The same team of people, the same routine, the things about capital scams

This is a fraudulent version of "The Wolf of Wall Street" co-starring a master, two masters, and three apprentices. The self-exposure of family scandals adds an "Infernal Affairs" plot to the drama; this is the story of the three Chinese The past events of the giants and the Luckin Three Musketeers racing against time in the pursuit of capital.

After reading this article carefully, all the mysteries about Luckin and China’s capital routines in your mind will be solved.

In Beijing in 2004, there were three ambitious but depressed people: Lu Zhengyao, Liu Erhai and Qian Zhiya, the three current directors of Ruixing.

It has been 11 years since Lu Zhengyao started his business, but he has not made a name for himself. He made a little money as a communications agent, but that was all. The company had no prospects, and he had no brand of his own. At that time, I quit my job as a civil servant and "misappropriated" the money from my wedding to start a business. I was determined to make a career. However, the embarrassing situation of being unable to achieve a high level and being unable to achieve a low level is too far away from my original intention.

Liu Erhai had just attended a venture capital forum in Shandong. A big boss said: There is not much accumulation in the venture capital industry. The new young people in our company have already invested in several projects. project. Liu Erhai was shocked; it has been a year since I switched from industry to finance and joined Legend Investment (the predecessor of Legend Capital), but I have not invested in a single project.

Qian Zhiya gave up his position as vice president in Wuhan and went north to Beijing. But things went smoothly for her, and she couldn't find a job in Beijing for a whole year. She only had a second degree in education and no family background. With no ambition, she was confused: Should she go back home?

The three of them did not know each other at this time

In 2005, Lu Zhengyao sold the communications company and used his own US$5 million to , imitating the American AAA and founded UAA (United Automobile Club of China) as a vehicle insurance agency. From then on, the fate of the three people began to be intertwined.

In 2005, under the recommendation of a mysterious figure, Qian Zhiya joined the China United Automobile Club as the assistant to the president, doing some tea-making and typing chores. However, due to constant close contact with top leaders, Qian Zhiya's knowledge continued to grow, and he began to take charge of the company's operations, gradually becoming Lu Zhengyao's most capable person.

“The key is to race against time and build scale as soon as possible. If the market share is large, it will not be easy for other market competitors to enter. "This is Lu Zhengyao's idea. UAA chose a low-price strategy. UAA's auto insurance quotes are 100-200 yuan cheaper than ordinary 4S stores. It quickly accumulated 1.5 million members.

What Lu Zhengyao didn’t expect was that someone was eyeing UAA. Liu Erhai made an unannounced visit to UAA and found a business department of UAA in a shabby hotel in the South Second Ring Road of Beijing. After the investigation, he was very confident in UAA's business model and insisted that UAA can become a leading company in the automotive service industry. .

Liu Erhai took the initiative to visit Lu Zhengyao at the Wangjing headquarters. Lu Zhengyao was stunned by the distinguished guest's visit. He couldn't believe that someone came to invest not long after the company was founded. He once thought he was a liar. .

Both of them majored in communication automation in college, and both have been engaged in the communication industry. After getting familiar with each other, the two became more and more speculative as they talked, and their business ideas were the same: Make it as soon as possible Scale is the key to entrepreneurship. Liu Erhai became the first friend in the capital industry that Lu Zhengyao met.

Liu Erhai, who is good at capital operation, met Lu Zhengyao, who was good at business operation. It can be said that he turned into a dragon when encountering a storm, and the two began to work together. In 2006, Liu Erhai invested US$8 million in UAA, which was not a small amount at the time.

From this moment on, the trinity strategic combination of low price, expansion, and financing took root in the minds of the three of them, and they have continued to copy it in the future, including Luckin.

However, as luck would have it, the scale had just begun to expand, and a regulation from the China Insurance Regulatory Commission put an end to UAA's insurance agency business.

Qian Zhiya is crying, Lu Zhengyao is crying, Liu Erhai is howling!

The three protagonists have experienced the ups and downs of joy and sorrow, and it seems that they will end in tragedy. However, "Heaven is going to give great responsibilities to this people. They must first...", "It's a blessing in disguise".

The 2 million members UAA has accumulated are their greatest wealth, and the transformation must revolve around cars. In order to recover the losses, Lu and Liu met every day to discuss what to continue doing. Car repairs, car washes, and wipers often appeared in their discussions. In the end, the two decided to enter the car rental field.

In September 2007, China Car Rental was established. Liu Erhai invested US$22 million, Lu Zhengyao was appointed CEO, and Qian Zhiya was appointed COO. Liu Erhai is responsible for making money, Lu Zhengyao is responsible for management, and Qian Zhiya is responsible for operation. There is a clear division of labor and each performs his or her duties.

The three of them were high-spirited and determined to become a national enterprise from the very beginning. In October of that year, it was announced that it would open simultaneously in 11 cities across the country, and by July 2008, it had covered 30 cities.

