Eyebrows were raised when China’s food delivery service Ele.me last week announced it raised funds worth US$630 million, while in reality it was less than US$400 million. Startup expert William Bao Bean was not amazed. China´s startups are very competitive, and cheating on figures is part of that, he told VentureBeat.
Inflated figures in China’s funding rounds are not uncommon, and it’s an issue known to many in the industry there.
“China is a very competitive market,” William Bao Bean, managing director at Chinaccelerator and a partner at SOSV, told VentureBeat in a phone interview. “So anything you can do to unsettle your competitors is fair game.”
SOSV is a Shanghai-based VC firm with a $250 million fund that focuses on accelerating over 120 startups each year. Bao Bean wished to make clear that he had no comment on the Ele.me case in particular.
“It scares the hell out of your competition if you raise more money than their entire valuation,” he added. “Often what happens is that on the amount raised, they add a zero… It’s psychological warfare, China-style.”
While the actual investment amounts eventually come to light when VCs do their own internal due diligence at follow-on rounds, often leaked funding news gets picked up by individual media outlets in China — and then goes viral with little fact-checking on the part of the journalists picking up the story second-hand.
“I think this is a problem that you see more often in China,” he said. “It’s less common outside of China because the consequences of misreporting fundraising are much more severe.”
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