Alibaba’s Ele.me ‘on hunt for financing’

Ele.me, the food delivery platform acquired by Alibaba Group Holding, is on the hunt for $2bn of new financing to help in its fight against Meituan Dianping, sources said.

The Chinese company is seeking funds from potential investors such as venture capital firms to expand a business that is burning enormous amounts of cash, according to the sources, who requested not to be named because the matter is private.

While it is unclear how big a stake is available in Ele.me, which was valued at $9.5bn in April’s Alibaba acquisition, investors would get a piece of a company that is a candidate for a future initial public offering, the sources added.

Ele.me and Meituan are incurring massive losses as they offer heavy discounts on food orders to lure users in a bitter fight for market share. While that lowers prices for customers, both companies have to maintain payments to the armies of drivers on motorcycles who do their deliveries.

The market for on-demand services in China is surging as people increasingly turn to their smartphones to order meals, schedule beauty treatments and hire domestic helpers.

It is also strategically important for Alibaba and Tencent Holdings, a key backer of Meituan, as a means of promoting their payment services.

Alibaba declined to comment on behalf of Ele.me.

While Alibaba bought out the rest of Ele.me this year, founder Zhang Xuhao remains chairman of the company.