Dianping secures $850m pre-IPO round
Having raised $850 million - the largest disclosed round for a Chinese tech start-up so far this year – in a matter of months, Dianping is now thought to be nearing an IPO. The investment values the 12-year-old company, described as a Chinese version of Yelp and Groupon, at $4.05 billion, well into unicorn territory.
Backers include Singapore's Temasek Holdings, private equity firm FountainVest Partners, Chinese conglomerates Wanda Group and Fosun Group, and smart phone maker Xiaomi. The largest investor in the round, however, is domestic internet giant Tencent Holdings.
This gives the competitive dynamic in China's group-buying space - Dianping makes its money through a combination of paid listings and discount offers - an extra twist. Dianping is in competition with Meituan, which is backed by Alibaba Group. One month ago, the firm announced a $700 million round from a group of undisclosed investors, achieving a valuation of $7 billion.
However, the two companies' business models are not identical. While Meituan enjoys greater transaction volume by virtue of its exposure to lower-tier cities, Dianping concentrates on tier-one and two locations.
"Dianping has higher quality assets, such as restaurant reviews, in addition to group-buying services," says J.P. Gan, managing partner at Qiming Ventures Partner, which invested in Dianping's $100 million Series C round in 2010. "Dianping is still stronger in the major cities and that makes a difference. The lower cities you would probably have never heard of their names."
In addition to restaurant reviews and group-buying services, Dianping provides e-membership and restaurant reservation services. It is also an active investor in complementary businesses. In May of last year, it acquired a minority stake in online food-ordering platform Ele.me for $80 million. The company followed up last month by leading a $23 million Series C round for another player in the space, Meican.
Dianping is also now targeting consumers beyond the food and drink space. It has expanded into different lifestyle verticals, such as hotel bookings, hair-styling and massages. As of the fourth quarter of 2014, the company had more than 190 million monthly active users and over 60 million reviews. Its services cover 12 million businesses in 2,300 cities nationwide.
Dianping plans to use the new capital to take the fight to Meituan by penetrating third- and fourth-tier cities. Gan believes the company can also scale up through its mobile offering. Although Dianping's mobile platform has been in operation since 2011, after Tencent acquired a 20% stake in the business last year it moved to another level, being incorporated into its new partner's instant messaging app WeChat.
"It's a perfect application for mobile phones. Location-based technology gives Dianping the opportunity to overtake this market," says Gan.
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