total shareholders' equity and total capitalization by US$6.1 million.

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DILUTION

        Our net tangible book value as of June 30, 2016 on an actual basis was RMB242.7 million (US$36.5 million), or RMB24.3 (US$3.65) per ordinary share and US$3.65 per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, less the amount of our total consolidated liabilities. Dilution is determined by subtracting the pro forma as adjusted net tangible book value per ordinary share and ADS from the assumed initial public offering price per ordinary share and ADS, respectively.

        Without taking into account any other changes in net tangible book value after June 30, 2016, other than to give effect to (i) the automatic conversion of all of our outstanding preferred shares into 12,030,166 Class B ordinary shares upon the completion of this offering and (ii) our issuance and sale of 6,521,740 ADSs offered in this offering at the assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs, our pro forma as adjusted net tangible book value as of June 30, 2016 would have been US$101.3 million, or US$3.55 per ordinary share and US$3.55 per ADS. This represents an immediate decrease in net tangible book value of US$0.1 per ordinary share and US$0.1 per ADS to the existing shareholders, and an immediate dilution in net tangible book value of US$7.95 per ordinary share and US$7.95 per ADS to investors purchasing ADSs in this offering. The pro forma as adjusted information discussed above is illustrative only. Our net tangible book value following the closing of this offering is subject to adjustment based on the actual initial public offering price of the ADSs.

        The following table illustrates such dilution:

 
  Per Ordinary Share   Per ADS  

Assumed initial public offering price

  US$ 11.50   US$ 11.50  

Net tangible book value as of June 30, 2016

  US$ 3.65   US$ 3.65  

Pro forma net tangible book value after giving effect to the automatic conversion of all of our outstanding preferred shares

  US$ 1.66   US$ 1.66  

Pro forma as adjusted net tangible book value after giving effect to the automatic conversion of all of our outstanding preferred shares and this offering

  US$ 3.55   US$ 3.55  

Amount of dilution in net tangible book value to new investors in this offering

  US$ 7.95   US$ 7.95  

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$11.50 per ADS would increase (decrease) our pro forma as adjusted net tangible book value by US$6.1 million, the pro forma as adjusted net tangible book value per ordinary share and per ADS by US$0.21 per ordinary share and US$0.21 per ADS, and the dilution per ordinary share and per ADS to new investors in this offering by US$0.79 per ordinary share and US$0.79 per ADS, respectively, assuming no change to the number of ADSs offered by us.

        The following table summarizes, on a pro forma as adjusted basis as of June 30, 2016, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs) purchased from us in this offering, the total consideration paid and the average price per ADS paid at an assumed initial public offering price of US$11.50 per ADS before deducting estimated underwriting discounts and commissions and estimated offering expenses. The total

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number of ordinary shares does not include ordinary shares underlying the ADSs issuable pursuant to the exercise of the option to purchase additional ADSs granted to the underwriters.

 
  Ordinary Shares
Purchased
   
   
   
   
 
 
  Total Consideration   Average
Price Per
Ordinary
Share
  Average
Price
Per
ADS
 
 
  Number   Percent   Amount   Percent  
 
   
   
  (US$)
   
  (US$)
  (US$)
 

Existing shareholders

    22,030,166     77 %   68,510,000     48 %   3.11     3.11  

New investors

    6,521,740     23 %   75,000,000     52 %   11.50     11.50  

Total

    28,551,906     100 %   143,510,000     100 %   5.03     5.03  

        The discussion and tables above also do not take into consideration any outstanding options to purchase our ordinary shares. As of June 30, 2016, there were 2,468,661 Class B ordinary shares issuable upon the exercise of outstanding options granted to our employees and members of our Board of Directors, at a weighted average exercise price of US$0.42 per ordinary share. To the extent that any of these options are exercised, there will be further dilution to new investors.

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EXCHANGE RATE INFORMATION

        Our reporting currency is RMB. Substantially all of our operations are conducted in China and substantially all of our revenues and costs are denominated in RMB. This prospectus contains translations of RMB amounts into U.S. Dollars at specific rates solely for the convenience of the readers. The conversion of RMB into U.S. Dollars in this prospectus is based on the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise noted, any RMB amounts are translated into U.S. Dollars at the exchange rate on June 30, 2016 which was RMB6.6459 to US$1.00. We make no representation that any RMB or U.S. Dollar amounts could have been, or could be, converted into U.S. Dollars or RMB, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. The exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 2, 2016 was RMB6.6790 to US$1.00.

        The following table sets forth information concerning exchange rates between the RMB and the U.S. Dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

 
  Noon Buying Rate  
Period
  Period End   Average(1)   Low   High  
 
  (RMB Per US$1.00)
 

2011

    6.2939     6.4475     6.6364     6.2939  

2012

    6.2301     6.2990     6.3879     6.2221  

2013

    6.0537     6.1412     6.2438     6.0537  

2014

    6.2046     6.1704     6.2591     6.0402  

2015

    6.4778     6.2869     6.4896     6.1870  

2016

                         

March

    6.4480     6.5027     6.5500     6.4480  

April

    6.4738     6.4754     6.5004     6.4571  

May

    6.5798     6.5259     6.5798     6.4738  

June

    6.6459     6.5892     6.6481     6.5590  

July

    6.6371     6.6771     6.7013     6.6371  

August

    6.6776     6.6466     6.6778     6.6239  

September (through September 2, 2016)

    6.6790     6.6752     6.6790     6.6713  

(1)
Annual averages are calculated using the average of month-end rates of the respective periods. Monthly averages are calculated using the average of the daily rates during the respective periods.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are registered under the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides less protection for investors. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

        Substantially all of our assets are located, and our operations are conducted, outside the United States. In addition, a majority of our directors and officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or these persons, or to enforce against us or them judgments obtained in U.S. courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Law Debenture Corporate Services Inc., located at 4th Floor, 400 Madison Avenue, New York, New York 10017, as our agent to receive service of process with respect to any action brought against us under the federal securities laws of the United States or of any state in the United States.

