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Pinduoduo challenger Taojiji bankrupt after funding attempt fails

Failure to bring in two big investors tips company over edge

Taojiji discounted heavily to win over customers. 

HONG KONG -- Taojiji, an e-commerce startup that once tried to dethrone its much bigger Nasdaq-listed Chinese rival Pinduoduo, declared bankruptcy on Monday, months after being embroiled in a liquidity crunch as a result of burning millions of U.S. dollars in aggressive expansion.

The insolvency came after a failed attempt by Taojiji in the past two months to restructure the business by introducing two potential investors, including a large-scale conglomerate and one fund management company, founder and CEO Zhang Zhengping wrote in a letter posted on the company's official Weibo account.

Zhang wrote that the company had to announce the unsuccessful restructuring attempt as a result of "delayed investment transaction," even though one of the potential investors had already signed an agreement to commit the capital.

The company's accounts were frozen on Nov. 28 so wages for the month and payment for goods had not been settled. The company said that it was in the process of terminating contracts and would answer questions from creditors through online and offline channels.

Launched by Shanghai Huanshou Industrial in August 2018, Taojiji adopted a business strategy similar to that of its domestic peer Pinduoduo, which allows customers to participate in online group buying deals with a focus on serving third and fourth-tier cities.

The company made its name in October 2018 when its platform registered over 11 million users within two months of inception. It was able to grow its user base aggressively by offering massive discounts financed by early-stage investors.

Taojiji further dried up another $42 million that it closed in a Series A round of financing at a valuation of $242 million in October 2018. The Series A round was backed by Tiger Global Management, DST Global, the investment firm led by Yuri Milner, and China Renaissance’s venture capital vehicle K2VC.

Although it had more than 130 million registered users as of Oct. 15 2019, Taojiji struggled financially and failed to raise $200 million in a Series B round that started in June. Had that financing been successful, the company would have been valued at $800 million.

Once it used up its previous funding, the company began using account payables to meet the demands of merchants and for customer acquisition in a desperate bid to retain rapid growth, which eventually led to its collapse.

Shares in Pinduoduo, which also uses heavy discounts to compete with deep-pocketed rivals like Alibaba Group Holding, are down by nearly a quarter, shaving almost $11 billion off its valuation in the third quarter of this year. The company raised over $1.6 billion in a stunning initial public offering on Nasdaq at a valuation of $60 billion in July 2018.

DealStreetAsia is a financial news site based in Singapore focused on corporate investment activity in Southeast Asia and India. Nikkei recently acquired a majority stake in the company.

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