(Yicai Global) Oct. 15 -- The founder of China's cash-burning Taojiji has sought to assure its aggravated suppliers that the e-commerce startup is about to get consolidated so the debt crisis can near its end.
Taojiji spent too much time seeking financing, which caused the debt problems, so the firm will be acquired and restructured by a large domestic group, Zhang Zhengping, founder of the Shanghai-based company, said in an open letter posted on his Weibo account. He did not disclose more details about the suggested merger.
The proceeds will be used to repay debts to suppliers, Zhang said, adding that the remainder will be covered by him and his team of executives.
Founded a bit more than a year ago, Taojiji adopted a strategy akin to that of Pinduoduo, investing heavily to acquire buyers in third and fourth-tier cities. Taojiji accumulated 40 million monthly active users within nine months since its establishment in August.
In September, Taojiji offered a repayment plan to each of its suppliers who stormed the headquarters, looking for money, news outlet Tech Ifeng reported. The plan included repaying 20 percent of the debt when the firm is acquired, and the rest after restructuring, going public, as well as reaching a valuation of USD2 billion. Most of the suppliers refused to accept the deal.
Signs of a downturn started to show when the latest funding round, which started in June, got no participants, followed by waning sales. This year, Taojiji has lost nearly CNY1.2 billion (USD169.8 million), and its net assets are CNY600 million below zero (-USD84.9 million), self-media outlet LatePost reported earlier. The firm was still burning through cash at a rate of CNY200 million per month.
Editor: Emmi Laine