        Travers Thorp Alberga, our counsel as to Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (1) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (2) entertain original actions brought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in the United States.

        Travers Thorp Alberga has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment in personam obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a competent foreign court with jurisdiction to give the judgment, (b) imposes a specific positive obligation on the judgment debtor (such as an obligation to pay a liquidated sum or perform a specified obligation), (c) is final and conclusive, (d) is not in respect of taxes, a fine or a penalty; and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

        Commerce & Finance Law Offices, our counsel as to PRC law, has advised us that there is uncertainty as to whether the courts of the PRC would (a) recognize or enforce judgments of U.S. courts obtained against the Company or directors or officers of the Company predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or (b) entertain original actions brought in each respective jurisdiction against the Company or directors or officers of the Company predicated upon the securities laws of the United States or any state in the United States.

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CORPORATE HISTORY AND STRUCTURE

        We commenced operations in December 2005 with the establishment of Beijing Gridsum Technology Co., Ltd., or Beijing Gridsum, in China. We have established five additional operating companies: Beijing Moment Everlasting Ad Co., Ltd., in January 2011, and its wholly owned subsidiary, Beijing Yunyang Ad Co., Ltd., in March 2013, and Guoxinjunhe (Beijing) Technology Co., Ltd., in April 2012, Beijing Guoxinwangyan Technology Co., Ltd., in August 2015, and Beijing Gridsum Yizhun Technology Co., Ltd., in February 2016. We refer to these operating companies as Beijing Moment, Beijing Yunyang, Guoxinjunhe, Beijing Guoxinwangyan and Beijing Yizhun, respectively.

        From July to December 2014, we undertook a reorganization of our group of companies in preparation for our proposed initial public offering in the United States. We incorporated Gridsum Holding Inc., or Gridsum Cayman, under the laws of the Cayman Islands on July 21, 2014, as the parent holding company of our group of related companies. Gridsum Cayman established a wholly owned subsidiary in Hong Kong, Gridsum Holding (China) Limited, or Gridsum HK, which in turn established a wholly owned subsidiary in the PRC, Dissector (Beijing) Technology Co., Ltd., or the WFOE. Also as part of this reorganization, we established Gridsum Holding (Beijing) Co., Ltd., or Gridsum PRC Holding, in China, which acquired full ownership of Beijing Gridsum, Beijing Moment and Guoxinjunhe. The shareholders of Gridsum PRC Holding are our founders, Guosheng Qi and Guofa Yu, and Gridsum (Beijing) Management Consulting Co., Ltd., a holding company incorporated in the PRC and owned by Guosheng Qi and other key employees.

        To comply with applicable PRC laws and regulations, we conduct our operations in China principally through Beijing Gridsum, Guoxinjunhe, Beijing Moment, Beijing Yunyang, Beijing Guoxinwangyan and Beijing Yizhun. The WFOE entered into a series of contractual arrangements on December 22, 2014 with Gridsum PRC Holding, the parent of our PRC operating companies, and the shareholders of Gridsum PRC Holding. These contractual arrangements allow us to exercise effective control over Gridsum PRC Holding and receive substantially all of the economic benefits of Gridsum PRC Holding. As a result, we are the primary beneficiary of Gridsum PRC Holding and treat it as our variable interest entity, or VIE, under U.S. GAAP. We have consolidated the financial results of Gridsum PRC Holding and its subsidiaries in our consolidated financial statements.

        Prior to the reorganization in 2014, our group of companies was controlled by a predecessor Cayman Islands entity, whose wholly owned subsidiary in the PRC controlled our operating companies in China pursuant to a set of contractual arrangements, which contained substantially the same terms as, and were replaced by, the contractual arrangements entered into among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding in 2014.

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        The following diagram illustrates our corporate structure, including our significant subsidiaries, our consolidated VIE and its subsidiaries:

GRAPHIC

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Contractual Arrangements with Gridsum PRC Holding and its Shareholders

        The following is a summary of the currently effective contractual arrangements among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding:

Exclusive Business Cooperation Agreement

        Under the Exclusive Business Cooperation Agreement dated December 22, 2014 between the WFOE and Gridsum PRC Holding, Gridsum PRC Holding has appointed the WFOE as its exclusive provider of complete technical support, business support and related consulting services, and, without prior written consent of the WFOE, may not accept the same or similar services provided by, or establish similar cooperation relationship with, any other party. In consideration of the services provided by the WFOE, Gridsum PRC Holding shall pay the WFOE, on a quarterly basis, service fees equal to 90% of Gridsum PRC Holding's net income (which equals gross income less mutually agreed costs). The parties can reasonably adjust the calculation ratio of such service fees. The WFOE shall have exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties owned and used by WFOE during the performance of the agreement. The term of the agreement is 10 years and may be extended if confirmed in writing by the WFOE prior to expiration (and Gridsum PRC Holding shall unconditionally accept such extension). Gridsum PRC Holding shall not terminate the agreement prior to its expiration, unless the WFOE commits gross negligence or fraudulent act against Gridsum PRC Holding, whereas the WFOE may terminate the agreement upon giving 30 days' prior written notice to Gridsum PRC Holding at any time.

