(Bloomberg) -- Pinduoduo Inc., the Chinese e-commerce operator backed by Tencent Holdings Ltd., plans to raise as much as $1.6 billion in a U.S. initial public offering.

The Shanghai-based firm is offering 85.6 million American Depositary Shares at $16 to $19 apiece, it said in a stock exchange filing. Tencent, the leader in Chinese social media and gaming, and existing shareholder Sequoia Capital both expressed interest in buying $250 million worth of stock, the company added.

Known as PDD, Pinduoduo became one of China’s fastest-growing startups by creating a sort of Facebook-Groupon mashup that challenged the e-commerce duopoly of Alibaba Group Holding Ltd. and JD.com Inc. It popularized a format where people spot deals on products from fruit and clothing to toilet paper, then recruit friends to buy at a discount. It can offer savings of up to 20 percent on market prices by letting consumers buy directly from manufacturers, cutting out middlemen and advertising.

Founded by ex-Google engineer Colin Huang, the three-year-old startup is said to have targeted a valuation of as much as $30 billion, putting it on par with the likes of on-demand services giant Meituan Dianping. Based on its filing, PDD would be valued at about $21 billion after the IPO. Huang, who launched his career in Silicon Valley before returning home to become an entrepreneur, would control the majority of the company’s voting rights through Class B shares.

“As our three-year-old platform is still burgeoning, we know we face many obvious challenges and uncertainties ahead,” the company said in a letter to shareholders.

PDD said Monday it’s handled 262.1 billion yuan ($39 billion) of transactions in the 12 months to June for more than 300 million active buyers. That sort of growth helped its valuation jump about 10 times in an April fundraising, people familiar with the deal said at the time. It’s reported a tripling of revenue to $278 million in 2017, though losses rose 55 percent to $79.5 million.

Besides its reputation for low prices, PDD has benefited from a large base of users in poorer cities and rural areas. Its daily active users surpassed that of JD in January and reached 55.9 million in June, according to research from Shenzhen-based consultant Jiguang. Alibaba’s Taobao app had 172 million daily active users and JD 34.3 million, it said.

The e-commerce startup however pointed out several risks to its business model, including the potential damage from counterfeits on its site -- a persistent and endemic problem in Chinese e-commerce. PDD’s rapid growth has also led to cases of botched deliveries and damaged merchandise, prompting complaints from unhappy customers. And the bulk-buying business model has waned elsewhere, most famously with Groupon Inc.

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan, Reed Stevenson

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