Ele.me Inc. and China Vanke Co. branding is displayed on the side of an unmanned drink kiosk in the communal kitchen at Vanke’s Port Apartment project in Shanghai, China, on Friday, Dec. 29, 2017. Vanke is targeting millennials with one-room apartments in former offices turned into dormitory-style accommodation. Photographer: Qilai Shen/Bloomberg  

SoftBank Is Said to Lead $3 Billion-Plus Round in Alibaba Ele.me

(Bloomberg) -- SoftBank Group Corp.’s monster Vision Fund plans to lead an investment of $3 billion to $5 billion into Ele.me, the food delivery giant owned by Alibaba Group Holding Ltd., people familiar with the matter said.

The near-$100 billion fund led by Masayoshi Son is heading up discussions with potential investors including venture capital firms, said the people, who asked not to be identified discussing a private deal. As part of the agreement, Alibaba intends to merge Ele.me with in-house arm Koubei, which focuses on connecting restaurants to the internet, the people added. Negotiations are ongoing and the terms could still change, they said.

SoftBank Is Said to Lead $3 Billion-Plus Round in Alibaba Ele.me

The financing presents a much-needed capital infusion for Ele.me, which is burning enormous amounts of cash in a competition with Meituan Dianping, the Chinese internet giant backed by Alibaba-foe Tencent Holdings Ltd. While it’s unclear how big a stake is available in Ele.me, which was valued at $9.5 billion in Alibaba’s April acquisition, investors get a piece of a company that’s said to be a candidate for an initial public offering.

Ele.me and Meituan are incurring massive losses as they offer heavy discounts on food orders to lure users in a bitter fight for market share. While that lowers prices for customers, both companies have to maintain payments to the armies of drivers on motorcycles that do their deliveries.

The investment will come from the SoftBank Vision Fund, created to channel investments into some of the world’s most influential companies in an effort to stake out a dominant position in future technologies. Son’s betting that robotics and artificial intelligence will trigger an upheaval of older industries. On a more personal level, the Japanese investor was one of Alibaba’s earliest backers and remains a close friend of Alibaba-founder Jack Ma’s. The two sit on each other’s boards.

The market for on-demand services in China is surging as people increasingly turn to their smartphones to order meals, schedule beauty treatments and hire domestic helpers. It’s also strategically important for Alibaba and Tencent as a means of promoting their respective payment services.

Reuters first reported the targeted fundraising amount and merger plan. Alibaba declined to comment on behalf of Ele.me. A SoftBank spokesman declined to comment.

Alibaba bought out the rest of Ele.me this year but the startup is run somewhat independently. Meituan itself is marching toward an initial public offering.

Meituan, the world’s third-most valuable tech startup according to CB Insights, revealed huge losses but also a scorching pace of growth when it filed for a much-anticipated Hong Kong initial public offering. The startup, of which Tencent owns more than a fifth, posted a net loss of 19 billion yuan ($2.8 billion) last year, hurt by ballooning spending and after accounting for its preferred stock. However, the internet company more than doubled revenue to 33.9 billion yuan.

Ele.me has never disclosed detailed financials but Chief Executive Officer Wang Lei has said the industry is still in its early phases and monetization wasn’t a priority for now. It’s vowed to spend more than $400 million this quarter alone to wrest business from Meituan and achieve its ultimate goal of controlling half the Chinese market for food delivery.

©2018 Bloomberg L.P.