Exclusive Option Agreements

        Under the Exclusive Option Agreements, each dated December 22, 2014, among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding, the shareholders of Gridsum PRC Holding granted to the WFOE an irrevocable and exclusive right to purchase, or designate other person(s) to purchase, to the extent permitted by PRC laws, at any time all or part of such shareholders' equity interests in Gridsum PRC Holding. The purchase price shall be equal to RMB10.00 multiplied by the ratio of the equity interests to be purchased to the total registered capital of Gridsum PRC Holding, or, if there is any mandatory provision regarding the purchase price under PRC laws, then at the election of the WFOE or its designated person, the lowest price permitted by PRC laws. Without the WFOE's prior written consent, Gridsum PRC Holding shall not: (i) supplement, change or amend its articles of association, increase or decrease its registered capital or change its capital structure in any manner, (ii) sell, transfer, mortgage or dispose of, or create security interest on, any of its assets, business or legal right to collect interests, (iii) create, succeed to, guarantee or permit any debt, except for debts arising in the course of ordinary or daily business operation, (iv) enter into any material contract (i.e., any contract with a value exceeding RMB1,000,000), (v) provide loan or credit to any person, (vi) merge or combine with, buy or invest in, any other person or (vii) distribute dividends to its shareholders; and the shareholders of Gridsum PRC Holding shall not sell, transfer, mortgage or dispose of, or create security interest on, such shareholders' legal or beneficial interest in the equity interests in Gridsum PRC Holding without the prior written consent of the WFOE, except in accordance with the terms of the Equity Pledge Agreements described below. The term of each of the agreements is 10 years and may be renewed at the WFOE's election.

Shareholders' Voting Rights Proxy Agreements

        Under the Shareholders' Voting Rights Proxy Agreements, each dated December 22, 2014, among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding, the shareholders of Gridsum PRC Holding irrevocably authorized the WFOE or its designee to act on their behalf as their exclusive agent and attorney with respect to all matters concerning their shareholder rights, as shareholders of Gridsum PRC Holding, including without limitation to propose, convene and attend

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shareholder meetings as proxy of such shareholders, and to exercise all of such shareholder's voting rights provided under PRC laws or the articles of association of Gridsum PRC Holding. Each agreement will remain effective until all equity interests of the respective shareholder in Gridsum PRC Holding have been transferred to the WFOE and the related regulatory process has been completed.

Equity Pledge Agreements

        Under the Equity Pledge Agreements, each dated December 22, 2014, among the WFOE, Gridsum PRC Holding and the shareholders of Gridsum PRC Holding, the shareholders of Gridsum PRC Holding pledged all of their equity interests in Gridsum PRC Holding to the WFOE as security for, among other things, the performance of the obligations of Gridsum PRC Holding and its shareholders under the Exclusive Business Cooperation Agreement, the Exclusive Option Agreements and the Shareholders' Voting Rights Proxy Agreements. In the event of any breach of any secured obligations by Gridsum PRC Holding or the respective shareholder, the WFOE is entitled to all remedial rights and powers afforded under PRC laws, including to be repaid in priority with proceeds from auctions or sale-offs of the pledged equity. Dividends may only be paid to the shareholders of Gridsum PRC Holdings in respect of the pledged equity with the prior consent of the WFOE, and the dividends received by the shareholders shall first be applied to satisfy the secured obligations. The pledges will be released upon the full and complete performance of the secured obligations and the full payment of losses and fees resulting from a breach of those agreements by Gridsum PRC Holding or its shareholders. The equity pledges have been registered with local registration authority in accordance with PRC laws.

        In the opinion of Commerce & Finance Law Offices, our PRC counsel, (a) the ownership structures of the WFOE, Gridsum PRC Holding and the subsidiaries of Gridsum PRC Holding, both currently and immediately after giving effect to this offering, do not and will not violate applicable PRC laws; and (b) each agreement pertaining to the contractual arrangements among the WFOE, Gridsum PRC Holding and its shareholders is valid, binding and enforceable in accordance with its terms under applicable PRC laws, and does not violate applicable PRC laws. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations, and there can be no assurance that the PRC government will take a view that is not contrary to or otherwise different from the opinion of our PRC counsel. If the PRC government finds that the agreements that establish the structure for operating our business do not comply with PRC government restrictions on foreign investment in the business we engage in, we could be subject to severe penalties, including being prohibited from continuing operations. See "Risk Factors—Risks Relating to Our Corporate Structure—We conduct our businesses in China through our variable interest entity and its subsidiaries by means of contractual arrangements. If the PRC government determines that such arrangements do not comply with applicable PRC laws and regulations, our business could be materially adversely affected." and "Risk Factors—Risks Relating to Doing Business in China—Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us."

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SELECTED CONSOLIDATED FINANCIAL DATA

        The following selected consolidated statements of operations data for the years ended December 31, 2013, 2014 and 2015, and selected consolidated balance sheet data as of December 31, 2013, 2014 and 2015, have been derived from our audited consolidated financial statements included elsewhere in this prospectus.

        The following selected consolidated statements of operations data for the six months ended June 30, 2015 and 2016, and selected consolidated balance sheet data as of June 30, 2016, have been derived from our unaudited interim consolidated financial statements included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal and recurring adjustments, that we consider necessary for a fair statement of our financial position and operating results for the periods presented. Results for the six months ended June 30, 2016 are not necessarily indicative of results that may be expected for the full year.

        You should read this Selected Consolidated Financial Data section together with our consolidated financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.

