Chinese social commerce portal Peanut Diary (花生日记) completed an RMB 300 million ($42 million) A plus round of strategic investment, the company announced on Monday without disclosing specifics of the investors.
Why it matters: The financing comes just five months after Guangzhou’s Administration of Industry and Commerce handed the company the second and the largest fine in the history of China’s online retail sector for operating a pyramid sales scheme.
- Chinese social e-commerce sites that adopt a decentralized network of members to sell products are under increased scrutiny from Chinese authorities who are wary of potential pyramid schemes, which is illegal in the country.
- The watchdog fined Peanut Diary RMB 1.5 million and confiscated RMB 73.1 million worth of illegal income in March.
- The country’s first RMB 9.6 million fine for pyramid selling was handed to NASDAQ-listed Yunji Weidian in 2017.
Details: The two-year-old company encourages users to become a member by paying a fee of RMB 99. The more new referrals the members made the higher commission they will get.
- With the new funding, the company announced plans to expand to online travel and online education businesses.
- The company’s gross merchandise volume more than ten folded year-over-year to RMB 300 million in the first seven months of this year.
If our business model were found to be in violation of applicable laws and regulations, our business, financial condition and results of operations would be materially and adversely affected.
—Yunji IPO filing documents
Context: Operating under a similar model, Peanut Diary is smaller than Yunji Weidian in terms of GMV.
- Yunji’s GMV increased by 134.4% from RMB9.6 billion in 2017 to RMB22.7 billion in 2018, according to the company’s prospectus released in March this year.
- Both of the companies are facing regulatory risks linked to their business models.