What’s Behind Pinduoduo’s Ownership Change

Colin Zheng Huang, the founder of Chinese e-commerce giant Pinduoduo (PDD), has stepped down as CEO and reduced his stake in PDD stock to 29.4% from 43.3%. Huang will remain chairman and work with the board of directors to formulate the company’s longer-term strategy. The board has appointed its former Chief Technology Officer (CTO) Chen Lei as the new CEO.

None of Huang’s reduced shares are due to share sales. All were transferred to charities and other entitled entities. The biggest amount of transferred shares, accounting for 7.74% of PDD’s total shares, was given to PDD’s partnership to help fund research and social welfare as well as future management incentives. Huang also transferred 3.77% of the company’s total shares, to another entity, rumored to be one of the four angel investors. Additionally, he took out shares he owned with the founding team, which account for 2.37% of the company’s shares, to establish a charity fund in accordance with the IPO filings in July 2018.

SEE ALSO: Pinduoduo Trains Farmers in Poverty-Stricken Counties on E-commerce Operations to Support Agribusiness

“Huang is in the process of establishing a private charitable foundation,” according to the prospectus. “This foundation will focus on supporting our employees who have emergency needs and promoting corporate social responsibility efforts that are consistent with our values, beliefs and vision. He also plans to establish an additional private charitable foundation to support scientific and medical research and frontier technology.”

Another step towards institutionalization

The structural changes that aim to weaken personal power in the company, upgrade PDD’s management team and corporate governance structure such as the partnership system reveal the company’s determination to take further step towards institutionalizing the young platform. The appointment of former CTO Chen also shows PDD’s ambition to drive its growth by tech innovation.

The move seems abrupt but Huang has actually shown the intention of retreating multiple times.

In a letter to shareholders, Huang wrote on the eve of PDD’s IPO in 2018, he emphasized to lessen personal power in the company.

“We hope Pinduoduo is a public institution. It should create value for users instead of a tool to demonstrate personal capabilities, nor should it ever be personal,” he said.

Moreover, PDD’s rapid expansion and growth is also urging Huang to “further upgrade our management team and corporate governance structure.”

Founded in 2015, PDD has become China’s second-largest e-commerce platform with more than 600 million annual active users and a market value of more than $100 billion. The company’s revenue in the first quarter of 2020 jumped 44%. Its stock has so far gained 112% this year.

“I hope to hand over more management work and responsibilities to younger colleagues,” Huang said. “To accelerate the growth of the team and make Pinduoduo a competitive international company.”

Chen Lei and Huang seem to have gone to University of Wisconsin together and have published paper together.

The CTO position is therefore vacant at the moment. When asked the plan for the next CTO, a person familiar with the company said that it is evaluating both internal and external candidates for that role.

Who is that angel investor?

According to many sources , there are four crucial angel investors in PDD’s development. In August 2015, the newly established PDD completed its first round financing, which was led by Sun Tongyu, Wang Wei, Ding Lei, and Duan Yongping.

From left to right: Ding Lei, Wang Wei, Duan Yongping, and Sun Tongyu
From left to right: Ding Lei, Wang Wei, Duan Yongping and Sun Tongyu (Source: Pedaily)

As one of the founders of e-commerce giant Alibaba, Sun Tongyu has his own understanding of the industry. He resigned from Alibaba in 2008, started his own business and later invested in PDD.

SF Express Founder and CEO Wang Wei always wished to join the e-commerce industry. Though Huang didn’t think a delivery service company could succeed in e-commerce during their first conversation, Wang decided to be an angel investor of PDD.

NetEase Chairman and CEO Ding Lei was one of several important investors during the early stages of PDD. Ding and Huang first met each other in 2001 when NetEase was facing a life-and-death crisis. Huang, who was just a college student at the time, was asked to help Ding with technical issues. It was Ding who introduced Huang to the Internet industry, and also connected him to Duan Yongping.

Duan created education technology company Xiao Bawang in 1987 and BBK Electronics Corporation in 1998. BBK is the parent company of smartphone brands Oppo, Vivo and OnePlus. When Duan had a $620,000 dinner with Warren Buffett in 2006, the only person he chose to bring to the table was Huang, who was only a recent graduate working at Google.

Duan Yongping had a $620,000 dinner with Warren Buffett in 2006
Duan Yongping had a $620,000 dinner with Warren Buffett in 2006

Needless to say, four angel investors have played essential roles in helping PDD grow into a now-social commerce giant.

Both PDD and the receiving shareholder did not disclose further information.