 
  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share, per share and per ADS data)
 

Consolidated Statements of Operations Data:

                                           

Revenues:

                                           

Enterprise

    57,025     104,891     208,157     31,321     75,483     133,918     20,150  

e-Government and other

    6,414     21,340     29,467     4,434     10,029     16,648     2,505  

Less: Business tax and surcharges

    (892 )   (1,711 )   (2,785 )   (419 )   (878 )   (2,499 )   (376 )

Net revenues

    62,547     124,520     234,839     35,336     84,634     148,067     22,279  

Cost of revenues(1)

    (13,810 )   (21,143 )   (35,237 )   (5,302 )   (11,500 )   (20,023 )   (3,013 )

Gross profit

    48,737     103,377     199,602     30,034     73,134     128,044     19,266  

Operating expenses:

                                           

Sales and marketing expenses(1)

    (29,012 )   (46,880 )   (84,548 )   (12,722 )   (33,351 )   (52,214 )   (7,857 )

Research and development expenses(1)

    (20,385 )   (38,137 )   (100,186 )   (15,075 )   (40,178 )   (66,956 )   (10,075 )

General and administrative expenses(1)

    (30,276 )   (54,931 )   (60,540 )   (9,109 )   (27,861 )   (37,466 )   (5,637 )

Total operating expenses

    (79,673 )   (139,948 )   (245,274 )   (36,906 )   (101,390 )   (156,636 )   (23,569 )

Loss from operations

    (30,936 )   (36,571 )   (45,672 )   (6,872 )   (28,256 )   (28,592 )   (4,303 )

Other income/(expense):

                                           

Foreign currency exchange gain/(loss)

    296     (766 )   1,339     201     672     (889 )   (134 )

Interest income, net

    87     180     80     12     26     189     28  

Other income, net

    9     373     111     17         (417 )   (63 )

Loss before income tax

    (30,544 )   (36,784 )   (44,142 )   (6,642 )   (27,558 )   (29,709 )   (4,472 )

Income tax expense

    (130 )   (476 )   (4,693 )   (706 )            

Net loss

    (30,674 )   (37,260 )   (48,835 )   (7,348 )   (27,558 )   (29,709 )   (4,472 )

Less: Net loss attributable to noncontrolling interests

            (16 )   (2 )       (27 )   (4 )

Net loss attributable to Gridsum Holding Inc. 

    (30,674 )   (37,260 )   (48,819 )   (7,346 )   (27,558 )   (29,682 )   (4,468 )

Accretion to preferred shares redemption value

    (3,849 )   (9,480 )   (19,707 )   (2,965 )   (9,131 )   (11,050 )   (1,663 )

Cumulative dividend to preferred shareholders(2)

    (8,215 )   (16,327 )   (16,642 )   (2,504 )   (8,240 )   (8,659 )   (1,303 )

Net loss attributable to Gridsum's ordinary shareholders(2)

    (42,738 )   (63,067 )   (85,168 )   (12,815 )   (44,929 )   (49,391 )   (7,434 )

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  For the Year Ended December 31,   For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands, except for share, per share and per ADS data)
 

Net loss

    (30,674 )   (37,260 )   (48,835 )   (7,348 )   (27,558 )   (29,709 )   (4,472 )

Foreign currency translation adjustment, net of nil tax

    850     (2,006 )   (19,372 )   (2,915 )   (1,053 )   (11,161 )   (1,679 )

Total comprehensive loss

    (29,824 )   (39,266 )   (68,207 )   (10,263 )   (28,611 )   (40,870 )   (6,151 )

Weighted average number of ordinary shares used in per share calculations:

                                           

Basic and diluted

    10,000,000     10,000,000     10,000,000     10,000,000     10,000,000     10,000,000     10,000,000  

Net loss per ordinary share:

                                           

Basic and diluted(2)

    (4.27 )   (6.31 )   (8.52 )   (1.28 )   (4.49 )   (4.94 )   (0.74 )

Net loss per ADS:(3)

                                           

Basic and diluted

    (4.27 )   (6.31 )   (8.52 )   (1.28 )   (4.49 )   (4.94 )   (0.74 )

Non-GAAP Financial Data:(4)

   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Adjusted net loss

    (28,380 )   (33,378 )   (40,029 )   (6,023 )   (23,605 )   (24,437 )   (3,679 )

EBITDA

    (26,885 )   (29,927 )   (31,174 )   (4,691 )   (21,626 )   (19,046 )   (2,867 )

Adjusted EBITDA

    (24,591 )   (26,045 )   (22,368 )   (3,366 )   (17,673 )   (13,774 )   (2,074 )

(1)
Share-based compensation was allocated in costs and operating expenses as follows:

   
  For the Year Ended
December 31,
  For the Six Months
Ended June 30,
 
   
  2013   2014   2015   2015   2016  
   
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
   
  (in thousands)
 
 

Cost of revenues

    32     71     335     50     146     182     27  
 

Sales and marketing expenses

    86     370     1,651     248     650     1,075     162  
 

Research and development expenses

    163     449     3,347     504     1,515     1,966     296  
 

General and administrative expenses

    2,013     2,992     3,473     523     1,642     2,049     308  
 
 

Total

    2,294     3,882     8,806     1,325     3,953     5,272     793  
 
 
 
(2)
Cumulative dividend to preferred shareholders, net loss attributable to ordinary shareholders and net loss per ordinary share, basic and diluted, for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2015 have been revised. See Note 2(a) to our audited consolidated financial statements and Note 2(a) to our unaudited interim consolidated financial statements included elsewhere in this prospectus.

(3)
Each ADS represents one Class B ordinary share.

(4)
See "Prospectus Summary—Summary Consolidated Financial Data—Non-GAAP Financial Measures."

