How Former Rivals Became China’s Fourth Largest Unicorn On The Cusp Of An IPO

Recent reports have indicated that Meituan-Dianping, China’s fourth largest unicorn, is planning to IPO. The company’s valuation could leap from its current $30 billion to upwards of $60 billion in the public transaction.

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This is big news; however, a lot of people outside of China may still be confused about what exactly Meituan-Dianping is and how it came to be. Let’s ease that confusion with a brief on the world’s fifth most valuable startup.

An Innovator And A Copycat

Let’s start here: Meituan-Dianping is the leader in the mobile online-to-offline (O2O) space in China. Its platforms excel at allowing customers to search for goods and services online that will optimize their shopping and lifestyle experiences offline.

Meituan-Dianping’s multiple platforms address verticals ranging from daily deals for KTV (Karaoke), movie ticket sales, food delivery, hotel booking, and restaurant reviews.

Dianping.com, the older half of the Meituan-Dianping conglomerate, was founded in 2003 by Tao Zhang after he graduated with an MBA from Wharton. The restaurant review site is often likened to U.S.-based Yelp, but Dianping is one company that doesn’t deserve the “copycat” title often attributed to Chinese startups. In fact, Yelp was founded more than a year after Dianping.

According to VentureBeat, Dianping capitalized on China’s rising restaurant and food culture in the early 2000s. The company connected merchants to potential customers with its review app, charging the vendors for search optimization. And with smartphones just a few years off, the company emerged in the right place at the right time.

Dianping raised its first venture-backed round, a $2 million Series A led by Sequoia Capital, in April 2006. The company went on to raise a $25 million Series B by Sequoia, Google, and Qiming Venture Partners in September 2007. That round was followed by a $3 million Series B in July 2010.

On the other side of the Meituan-Dianping equation is Meituan.com, a daily deals site that emerged in 2010 during a Groupon-copycat craze in China. Wang Xing, the Chinese entrepreneur that founded RenRen, the Chinese copycat of Facebook, and Fanfou, an early Chinese Twitter copycat, also founded Meituan. (Wang Xing is open about using U.S. companies for inspiration.)

In taking note of Groupon’s strategies, Meituan raised a $20 million Series A led by Sequoia in August 2010 followed by a $50 million Series B led by e-commerce giant Alibaba in July 2011.

Meituan’s capital infusion and corporate backing came at a critical time in its development. At the same time, Dianping began to look to other verticals, including group buying, for expansion. By 2011, Dianping had already been using discounts to increase customer acquisition and incorporating that into its platform seemed like a natural next step to take. It also served as a harbinger for the merger to come.

Burning Cash

According to a report by Tech In Asia in 2012, the average discount offered by the top players in the daily deals space was 60%, which meant that most startups were kicked out of the game early due to unsustainable losses. But Meituan and Dianping survived and thrived with the help of significant venture capital and corporate backings.

In April 2011, Dianping raised a $100 million round that brought its valuation up to $1 billion, preparing the company to battle it out in the O2O space. A $64 million Series D in August 2012 further increased its ability to lose money. In February 2014, Tencent joined the clear frontrunners in the battle. The owner of WeChat bought a 20 percent stake in Dianping and integrated the startup’s services with the payment system of its growing super app.

Meituan’s pockets got bigger as well. In May 2014, Sequoia, General Atlantic, and Alibaba directed $300 million toward the startup. Meituan had attained profitability the prior year, and it had the largest market share based on gross merchandise volume in October 2014. The startup went on to raise another $700 million in January 2015, bringing its valuation up to $7 billion.

Dianping then raised $850 million at a $4.05 billion valuation confirmed in April 2015. According to the Wall Street Journal, Dianping boasted more than 190 million monthly active users at the time, while Meituan generated $7.4 billion in transaction volume that year.

For both companies to remain dominant players in the O2O space, large piles of cash were burnt through. And the unsustainability of that business model prompted the competitors to shift strategies.

One (Very) Big Happy Family

On the heels of the merger that produced China’s ridesharing giant Didi Chuxing, Dianping and Meituan announced its deal to merge in October 2015. (After the merger, Alibaba sold its minority stake in the company.) From that point forward, Meituan-Dianping became the decidedly dominant player in the daily deals space.

The conglomerate went on to raise more than $7.3 billion in capital, raising its valuation from $18 to $30 billion in less than two years. The company has put that capital to good use, investing in other startups and reaching into other crowded verticals such as ridesharing in China. However, a successful merger doesn’t give investors liquidity. To get there, a public offering will likely be necessary, and Bloomberg reported last week that the company plans to sell ten percent of its company in a $6 billion Hong Kong IPO.

For now, the unicorn is keeping its cards close to the chest.

“As a rapidly growing company, Meituan has capital requirements from time to time. Meituan has in past raised funds for its growth from venture capital and private equity investors,” a Meituan-Dianping spokesperson told Crunchbase News. “Meituan will look at all available options for capital to fund its future growth as needs arise. If the company has specific plans, it will announce them at the appropriate time.”

With the IPO window as open as it will ever get, we hope that the appropriate time falls within the near future.