Chinese startup Toutiao raising funds at over $20 billion valuation: sources

HONG KONG (Reuters) - Chinese news aggregator Toutiao, backed by Sequoia Capital and CCB International, is raising at least $2 billion at a valuation of over $20 billion in its latest funding round, people familiar with the matter told Reuters.

A logo of Chinese news aggregator Toutiao is pictured in Nanjing, Jiangsu province, China July 4, 2015. REUTERS/Stringer

The fundraising comes after the startup raised $1 billion at an $11 billion valuation toward the end of 2016, according to two of the people.

U.S.-based private equity firm General Atlantic is among potential new investors and could be leading the round, one of them said.

Toutiao and General Atlantic declined to comment on the fundraising.

The sources declined to be identified as the talks were not public.

Toutiao, founded by 34-year-old entrepreneur Zhang Yiming in March 2012, is one of the fastest-growing tech startups in China. Its valuation has leapt around forty-fold within three years - it was valued at just $500 million in June 2014 - as customized news feed models become increasingly popular with China’s highly mobile population.

The news feed app, along with online services firm Meituan-Dianping and ride-hailing company Didi Chuxing, are collectively known as "TMD", seen by some industry insiders and analysts as China's next BAT, the country's tech trinity of Baidu BIDU.O, Alibaba BABA.N and Tencent 0700.HK.

Toutiao, which means “headlines” in Chinese, uses algorithms and artificial intelligence to select news, online books, videos and other content for readers, with the bulk of its revenue coming from advertising.

With about 100 million daily active users as of the first quarter, Toutiao is targeting annual revenue of $2.5 billion for 2017, according to a person close to the company. Toutiao’s two biggest competitors in the market are Tencent’s Tian Tian Kuai Bao and Baidu’s newsfeed.

Toutiao’s business model has brought it unwanted legal attention. It feeds users with third-party content that rivals in court have said could lead to unfair competition against content generators.

Tencent, which oversees China’s top messaging app WeChat, in April filed a lawsuit against Toutiao over copyright violations. Beijing Bytedance Technology Co Ltd, which owns Toutiao, counter-sued Tencent’s Tian Tian Kuai Bao in June with similar allegations. A Beijing district court ruled in favor of Tencent in early July, according to the court’s website. Toutiao declined to comment on the lawsuits.

Nasdaq-listed Weibo Corp WB.O, a Twitter-like social media platform which became a Toutiao investor in 2014, this week criticized a third-party news platform for unauthorized access to its content. The criticism was widely seen as targeted at Toutiao.

Weibo is no longer an investor in Toutiao, according to two of the people.

Toutiao declined to comment. Weibo did not respond to a Reuters request for comment.

Toutiao, alongside other tech companies, has also been the subject of scrutiny from Chinese regulators reviewing cyber security. It set up a cybersecurity committee in June to inspect its content and users.

Apart from Toutiao, Beijing Bytedance also owns Los Angeles-based Flipagram, a mobile video sharing network it acquired in February and an English-language news app called TopBuzz. It separately led a $25 million funding round last October for Indian news aggregator Dailyhunt.

Reporting by Kane Wu and Julie Zhu; Additional reporting by Cate Cadell; Editing by Muralikumar Anantharaman and Christopher Cushing