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  As of June 30, 2016  
 
  As of December 31,  
 
   
   
   
   
  Pro forma, as
adjusted(2)
 
 
  2013   2014   2015   Actual   Pro forma(1)  
 
  RMB
  RMB
  RMB
  US$
  RMB
  US$
  RMB
  US$
  RMB
  US$
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                                                             

Cash and cash equivalents

    77,960     61,830     198,523     29,871     115,663     17,404     115,663     17,404     546,105     82,172  

Total assets

    198,634     227,597     625,907     94,179     702,895     105,764     702,895     105,764     1,133,337     170,532  

Total liabilities

    121,982     182,192     360,133     54,187     460,180     69,243     460,180     69,243     460,180     69,243  

Total mezzanine equity

    163,324     176,941     476,018     71,626     499,607     75,174                  

Ordinary shares

    68     68                                  

Class A ordinary shares

            31     5     31     5     31     5     31     5  

Class B ordinary shares

            37     6     37     6     117     18     160     25  

Additional paid-in capital(3)

    8,034     2,436                     499,527     75,162     929,926     139,923  

Accumulated deficit(3)

    (97,100 )   (134,360 )   (191,644 )   (28,836 )   (227,104 )   (34,172 )   (227,104 )   (34,172 )   (227,104 )   (34,172 )

Total Gridsum's shareholders' (deficit)/equity

    (86,672 )   (131,536 )   (210,628 )   (31,692 )   (257,249 )   (38,707 )   242,358     36,467     672,800     101,235  

Noncontrolling interests

            384     58     357     54     357     54     357     54  

Total shareholders' (deficit)/equity

    (86,672 )   (131,536 )   (210,244 )   (31,634 )   (256,892 )   (38,653 )   242,715     36,521     673,157     101,289  

(1)
The consolidated balance sheet data as of June 30, 2016 is presented on a pro forma basis to give effect to the automatic conversion of all of our outstanding preferred shares into 12,030,166 Class B ordinary shares immediately upon the completion of this offering.

(2)
The consolidated balance sheet data as of June 30, 2016 is presented on a pro forma, as adjusted basis to give effect to: (i) the automatic conversion of all of our outstanding preferred shares into 12,030,166 Class B ordinary shares immediately upon the completion of this offering; and (ii) the sale by us of 6,521,740 Class B ordinary shares in the form of ADSs in this offering at an assumed initial public offering price of US$11.50 per ADS, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3)
Additional paid-in capital and accumulated deficit have been revised as of December 31, 2013 and December 31, 2014. See Note 2(a) to our audited consolidated financial statements included elsewhere in this prospectus.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        Gridsum is a leading provider of sophisticated data analysis software for multinational and domestic enterprises and government agencies in China. Our proprietary distributed data architecture allows our customers to efficiently collect and analyze vast amounts of information that is collected, indexed and stored in an organized manner, or structured data, and information that is not organized, or unstructured data. Our core technology, the Gridsum Big Data Platform, with its machine learning capability, performs multi-dimensional correlation analysis and analyzes complex real-time events. With the support of our Big Data Platform, our customers use our data visualization and data-mining technologies to identify complex relationships within their data and gain new insights that help them make better business decisions.

        Our leading position is based on our solutions and our core technologies. Our software products are designed for a variety of commercial and governmental applications. To help our enterprise customers reach China's large and growing online and mobile population, our initial products have focused on digital marketing analytics and automation solutions. We were among the first companies to offer web analytics solutions based on data warehouse technology, and we were among the first digital intelligence companies in China to build solutions entirely on a distributed data warehouse architecture using the open-source Hadoop framework. In addition, we believe we are the only China-based company to provide solutions to enterprise customers that cover web, video and mobile analytics. Our solutions analyze data from approximately 61 million internet and mobile sessions per day from users operating on over 233 million desktop and mobile devices. By leveraging the analytic capabilities of our Big Data Platform, we have developed additional software solutions, including new media analytics and information discovery solutions, to address a broad range of customer needs. In 2015, our customers included Fortune 500 and China 500 enterprises, comprising more than 300 customers across diverse industries, including over 30 Chinese government agencies.

        We are exclusively dedicated to developing proprietary technologies and solutions in digital intelligence. In 2009, we launched Web Dissector, our first digital intelligence solution, and our first Web Dissector customer remains a customer today. Since 2009, we have released a series of solutions based on our Big Data Platform, including SEM Dissector, SEO Dissector, Mobile Dissector, Contribution Dissector, Streaming Dissector, Video Dissector, Government Web Dissector, Media Dissector and Law Dissector. In 2014, we launched ADSUITE, a fully integrated package through which customers can access all our marketing automation solutions.

        We have grown rapidly in recent periods, with net revenues in 2013, 2014 and 2015 of RMB62.5 million, RMB124.5 million and RMB234.8 million (US$35.3 million), respectively, representing year-over-year growth of 99% and 89% respectively, and net revenues in the six months ended June 30, 2015 and 2016 of RMB84.6 million and RMB148.1 million (US$22.3 million), respectively, representing period-over-period growth of 75%. We have continued to make expenditures and investments, including in our technologies, personnel, sales and marketing, infrastructure and operations, and have incurred net losses in each period since our inception, including net losses of RMB30.7 million, RMB37.3 million, RMB48.8 million (US$7.3 million) and RMB29.7 million

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(US$4.5 million) in 2013, 2014, 2015 and the six months ended June 30, 2016, respectively. Our employee headcount has increased from 268 employees as of December 31, 2013 to 868 employees as of June 30, 2016. We had 141 customers, 211 customers and 307 customers in 2013, 2014 and 2015, respectively.

