The Investor Who Made the Most Money Off Pinduoduo

By Jiaxiang Shi, Qian Ren, Yunxiao Guo

Edited by Jing Liu

From zero to IPO, Pinduoduo took just three years. To surpass Alibaba in market cap, it took only five more. For most people, the company has been on an uninterrupted ascent from the moment they first heard of it. But in reality, Pinduoduo once found itself surrounded on all sides.

Around 2015, when the company was still called Pinhaohuo, it was seeking a round priced between $600 million and $1 billion. At the time, it seemed ill-fated: after years of brutal competition, Chinese investors had grown deeply skeptical of e-commerce and O2O.

Great companies often march forward against all odds. Great investments do too.

According to An Yong Waves (Anyong), nearly every top-tier investor looked at Pinduoduo around its Series B, but most passed. The reasons were many — we'll get to them. The firms that ultimately invested in that round reaped staggering returns. For Hongshan's Gaorong Capital and Tencent, this single bet could define a career.

Hongshan, which had looked but didn't invest in this round, came back swinging in the next. Had it not, this might have become one of the most glaring misses of Neil Shen's past decade.

At this historic moment for Pinduoduo, An Yong Waves revisits the company's fundraising story — not just to show what was gained and lost, but to offer a lesson: in markets that seem impossible, new possibilities always emerge.

The Most Steadfast Backer: Zhen Zhang

Of all Pinduoduo's early investors, Zhen Zhang of Gaorong Capital was the biggest winner.

The classic telling goes like this: at the end of 2014, Gaorong — then a young firm — organized a hotpot dinner for over 20 founders. Colin Huang showed up. Over the meal, he casually mentioned his idea for social commerce. He asked Zhang a question: did he know what percentage of Costco's sales came from non-physical goods? Zhang, who considered himself well-versed in the space, was stumped.

After a few more exchanges, Zhang was struck by Huang's breadth of perspective. On the spot, he offered a $60 million valuation. Huang, stunned, excused himself to the restroom to call his friend and MFund partner Zemin Hu. He returned with a yes.

The whole thing took less than 15 minutes.

Gaorong, representing a new generation of Chinese VC, made excellent bets while keeping a low profile. One LP who has invested in multiple funds summarized Zhang's real gift: identifying and going all-in on "truly exceptional people." Colin Huang and Larry Chen of GSX Techedu both exemplify this philosophy.

But that was just the beginning. What truly made Gaorong's reputation was the Series B — the hardest fundraising moment, right as Pinhaohuo was pivoting to become Pinduoduo.

The financial advisor on this round was Taihe Capital, with Ke Jiang — later the firm's youngest managing partner — leading the deal. Domestic VC had just come through an e-commerce and O2O downturn. Pinhaohuo was still pitching itself as a "fruit group-buying B2C self-operated" business. And perhaps most critically, its growth was exceeding most people's expectations.

We've heard many versions of this history. One investor's summary stuck with us: "Looking at data when you shouldn't, not looking at data when you should."

While most funds retreated, Zhang doubled down. There's a story that someone specifically warned him about the risks. He pressed ahead regardless.

One investor told us that Pinduoduo's Series B was effectively split into two tranches: the first was "rescue capital" from Huang himself and his closest investors, including Gaorong.

Conservative estimates put Pinduoduo's returns to Gaorong at over $7 billion. A classic home run.

One profile of Huang put it this way: for investors, missing Pinduoduo may be a regret; for Huang, persuasion was unnecessary — as long as the numbers kept climbing, explanations were superfluous.

Hongshan: A Beautiful Return

Many know Hongshan invested in Pinduoduo's Series C, but in fact the firm had discussed the deal as early as the Series B.

We've heard multiple accounts; here's where they overlap:

In the second half of 2015, a Hongshan investor based in Shanghai met Huang on a company board they both served on. When Huang mentioned Pinhaohuo, the investor was bullish and championed him internally.

No one says no to "China's top VC firm." In late 2015, Huang flew to Hong Kong to meet Neil Shen. Afterward, Hongshan's partners discussed the deal at an investment committee meeting. They passed.