However, as luck would have it, the financial crisis broke out and financing became difficult. After just a few hundred cars were built, the money ran out, and the company could not even pay wages. come out. Lu Zhengyao was as anxious as an ant on a hot pot. Could it be that he had to waste everything and start all over again?

He and Liu Erhai cried about poverty every day: they couldn’t work because they had no money, and the money was not enough, so brothers came to help quickly. At this time, whether China Car Rental will live or die depends entirely on Liu Erhai.

At the time of crisis, Liu Erhai took action again. Legend Investment made an additional investment in China Car Rental. China Car Rental came back from the dead and launched 1,000 vehicles, making it the second largest company in the country.

In August 2010, Lenovo Investment invested another 1.2 billion yuan. Using this huge sum of money, China Car Rental announced that it would expand its fleet to 10,000 vehicles within three months and 100,000 vehicles within five years. It also launched a crazy price war and advertising and marketing to seize the market with a price reduction of 30-50%, shocking its peers. , Lu Zhengyao’s titles of “Car Rental Maniac” and “Price Butcher” spread like wildfire.

If I have money, I will lower the price, and I will do it even if I lose money; advertising is overwhelming, and money is flowing like water. Lu Zhengyao's "seven-injury boxing" style of seeking wealth and wealth has allowed China's market share to continue to increase, but its cash flow is stretched and there is a risk of being pushed down by others at any time.

At that time, China Car Rental’s debt ratio reached 90%, which was in danger. Lu Zhengyao even sold several of his houses to fill the hole, but it was a drop in the bucket.

Lu Zhengyao panicked and quickly went to find Liu Erhai. Together, the two of them felt that it was going to be over, but decided to take a gamble and go public.

In January 2012, China Car Rental, known as "China's No. 1 Stock", decided to go public in the United States.

However, Lu Zhengyao picked the wrong time.

In 2010, Chinese-funded companies did not hesitate to commit financial fraud in order to go public in the United States, which deeply damaged the credit of Chinese-funded companies. Until 2012, the US Securities Regulatory Commission was still accusing Chinese concept stocks such as Puda Coal and Kaiyuan Automobile of fraud, and attacked Xunlei's listing.

In April 2012, China Car Rental announced that it would suspend its IPO in the United States.

Times have changed. Back then, China Car Rental paid for the fraud of Chinese-funded enterprises, but now it is the Chinese-funded enterprises that pay for Luckin’s fraud. The young man who was harmed by the evil dragon back then, once he broke into the dragon pool and slayed the evil dragon, he became a new evil dragon.

Americans were not fooled, and China Car Rental was in dire straits.

Everything depends on human effort. Lu Zhengyao met the second noble person in his life - Li Hui, who served as the Asia Pacific President of Warburg Pincus. Li Hui’s wife is the famous Phoenix TV host Zeng Zimo.

Lu Zhengyao and Liu Erhai made appointments with Li Hui to eat, drink and sing every day. After getting acquainted with each other, in July 2012, China Car Rental received US$200 million in “life-saving money” from Warburg Pincus.

China’s “Iron Triangle” is officially formed!

As soon as the money arrived, China Car Rental once again launched the price war banner, launched the "50 yuan new car storm", and launched a new round of competition. Market offensive.

China Car Rental is still losing money in the past. After several rounds of money, many competitors have been killed or crippled. Only China's market share is growing steadily. In 2014, China Car Rental became profitable (at least that’s what the financial report says).

With the support of Legend Holdings and Warburg Pincus, China Car Rental went IPO in Hong Kong in September 2014, with a maximum market value of HK$46.6 billion.

A year later, Li Hui's Warburg Pincus Investment reduced its holdings of 7.09 shares and cashed out US$396 million, minus the principal of 200 million, making a net profit of 196 million. Currently still holds equity in 10.11.

Lenovo Investment, where Liu Erhai works, cashed out US$200 million and is currently the majority shareholder of China Car Rental.

With the brand of China Car Rental, Lu Zhengyao made massive acquisitions, carried out capital operations, and built his own business empire.

Everyone makes a lot of money. The friendship between men has been tempered by blood and fire, and then is witnessed by money. As the saying goes, we have carried guns together, shared windows together, and shared stolen goods together. This kind of friendship cannot be stronger.

In the eight years since Lu Zhengyao started from scratch and went public in China Car Rental, Qian Zhiya has experienced it all personally. She has seen how capital helped Lu Zhengyao conquer the The whole process of overthrowing the city and breaking out of the siege to establish the status of the world in one fell swoop. This has accumulated rich experience for her as Luckin. Facts have proved that when Qian Zhiya founded Ruixing, he basically imitated China Car Rental.

Looking back at Lu Zhengyao’s China Car Rental business, we can basically say that it was a gamble.

