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A reported $630 million round of funding into China’s food delivery service Ele.me last week — making it the third-most funded startup in China — may have actually been less than $400 million, a source familiar with the matter has told VentureBeat.

The source, who wished to remain anonymous because they represent a well-known venture capital firm unassociated with the deal, said:

The valuation is actually in the $1.5 billion range. Still a unicorn, but not the $3 billion figure that they are claiming. That’s a 2x exaggeration… The total [investment] was less than $400 million.

Ele.me, however, told VentureBeat, “The figure is correct. And rumors are rumors.”

According to the source, Ele.me’s online-to-offline (O2O) business model is burning money “like crazy,” and the company is “overstretched geographically” — it now claims to be operating in 260 cities across China.

They added:

The amount being sent to Ele.me is in tranches, meaning the capital is only going to them in individual portions over a period of time based on certain milestones achieved. That’s not a good sign.

We’ve covered the topic of tranching before, and why startups should avoid it.

The wider issue of misreported funding rounds in China

Inflated figures in China’s funding rounds are not uncommon, and it’s an issue known to many in the industry there.

“China is a very competitive market,” William Bao Bean, managing director at Chinaccelerator and a partner at SOSV, told VentureBeat in a phone interview. “So anything you can do to unsettle your competitors is fair game.”

SOSV is a Shanghai-based VC firm with a $250 million fund that focuses on accelerating over 120 startups each year. Bao Bean wished to make clear that he had no comment on the Ele.me case in particular.

“It scares the hell out of your competition if you raise more money than their entire valuation,” he added. “Often what happens is that on the amount raised, they add a zero… It’s psychological warfare, China-style.”

While the actual investment amounts eventually come to light when VCs do their own internal due diligence at follow-on rounds, often leaked funding news gets picked up by individual media outlets in China — and then goes viral with little fact-checking on the part of the journalists picking up the story second-hand.

“I think this is a problem that you see more often in China,” he said. “It’s less common outside of China because the consequences of misreporting fundraising are much more severe.”

Sequoia Capital and Matrix Partners, both existing investors in Ele.me, did not reply to our requests for comment.

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