There's a side note: the investor had emailed Alfred Lin, a partner at Sequoia Capital, describing Pinhaohuo as an "online Costco" — somewhat akin to Jet.com in the US.

Later, the original champion left Hongshan. But at the end of 2016, during Pinduoduo's Series C, Hongshan came back. By then Pinduoduo had 100 million paying users, monthly GMV of 1.5 billion yuan, and 1.5 million daily orders.

Even then, many doubted the numbers. Colin Guo, later a Hongshan partner, conducted due diligence. His McKinsey background helped him verify the data, and Hongshan placed its bet.

Pinduoduo's return to Hongshan's radar likely owed to something else too: an investor named Alex Fang. An LP source told An Yong Waves that Fang is a close friend of Neil Shen's, as well as an LP in Hongshan and other funds — and himself a Pinduoduo investor. In the Series C, he reintroduced Pinduoduo to Shen.

In a sense, Pinduoduo's story mirrors ByteDance's: Hongshan missed the Series A, made up for it in the Series B, then led multiple follow-on rounds. As with ByteDance, the valuation premium paid for not entering earlier turned out to be negligible.

Timely, decisive, and unencumbered course correction — then aggressive re-entry. That's what makes Neil Shen, Neil Shen.

Cathay Capital: A New Fund's Opening Act

Among Pinduoduo's Series B investors, perhaps the most surprising was Cathay Capital. Previously a PE firm with relatively traditional investments and hard-to-categorize style, Cathay had just launched a VC innovation fund that August.

Two months later, Lanchun Duan met Huang.

Cathay's investment in Pinduoduo was half luck, half nerve. Duan later reflected that as a newcomer to VC, Cathay approached everything with a beginner's mind — every project felt fresh.

By her second meeting with Huang near year-end, there was almost no competition.

As the round was closing, Pinduoduo's steep growth curve and data finally became visible. Some advised Huang to take money from more prestigious VCs, but he reserved a portion for Cathay.

Duan once told 36Kr that if she had to distill one lesson from this investment: only without preconceptions can you achieve maximum possibility.

Insiders on the Outside

To make real money, getting in is only step one — you have to size up.

This shows starkly among Pinduoduo's investors: beyond Gaorong, Hongshan, Tencent, and a handful of others that followed on in multiple rounds, most were one-and-done.

In 2013, after Baidu acquired 91 Wireless, CEO Zemin Hu left to start MFund, seeking LPs. Introduced to Huang through a friend, they hit it off; Huang even moved near Hu's home and became an MFund LP.

With this connection, Hu invested personally in Pinduoduo's Series A, and MFund participated in the Series B.

Even so, Hu felt he'd underinvested. "It all feels like a dream. My only regret is not putting in more."

Another Series B investor was Lightspeed China (now Lightspeed Green). A widely circulated version has it that when Pinduoduo couldn't raise, Min Mi gave Huang a tactic: Lightspeed would issue a term sheet, and Huang could use it to pitch others, saying Lightspeed was in.

IDG was also an investor. Well-known as Zhang's former employer, IDG had someone at that Gaorong annual dinner. When Zhang offered the $60 million valuation, IDG was willing to bid higher. But Huang let Gaorong lead.

After the Series A, IDG never appeared in subsequent funding rounds. Even after Pinduoduo's IPO, IDG rarely spoke publicly about the investment. But public filings show that as of Q3 2023, IDG still held over 30 million shares — currently worth around $1 billion.

This proves another point: for some companies, IPO isn't the finish line but the starting line. Investors need to think bigger.

Conviction Is the Source of Misses

If a company is entirely outside your field of vision, missing it isn't really a regret. But Pinduoduo is almost everyone's regret — because nearly every top-tier investor looked at it.

Most missed for two reasons: skepticism about the breakneck growth data, and failure to understand the business model (the pivot from a fruit-and-grocery C2B self-operated model to a merchant-platform social commerce model).

"Some thought the company was 'up to no good.' Some were too fixated on the 'group buying' angle and thought the model couldn't scale. Some believed Pinhaohuo's fresh grocery model simply wouldn't work," one investor told us.

