China's Meituan enters the big league

Bearing in mind the company's subsequent growth and the current climate in the tech space, however, a $700 million round at a $7 billion valuation doesn't seem so surprising. Valuations might be spiraling out of control in the sector as a whole, but he believes that certain investors are justified in their willingness to pay a premium for clear market leaders.

As an early-stage player, Northern Light has sat out Meituan's last two rounds: a $300 million commitment at a valuation of $4 billion in May 2014, led by General Atlantic and with Sequoia Capital and Alibaba Group also participating; and the recent $700 million investment from a group of undisclosed backers.

The firm took part in a $50 million Series B in 2011 alongside Sequoia, Alibaba and Walden International. It started looking at group buying opportunities a year earlier but decided to wait for the fervor to die down. The Series B came when the segment was awash with competitors, and a couple of months after market leader Lashou took its funding to $166 million within 12 months. Deng claims that even then there were signs the music was slowing down.

"Meituan wasn't number one; Lashou was on top and WoWo was arguably stronger than Meituan in many metrics," he says. "We invested in Meituan was because we liked the founder. He is strong, experienced, clear in his strategy, and he has a good team around him."

Deng credits Meituan's founder, Xing Wang, with exercising discipline when others in the industry were losing their heads. The other differentiating factor was the company's focus on local services - consumer-related offers on hotels, restaurants, cinema tickets, and so on - rather than consumer goods. Lashou concentrated aggressively on the latter, as does Juhuasuan, a group buying site launched by Alibaba's C2C platform Taobao Marketplace.

"Selling services is very different from selling food or cosmetics," Deng says. "The online-to-offline (O2O) element is important so you need a strong local offline team. You need to have relationships with individual vendors."

WoWo, which started out as the operator of consumer services-oriented group-buying business 55tuan, turned itself into a marketplace. Meituan's closest independent competitor is now Dianping, followed by Nuomi.

With Alibaba backing Meituan, Tencent Holdings taking a 20% stake in Dianping last year, and Baidu acquiring Nuomi in 2013, group buying appears to gripped by the strategic standoff present in other segments of the internet industry. "The giants will come into any hot vertical and pick sides," says Deng. "This is important to smaller companies. When you see a competitor get investment from a strategic player you feel you need to do the same thing."

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• Topics
• Venture
• Expansion
• Greater China
• Technology
• Consumer
• Venture
• China
• Consumer
• TMT
• Growth capital
• Northern Light Venture Capital
• Alibaba Group
• General Atlantic