        We deliver our solutions as cloud-based software-as-a-service, or SaaS, offerings that are easy to deploy, easy to access, automatically updated without disruption, and enable our customers to reduce IT support costs by outsourcing hardware and software maintenance and support. We account for our revenues on a net basis, based on the fees our customers pay us without including any amounts they pay third parties for advertising or other services. We charge the majority of our customers based on percentage of their spending on our system in the bid management application or the volume of data being processed (e.g., page views or viewer views). When we provide our data analytics solutions with bid management functionality, we charge customers based on a percentage of their ad spending with the search engine providers. For example, a customer utilizing our bid management software to optimize the performance of its search engine marketing campaign would pay us a negotiated percentage of its ad spending through our software, as a service fee. When we offer our data analytics solutions to customers without reference to ad spending, we generally charge them negotiated variable amounts based on the monthly volume of data processed. We arrive at an annual data volume estimate before the engagement commences, and charge a fee for a predetermined base number of page views or viewer views. If the volume of the data processed exceeds the base, we charge progressively for the additional usage. To satisfy some of our customers' needs, we set a fee cap based on negotiation, subject to annual adjustment. In 2015, 90% of our revenues were recognized based on these arrangements. For some customers, we negotiate fixed-fee based contracts. In 2015, 10% of our net revenues were recognized based on fixed-fee arrangements. For the six months ended June 30, 2016, the revenues generated from the variable and fixed-fee based contracts represented 86% and 14% of our total revenues, respectively. For our marketing automation solutions, we earn and record service fee revenues over the contractual period, in proportion to ad spending or the completion of milestones that are stipulated in the contracts. In addition, we receive revenues from the incentive programs of search engine providers based on factors determined by them, such as yearly growth in the amount of advertising on the provider's search engine platform that our customers purchase through our solutions and other factors selected at the discretion of these providers. Revenues from these programs are received on both a quarterly and an annual basis. A majority of our customer contracts have terms of one year or more and may be renewed. Our gross margins in 2013, 2014, 2015 and the six months ended June 30, 2016 were 78%, 83%, 85% and 86%, respectively.

Factors Affecting Our Performance

        Our performance depends on our ability to continue to attract new customers and to accelerate and expand usage of our products by existing customers. For the foreseeable future, we expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our products and we will incur significant expenses associated with educating the market about the benefits of our products. In order for us to continue to grow our business, it is important to generate additional revenues from our existing customers by upselling and cross selling to them. In order to support this effort, we have grown our customer service consultants from 37 as of December 31, 2013 to 56 as of December 31, 2014, 118 as of December 31, 2015 and 127 as of June 30, 2016, and we plan to continue to significantly increase the size of this team, particularly in the near term. We also intend to expand our marketing efforts to increase our brand awareness.

        Our performance is significantly dependent on the investments we make in research and development in order to strengthen our ability to continue to innovate, improve functionality, develop

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new technologies or adapt to new technologies or changes to existing technologies. Our product innovation and development allows our customers to analyze growing volumes and variety of data in new ways. Our investments in this area include growing our research and development team from 91 employees as of December 31, 2013 to 158 employees as of December 31, 2014, 279 employees as of December 31, 2015 and 382 employees as of June 30, 2016. We intend to continue to invest in product innovation and leadership, including hiring top technical talent, focusing on core technology innovation and product development and entering into new industry verticals. One area of focus in the near term is development of solutions in the legal and financial services verticals based on our Gridsum Big Data Platform. Another area of focus is the development of mobile solutions in data analytics, information discovery, and data visualization. We do not expect to realize material revenues from all of these development initiatives in the near term.

        We have made and expect to continue to make substantial investments in our infrastructure in connection with enhancing and expanding our operations. For example, in March 2015, we established a big data joint research laboratory with Harbin Institute of Technology, focusing on data mining and natural language processing technologies, and opened a research and development oriented office in Harbin. We expect to continue to open new offices in China. In addition, we expect to make additional investments in related infrastructure such as data centers, network bandwidth and technical operations personnel. We also expect to make additional investments in our infrastructure as we continue to transition to operation as a public company. We currently expect to rely on cash on hand and cash generated from operations to fund these investments.

        Our revenues are significantly affected by the growth in demand for enterprise SaaS software in China. Such demand is dependent on a number of factors, including the economic growth rates in the industries in which our customers operate and the overall adoption of SaaS solutions among enterprises and government agencies in China. Our performance will also depend on the emergence of future competition from multinational and domestic software providers in China. In addition, government policy and regulation of China's software industry may affect our results of operations.

Trends in Key Performance Indicators

        We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

        Revenue retention rate consists of aggregate net revenues from all customers in the prior period that remain customers in the current period, divided by total net revenues from all customers in the corresponding prior period. This includes the impact on net revenues from customer non-renewals and attrition, customer deployments of additional services or discontinued use of services, and price changes for our services. Our revenue retention rate was 168%, 116% and 138% in 2013, 2014 and 2015, respectively.

        We calculate average customer contribution by dividing total net revenues from customers in a period by the total number of customers for the same period. We monitor average customer contribution as a measure of our cross selling and upselling of our new solutions. Our average customer contribution was RMB443,596, RMB590,142 and RMB764,948 (US$115,101) in 2013, 2014 and 2015, respectively, representing increases of 33% and 30% year over year.

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        We monitor acquisition cost ratio, return on customer acquisition cost and payback period as measures of the efficiency of our investments in sales and marketing activities. Acquisition cost ratio consists of aggregate sales and marketing expenses in the prior period, divided by total net revenues from all customers in the current period. Our acquisition cost ratio was 0.30, 0.23 and 0.20 in 2013, 2014 and 2015, respectively. Return on customer acquisition cost consists of the change in gross profit from the prior period to the current period, divided by aggregate sales and marketing expenses in the prior period. Our return on customer acquisition cost was 124%, 188% and 205% in 2013, 2014 and 2015, respectively. Payback period consists of aggregate sales and marketing expenses in the current period divided by the change in gross profit from the prior period to the current period. Our payback period was 0.86 and 0.88 in 2014 and 2015, respectively.