For example, Xiaohong Chen of H Capital looked at Pinduoduo but doubted the data after due diligence.

Kathy Xu saw it when it was still Pinhaohuo, but felt the model had issues; Capital Today didn't follow after the pivot. Yet Xu had done user research, calling dozens of people in their forties and fifties in third- and fourth-tier cities.

So why the miss? Xu later summarized: "We didn't really understand how people in lower-tier markets live." Only after rural research did Capital Today realize that with 1.4 billion people, "a billion actually can't afford consumption upgrades."

Around Pinduoduo's Series B, Yuri Milner of DST and Qin Liu of 5Y Capital both spoke with Huang. Pinhaohuo had just merged with Pinduoduo; it looked like a shift from consumption upgrade to downgrade, and Huang didn't explain the underlying logic or provide more data.

Pinduoduo's three-year sprint to IPO, debuting at $30 billion market cap, made missing Huang a collective wound for what became 99% of China VC.

One subtle aftermath: when Binsen Tang — also from gaming — emerged, he inevitably evoked Huang's shadow. Cathay, Hongshan, and others invested in both.

Fengshang Capital invested in Genki Forest's Series B. Its founder, Feng Gao, once mentioned in an interview that he didn't understand "why someone from gaming would come back to sell vegetables." So when Tang was raising, he sensed a similar trick might be in play.

But compared to these two reasons for missing Pinduoduo, a more fatal and widespread one was the prevailing view that Alibaba and JD.com had already divided the e-commerce world, leaving little room for platform plays.

A Hongshan investor once told An Yong Waves that in late 2015, as O2O cratered, Hongshan's early-stage focus shifted from e-commerce and O2O-led consumer internet to SaaS, internet healthcare, education, and other tech sectors. At the time, this was the right posture.

But funds with Hongshan's ability to correct and reload are rare — arguably nonexistent. Once Pinduoduo's Series B closed, the capital fairy tale was closed to most.

Pinduoduo's Series B story is a case study that rewards re-reading. It presents investing's hardest challenge: how to stay firm in genuine non-consensus. And a maxim: opportunity often lives in the unknown.

As Huang once said in an interview: "We found new commercial breakthroughs in what seemed like a saturated, opportunity-less space, so we didn't need to waste massive resources on excessive competition."

Top Three Primary Market Investor Returns

Finally, using public data, we've roughly estimated returns for Pinduoduo's three largest primary market investors:

> Gaorong Capital

As of early 2023, Gaorong's exited portion is conservatively estimated at $1.9–2.8 billion. Its remaining 4.9% stake is worth approximately $5 billion. This means that with Pinduoduo's share price rise over the past year, Gaorong's total return on this deal will conservatively exceed $7 billion regardless of how it handles the remaining position, and could approach or exceed $10 billion depending on actual exit timing.

> Hongshan

After participating in Pinduoduo's IPO, Hongshan's total stake rose to 7.2%, or 334 million shares. It didn't begin large-scale exits until 2021; after two years of roughly 2% annual reductions, its stake has dropped to 2.6%.

Based on SEC filings and average prices in each reduction period, we estimate Hongshon's exited portion at $3.8–4.7 billion as of early 2023, with the remaining 2.6% worth approximately $2.7 billion. Hongshan's total return on Pinduoduo likely sits around $7 billion, with actual results depending on its actions during the past year's rally.

> Tencent

Tencent's Pinduoduo holdings have changed little over the years. While it has "liquidation-style" reduced its stakes in JD.com and Meituan in the past two years, it maintains a high position in Pinduoduo.

Following its previous transaction logic, Tencent is unlikely to make large-scale reductions in Pinduoduo this year. SEC filings from early 2023 show Tencent holds approximately 783 million shares, currently worth over $27.8 billion — nearly 7.5% of Tencent's own market cap.

Note: SEC disclosure data combined with annual interval average prices makes precise exit estimates difficult; these figures offer a plausible approximation of reality.

Image source: IC photo

Layout: Yunxiao Guo