After gathering 130 million users, Chinese e-commerce platform Taojiji announces hard reshuffle amid debt scandal

A cash-burning company’s sad story.

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Shanghai-based e-commerce platform Taojiji’s founder and CEO Zhang Zhengping confirmed in an open letter on Tuesday that his company has succeeded in grabbing a buyer for its stakes, twenty days after merchants crowded into the company’s offices to claim back their money generated from goods sales on Sept 25, according to the company’s official Weibo account.

Zhang admitted that he made “huge mistakes” as he wasted too much time in financing rather than solving the company’s own growth problems, and kept the strategy of attracting new users with cash incentives when the crisis was around the corner.

Taojiji, an online grocery marketplace that targets consumers living in China’s small townships and rural areas, has gained 130 million registered users since it went online in August 2018, according to Zhang. The company gave cash as an incentive to register on its platform, a similar measure used by a slew of companies such as Qutoutiao, a content aggregator listed on Nasdaq.

Taojiji made a loss of RMB 1.2 billion (USD 141.4) since it was founded, half of which was piled in the first half of this year, according to Chinese media outlet Late Post.

Zhang said Taojiji started its USD 200 million Series B round fundraising move in June and got informal offers from several investors, but failed to cement a substantial deal in September, when the company began to notice slowing cash flow.

In the open letter, Zhang also apologized to merchants on its platform for failing to allow them to withdraw their money, and invited them to accept a proposal involving these debts rather than suing his company on a court.

The founder and CEO did not detail this proposal but said that if the demanders finally brought his company to a court, the company’s remaining cash would only enable them to claim back 1% of their money.

About the undisclosed buyer, Zhang did not name which firm will be the rescuer, but added that Taojiji would be merged into this company. Alibaba, which is now competing with Pinduoduo for consumers in China’s less developed regions, is speculated to be the buyer but the Chinese internet giant has not confirmed this to KrASIA. Chinese media outlet Late Post reported that Taojiji had already contacted Alibaba, Meituan, and ByteDance, none of which was willing to invest.

According to Chinese media outlets National Business Daily and Late Post, Taojiji proposed to repay 20% of owed money within one month after they get the new funds.

As the new funds will not be enough to repay all the debts, Zhang also promised to compensate the remaining obligations with his and high executives’ left stakes in the new platform, on condition that the company’s new valuation will exceed USD 2 billion or it will go public.

Taojiji had Russia venture capitalist DST and US-based Tiger Fund as its Series A round investors.