        We define a customer in a period as a single organization that purchases our products and solutions and with respect to which we recognize revenue during such period. A single customer may have multiple paid business accounts for separate divisions, segments or subsidiaries, but all entities that are part of the same corporate structure are counted as a single customer. We periodically review and optimize our customer portfolio. In 2013, 2014 and 2015, we had 141, 211 and 307 customers. No single customer represented 10% or more of our total net revenues in 2013, 2014, 2015 and the six months ended June 30, 2016.

        We measure customer satisfaction of our solutions in terms of annual customer churn and annual revenue churn. We consider our regular customers to be those with contract durations of six months or more; customers with contract durations of less than six months we consider trial account customers. We offer short-term contracts to customers as trial accounts to attract and educate potential customers who may be unfamiliar with digital marketing platforms and our marketing automation solutions. In 2013 and 2014, churned trial account customers contributed 1.4% and 1.6% of our total revenues, respectively.

 
  Year ended
December 31,
 
 
  2013   2014   2015(4)  

Regular Customers:

    113     161     239  

Churned Regular Customers(1)

    32     36      

Annual Customer Churn Rate(2)

    22.7%     17.1%      

Annual Revenue Churn Rate(3)

    6.4%     4.3%      

Trial Account Customers:

    28     50     68  

Churned Trial Account Customers

    10     25      

Total Customers

    141     211     307  

(1)
We define churned regular customers as the number of regular customers that cease using our services in the fiscal year after they become our regular customers.

(2)
Annual customer churn rate is the number of churned regular customers in a fiscal year divided by the number of total customers in the same year.

(3)
Annual revenue churn rate for a subject year is the aggregate revenues generated by churned regular customers in a fiscal year divided by total revenues from all customers in the same year.

(4)
Churned regular customers, annual customer churn rate, and churned trial account customers for 2015 will not be available until the end of 2016. Annual revenue churn rate for 2015 will not become available until the audited financial statements for 2016 are completed.

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Key Components of Results of Operations

        Net revenues consist of revenues recognized from customers who used our software solutions during the period, including revenues that we receive from the incentive programs of search engine providers, less business tax and surcharge. Historically, we have increased net revenues through our ability to increase the number of customers, retain high quality customers and increase the average customer contribution by upselling and cross selling new solutions. We believe this trend will continue as more customers adopt our solutions and demand more business intelligence to improve their operational efficiency, and as we continue to bring more innovative solutions to market and serve our customers.

        Cost of revenues consists primarily of personnel and personnel-related expenses for our customer service consultants, who work closely with our customer sales, marketing, IT and other operating professionals to help customers optimize the performance of their accounts, and periodically provide in-depth analyses for customers. Personnel costs consist of salaries, benefits, bonuses and share-based compensation. Cost of revenues also includes data center expenses, office and overhead costs, bandwidth costs and depreciation expenses related directly to providing services to customers. We plan to continue increasing the capacity, capability and reliability of our infrastructure to support the growth of our customer base and the number of products we offer. We expect that, for the foreseeable future, our cost of revenues will increase in absolute amount but fluctuate slightly as a percentage of our net revenues around current levels.

        Gross profit is net revenues less cost of revenues. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin has been, and will continue to be, affected by a number of factors, including the timing and extent of our investments in our operations and personnel, hosting- related costs and other depreciation expense allocations. We expect that our gross margin will be stable or slightly increase over the long term, although we expect our gross margin to fluctuate from period to period.

        Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. For each category, the most significant component of our operating expenses are personnel costs, which consist of salaries, benefits, bonuses, share-based compensation, and for sales and marketing expenses, sales commissions. We also incur other non-personnel costs such as an allocation of our general overhead expenses.

        Sales and marketing expenses consist primarily of personnel costs for our sales, marketing and business development employees and executives. Commissions are expensed in the period when a customer contract is executed. Sales and marketing expenses also include the costs of our marketing and brand awareness programs. We plan to continue investing in sales and marketing by increasing the number of our sales personnel, expanding our marketing activities, building brand awareness and sponsoring additional marketing events. We expect our sales and marketing expenses to continue to increase in absolute amount. However, we expect our sales and marketing expenses to decrease as a percentage of net revenues over the long term, although our sales and marketing expenses may fluctuate from period to period depending on fluctuations in net revenues and the timing and extent of our sales and marketing expenses.

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        Research and development expenses consist primarily of personnel costs and an allocation of our general overhead expenses. We continue to focus our research and development efforts on adding new features and products and on increasing the functionality and enhancing the ease of use of our existing products. In addition, we invest aggressively in the research and development of the infrastructure layer of software technologies, which will benefit us in the long run. We expense all our software development costs as they are incurred. We plan to continue to hire employees for our engineering, product management and consulting teams to support our research and development efforts. As a result, we expect our research and development expenses to continue to increase in absolute amount for the foreseeable future. However, we expect our research and development expenses to decrease modestly as a percentage of net revenues over the long term, although it may fluctuate from period to period depending on fluctuations in net revenues and the timing and extent of our research and development expenses.

