Beijing Lashou Network Technology Co., which operates one of China's most popular daily coupon websites, Lashou.com, has raised $110 million to expand its business and fend off challenges from international competitors like Groupon Inc.

The investment was led by growth capital firm Milestone Capital and included previous investors GSR Ventures, Norwest Venture Partners, Taishan Invest AG, and Tenaya Capital, as well as funds affiliated with Swiss luxury goods company Compagnie Financiere Richemont SA (CFR.VX).

Just four months ago, Dow Jones VentureWire reported Beijing-based Lashou had raised $50 million at a valuation of around $500 million, roughly the price it turned down Groupon in a buyout offer. The latest round pegs Lashou's pre-money valuation at twice that amount, or about $1.1 billion.

The explosive growth comes during a period of intensifying competition in China's group-buying market. In addition to foreign firms like Groupon, Lashou faces a slew of venture-backed local competitors like Beijing-based Meituan, which is backed by Sequoia Capital, and Manzuo.com, backed by Kleiner Perkins Caufield & Byers.

Investors said that all of the top group-buying sites in China are trying to raise significant rounds right now. "You're growing the business much faster than you can accumulate cash to provide a reasonable buffer," said Richard Lim, a managing director of GSR Ventures, one of Lashou's earliest investors. "That's why Groupon, and LivingSocial, and Lashou are raising so much money."

After first launching about a year ago, there are now well more than 1,000 daily discount sites offering deals to China's online consumers, and the market shows no sign of slowing down.

"The underlying growth in the Chinese market is probably 30% per year," Lim said. Based on the number of unique visitors to the site, Lashou is ranked No. 2 in the country with about 45,000 uniques in January, trailing Taobao Juhuasuan, part of Alibaba Group, with about 76,000, according to an April report published by technology research and consulting firm iResearch Consulting Group. Rounding out the top five are Meituan, Tencent Holdings Ltd.'s (0700.HK, TCEHY) tuan.qq.com site, and the unabashed Groupon knock-off, Groupon.cn, according to the iResearch report.

"The competition around the players will be intense," said Liping Qiu, a managing director and co-founder of Milestone Capital. "It will be even more fierce in the coming months" as each of the leading sites raises fresh capital to expand.

In late February, Chicago-based Groupon made headlines when it announced a partnership with China's largest internet company, Tencent, to launch a site for the China market. The company planted its flag with the launch of the website Gaopeng.com, but its relationship with Tencent is not exclusive, and the Chinese company has maintained its own group buying site.

As Lashou tries to speed past its competition, Chief Executive Bo Wu said that it was willing to sacrifice profitability in the short term to ensure growth and a dominant position in the Chinese market.

For example, to counter Groupon's launch in China, Wu said that Lashou spent $10 million on marketing in the month of March alone. "They burned through $10 million a month in Japan," he said. "We took that weapon away from them."

Lashou already operates in 130 cities, Wu said in an interview, and he expects that it could be in as many as 300 by the end of the year, with 10,000 employees working in planned call centers, logistics hubs, and on the companies massive sales force. Wu said that he expects the company to reach profitability by the end of the year.

Wu also has plans to expand Lashou's products and services. The company is working on developing a personalization engine to target deals based on customer preferences, and is offering what Wu called "flash deals" that are location based discounts updated throughout the day. Like many of its competitors, Lashou is also beginning to offer deals related to travel and tourism, and is looking to partner with local retailers to provide logistics and shipping services around cities.

Sites like Groupon and Lashou make money by taking a piece of the revenue local merchants generate from sales that were posted to the companies' website. Retailers get free up-front advertising and only pay when actual sales are rung up.

It's a business model that has been wildly successful. Groupon has been talking to investment banks about a possible public offering that would value the company at $25 billion. Earlier this year the two-year-old company raised $950 million in financing and rebuffed a reported $6 billion takeover offer from Google.

The speed with which Lashou has raised money is also remarkable. The company launched with a $5 million investment, and raised $50 million in a second round which closed in December 2010. Four months later it has another $110 million and is still talking to other investors about additional cash.

Lim said that the push to raise capital as quickly as possible is necessary in a market that is growing so quickly. "The goal is to be the largest company in the space in China," he said. "Spending less money is a good way to lose the game."

(Dow Jones VentureWire covers news about venture capital investing and start-up companies.)

-By Jonathan Shieber, Dow Jones VentureWire; jonathan.shieber@dowjones.com
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