BIDU Baidu Inc

China's top online seller of movie tickets and restaurant bookings raised $3.3 billion in the largest private fundraising round ever for a venture capital-backed startup.

Valued at over $18 billion by the fundraising, Meituan-Dianping, formed by the merger of two rival startups last year, said Tuesday it raised the fresh capital from investors ranging from Chinese Internet giant Tencent Holdings Ltd. to venture capital investor DST Global and Singapore state investment firm Temasek Holdings Pte. Ltd.

China's growing importance to venture capitalists and startup investors is underscored by the massive fundraising. The Meituan fundraising, which started last year before the merger, tops a $3 billion round raised by Chinese homegrown ride-hailing startup Didi Kuaidi Joint Co. to become the largest single funding round on record for a privately-held startup with venture capital investors.

Meituan's fundraising was complicated by growing competition in online-to-offline services market where Chinese search leader Baidu Inc. and Chinese e-commerce giant Alibaba Group Holding Ltd. are spending billions on their own offerings. After sounding out investors on a fundraising last year at valuations as high as $20 billion, investors pushed Meituan to lower its asking price and encouraged the merger with rival Dianping to cut spending on subsidies.

The merger with Dianping opened the door for Meituan and its founder, serial entrepreneur Wang Xing, to form a new alliance with Chinese social-and-gaming company Tencent at the expense of Alibaba. The merger with Dianping diluted the ownership stake of Alibaba, which was an early investor in Meituan. When the merger was agreed upon, Tencent offered to put in around $1 billion as part of the $3.3 billion fundraising to boost its ownership in Meituan-Dianping.

Many investors viewed the merger agreement as favorable to Dianping's existing shareholders, according to people familiar with the situation. As a result of the Meituan-Dianping merger, Alibaba decided to sell its roughly $1 billion stake in the startup. Alibaba had already signaled its desire to refocus on its own online-to-offline operations, called Koubei. Alibaba was offering the stake ownership, which represented around 7% of the company, at a discount to the current fundraising round. The discount was due to its shares having less downside protection rights than the new shares sold in this round.

Meituan-Dianping's offerings are in some ways similar to the group-buying and restaurant-booking services sold by Groupon Inc. and Yelp Inc. of the U.S. The company said Tuesday that its total transaction volume had reached 170 billion yuan ($25.8 billion) last year.

The sales of such services have grown bigger in China than the U.S. given the country's urban megacities and the widespread adoption of smartphone technologies. Steep discounts, particularly on movie tickets, have been a major driver of Meituan's growth.

China's Internet giants have sought to expand their shares of the fiercely competitive market for smartphone applications connecting users with brick-and-mortar services such as taxi rides, food deliveries, restaurant bookings and movie ticketing.

Many startups have burned out in the battle to attract users with heavy discounts and subsidies, but the likes of Alibaba and Tencent say they have deep pockets and supporting services such as maps, data and payments platforms to give them an edge over other competitors.

Alibaba's executives have said the company's dominance in e-commerce can translate to success in the offline, local-services niche, pointing to the heavy traffic of hundreds of millions of users of its shopping app, Taobao, and affiliated payments business, Alipay. The company also has a mapping arm and other assets that can support such a business, they have said.

Rather than run its own operations, Tencent's strategy has been to take minority stakes in other technology companies and use the alliances to offer a wider range of services on the company's messaging and social-networking applications, which also have hundreds of millions of users.

Search company Baidu Inc., sometimes called China's Google, has also been spending heavily to win share in the market because it views the services as blending in with its lucrative search and map business to increase revenue through commissions from merchants.

Gillian Wong contributed to this article

Write to Rick Carew at rick.carew@wsj.com

(END) Dow Jones Newswires

January 19, 2016 09:25 ET (14:25 GMT)

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