(Bloomberg) -- A Chinese e-commerce site called Pinduoduo, or PDD, has raised more than $1 billion at a valuation of about $15 billion, roughly 10 times the level just a year ago, according to people familiar with the matter.
The Shanghai-based company, founded by ex-Google engineer Colin Huang, is getting the money from existing investors including Sequoia Capital China and Tencent Holdings Ltd., said the people, asking not to be named because the matter is private. Some of the money was invested at a slightly lower valuation, one of the people said. The company didn’t respond to requests for comment.
PDD has become one of the fastest-growing startups in China by creating a sort of Facebook-Groupon mashup, where people spot deals on fruit, clothes or toilet paper and then recruit their friends to buy at a discount. The app, often used through Tencent’s WeChat messaging service, offers merchandise at times 20 percent cheaper than market price by letting consumers buy directly from manufacturers, cutting out middlemen, advertising and acquisition costs. Huang and his developers also used their experience to add gaming elements to the shopping experience, doling out coupons and rewards.
The startup has increased its transaction volume by at least 10 times in the past year and plans to use the funding for expansion, another person familiar with the matter said. Among PDD’s other investors are IDG Capital and Banyan Capital. It raised more than $100 million at a valuation of more than $1.5 billion, people familiar said in April last year.
PDD has benefited from bringing online commerce to people and places that haven’t used it before. The app is so simple it’s attracted new customers, rather than users from existing players like Alibaba Group Holding Ltd.’s Taobao and JD.com Inc., said Eric Wen, founder of Blue Lotus Research Institute.
"People in the third- and fourth-tier cities, especially elderly people, can find Taobao too complicated to use, but PDD has a much lower barrier to entry," said Wen, whose institute does sell-side research at Blue Lotus Capital Advisors.
PDD’s latest fundraising fell short of the rumored $3 billion that periodical 36kr had reported, without citing sources.
Besides its reputation for low prices, PDD has benefited from a large base of users in lower-tier cities. In the year ending December 2017, the number of people using its mobile app at least once a month grew more than eight-fold 156.5 million users, according to data from QuestMobile. For comparison, JD.com, a well established e-commerce provider with a market cap of about $58 billion, had 225.7 million monthly active users at the end of 2017.
Wen added that some of the merchants selling goods on PDD’s platform had a reputation for stocking cheap and even fake products; the company regularly fields complaints about both via social media. But PDD proactively fines sellers of fake goods and Wen said it had scale and skills to potentially become China’s second-largest e-commerce provider.
"I think once they get the money they will try and make the service more like Taobao, in the sense that they’ll have to establish a store system," he said. "If that indeed happens then the threat to Taobao will grow more and more and the threat to JD can’t be overlooked."
Indeed, the investment by Tencent in Alibaba’s rival may escalate tensions between China’s biggest technology giants, according to Kim Eng Securities analyst Mitchell Kim.
"Tencent feels the need to really bring competition to Alibaba’s backyard given that Alibaba as a platform is really growing rapidly and quickly challenging Tencent," he said.
Huang launched his career in Silicon Valley and then returned home to become a serial entrepreneur. The idea behind PDD is to give people a different experience than at traditional e-commerce sites like Amazon.com or Alibaba, where shoppers tend to plug in a keyword and then pick out an item after sorting through a few options. Instead, his app is supposed to be more like a digital version of shopping at the mall with friends, where you can share ideas and get feedback from people you trust.
If a shopper recruits friends to join them in an eligible purchase, the entire group gets a discount. Because PDD is used on Tencent’s messaging service, the app’s sales items have become a common sight on WeChat Moment threads - the equivalent of a Facebook user’s feed.
©2018 Bloomberg L.P.