        General and administrative expenses consist primarily of personnel costs for our administrative, legal, human resources, information technology, finance and accounting employees and executives. Also included are non-personnel costs, such as legal and other professional fees. We plan to continue to expand our business in China, and we expect to increase the size of our general and administrative function to support the growth of our business. We also expect that we will incur additional general and administrative expenses as a result of being a publicly traded company. As a result, we expect our general and administrative expenses to continue to increase in absolute amount for the foreseeable future. However, we expect our general and administrative expenses as a percentage of net revenues to decrease modestly over the long term, although it may fluctuate from period to period depending on fluctuations in our net revenues and the timing and extent of our general and administrative expenses.

        Other income/(expense), net consists primarily of interest income, net, and foreign exchange gain or loss.

        We generate the majority of our operating loss from our PRC operations and have recorded income tax provisions for the periods presented. On a consolidated basis, we have not been profitable yet and have an operating loss carried forward. However, some of our operating entities have taxable income in the past, due to the profit before tax or permanent difference incurred by non-deductible expenses, which resulted in the income tax payment and liability. Income tax liability is calculated based on a separate return basis as if we had filed separate tax returns for all the periods presented.

        We are not subject to income or capital gains tax under the current laws of the Cayman Islands. There are no other taxes likely to be material to us levied by the government of the Cayman Islands.

        Our subsidiary incorporated in Hong Kong, Gridsum Holding (China) Limited, is subject to Hong Kong profit tax at a rate of 16.5%. Hong Kong does not impose a withholding tax on dividends.

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        Beijing Gridsum, Beijing Moment, Guoxinjunhe, Beijing Yunyang, Beijing Guoxinwangyan and Beijing Yizhun are incorporated in China and are subject to enterprise income tax on their taxable income in China at a standard rate of 25% if they are not eligible for any preferential tax treatment. Taxable income is based on the entity's global income as determined under PRC tax laws and accounting standards. According to the PRC Enterprise Income Tax Law and relevant regulations, with approval of relevant tax authorities, the income of Beijing Gridsum and Guoxinjunhe, which are determined to be generated from a high and new technology enterprise, will be taxed at a preferential rate of 15%.

        Beijing Gridsum, Beijing Moment, Guoxinjunhe, Beijing Yunyang, Beijing Guoxinwangyan and Beijing Yizhun are also subject to VAT and related surcharges at a combined rate of approximately 6.7%. Beijing Gridsum, Beijing Moment and Guoxinjunhe have been subject to VAT since September 2012. Previously, these entities had been subject to business tax and related surcharges at a combined rate of 5.6%. Where we serve in a pass-through capacity between an advertising customer and a search engine provider, our revenues from the portion of those contracts related to advertising are subject to a 3% cultural development fee.

        Dividends that the WFOE, our wholly owned subsidiary in China, pays to Gridsum HK, our intermediary holding company in Hong Kong, will be subject to PRC withholding tax at a rate of 10%, unless they qualify for a special exemption. If Gridsum HK satisfies all the requirements under the Arrangement Between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and receives approval from the relevant tax authority, then dividends paid by the WFOE to Gridsum HK will be subject to a withholding tax rate of 5% instead. See "Risk Factors—Risks Relating to Doing Business in China—Any limitation on the ability of the WFOE to make distributions to us, or the tax implications thereof, could have a material adverse effect on our business or financial condition."

        If our holding company in the Cayman Islands, Gridsum Cayman, were deemed to be a "PRC resident enterprise" under the Enterprise Income Tax Law, it would be subject to enterprise income tax on its global income at a rate of 25%. See "Risk Factors—Risks Relating to Doing Business in China—We and our Hong Kong subsidiary may be classified as a 'PRC resident enterprise' for PRC enterprise income tax purposes, which would likely result in unfavorable tax consequences to us and our non-PRC shareholders."

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Results of Operations

        The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. Due to our limited operating history, period-to-period comparisons discussed below may not be meaningful and are not indicative of our future trends.

 
  For the Year Ended
December 31,
  For the Six Months Ended
June 30,
 
 
  2013   2014   2015   2015   2016  
 
  RMB
  RMB
  RMB
  US$
  RMB
  RMB
  US$
 
 
  (in thousands)
 

Consolidated Statements of Operations Data:

                               

Revenues:

                                           

Enterprise

    57,025     104,891     208,157     31,321     75,483     133,918     20,150  

e-Government and other

    6,414     21,340     29,467     4,434     10,029     16,648     2,505  

Less: Business tax and surcharges

    (892 )   (1,711 )   (2,785 )   (419 )   (878 )   (2,499 )   (376 )

Net revenues

    62,547     124,520     234,839     35,336     84,634     148,067     22,279  

Cost of revenues(1)

    (13,810 )   (21,143 )   (35,237 )   (5,302 )   (11,500 )   (20,023 )   (3,013 )

Gross profit

    48,737     103,377     199,602     30,034     73,134     128,044     19,266  

Operating expenses:

                                           

Sales and marketing expenses(1)

    (29,012 )   (46,880 )   (84,548 )   (12,722 )   (33,351 )   (52,214 )   (7,857 )

Research and development expenses(1)

    (20,385 )   (38,137 )   (100,186 )   (15,075 )   (40,178 )   (66,956 )   (10,075 )

General and administrative expenses(1)

    (30,276 )   (54,931 )   (60,540 )   (9,109 )   (27,861 )   (37,466 )   (5,637 )

Total operating expenses

    (79,673 )   (139,948 )   (245,274 )   (36,906 )   (101,390 )   (156,636 )   (23,569 )

Loss from operations

    (30,936 )   (36,571 )   (45,672 )   (6,872 )   (28,256 )   (28,592 )   (4,303 )

Other income/(expense):

                                           

Foreign currency exchange gain/(loss)

    296     (766 )   1,339     201     672     (889 )   (134 )

Interest income, net

    87     180