If it weren't for Liu Erhai's repeated steps forward and Li Hui's rescue efforts, China Car Rental, which had a debt ratio of 90%, would have been helpless and would have gone bankrupt and liquidated long ago.

If these investments do not last until the listing, China Car Rental will be like Dai Wei’s ofo, blocked by rights defenders at the company’s entrance, and users will not be able to get back their deposits. .

From the case of China Car Rental, we can also see Lu Zhengyao’s style of play: price war, scale expansion, burning money on financing, rapid expansion, and listing to make money. Throughout the whole process, listing was his only purpose and only life-saving straw. If he didn't go public, he would be a loser.

To become a bigger enterprise, why not focus on quality but on price? Because improving service quality is too slow, the investment cost is high, and it is difficult to quantify, it is far less short-term and fast than a price war. And price wars require the cooperation of capital. Capital is profit-seeking. Enterprises kidnapped by capital no longer have the right to make independent choices and lose the right to slow down. They can only rush to the finish line like a beast, unless they die of exhaustion in the middle. Otherwise the run will not stop.

Ironically, after going public and cashing out, China Car Rental has completed its historical mission and has no motivation to further improve service quality. Performance began to decline precipitously. In 2019, the revenue was 7.7 billion, but the net profit was only 30 million, a year-on-year decrease of 90%, leaving only scum. However, it is difficult, slow and demanding to refund deposits when renting a car in China, and users have complained.

Audio-Technica has no intention of improving the taste of China Car Rental, and has no intention of building a century-old store with brand value. They have no feelings, and all they want to do is make money, make money, and make more money. Invest in the next business model.

After China Car Rental was launched, Lu Zhengyao did not take any time off. In January 2015, he was optimistic about the online ride-hailing industry and founded China Private Car, which was later renamed China UCAR.

Then the process of renting a car in China was repeated. Only this time, they didn't have the patience to wait seven years before going public. Since its birth, Shenzhou Private Car has been continuously fed huge amounts of money, directly accelerating its maturity.

Three rounds of financing were completed in just 11 months, with a total amount of more than 11 billion yuan, of which Warburg Pincus and Lenovo Investment were the earliest. investor. The A and B rounds completed US$800 million in financing, setting a record for the first two rounds of financing for domestic Internet companies.

In July 2016, UCAR was listed on the New Third Board with a valuation of 36.9 billion, ranking second in the entire New Third Board. It was only a year and a half since the company was established.

Iron Triangle has successfully cashed out at the highest point of its stock price, and then its performance began to change. Revenue was cut in half in 2018, and revenue continued to be cut in half in the first half of 2019. The company's market value has shrunk to less than 15 billion.

Up to now, UCAR’s market share is only ranked fourth, and it is still shrinking. The proportion of its private car business is gradually decreasing, while its online loan financial business is gradually increasing.

Due to declining performance and lack of business, UCAR's decline has just begun.

When UCAR was listed, Qian Zhiya had been following Lu Zhengyao for 12 years. From a handyman to the second-in-command of the company, his career development was smooth. A real-life version of "Du Lala's Promotion" was staged. She memorized every move Lu Zhengyao made, and even learned Lu Zhengyao's vigorous and vigorous business style.

Qian Zhiya has a soft voice and long hair shawl. She is originally intellectual and calm, and is not considered a "strong woman".

But after some training, she developed a fierce style and strict management, and her colleagues gave her the title of "Iron Lady". UCAR executives used two words to describe her: Bodhisattva face and thunderous methods.

In the process of building UCAR, Lu Zhengyao discovered two new faces.

The first is Yang Fei, who served as the CMO (Marketing Director) of UCAR in March 2015. What is surprising is that Yang Fei has just come out of the situation. In 2015, Yang Fei was sentenced to one and a half years in prison by the Chaoyang Court for "paid deletion of posts."

But it turns out that Lu Zhengyao has a unique vision: Yang Fei is a marketing genius. He speaks everywhere, does live broadcasts, and makes full use of his marketing talents. The marketing cases he planned on Tmall and Taobao have won many championships. "Traffic Pool" written by Yang Fei has become a must-read business book on Internet operations. He later became Luckin’s CMO.

Then there is Liu Jian, the head of revenue management. Liu Jian is also a veteran of China. In 2008, he joined China Car Rental, which was founded just one year ago, and served as the deputy director of the vehicle management center and the person in charge of revenue management. He worked there for 7 years. In 2015, he was transferred to UCAR as the head of revenue management and stayed there for another three years. The unknown Liu Jian later became Ruixing COO.

Since then, Luckin’s “Three Musketeers” have officially gathered in China UCAR! Lu Zhengyao is the best friend each of them has met.

I have to say that Lu Zhengyao has a really vicious eye on people.

During this process, Liu Erhai and Li Hui were not idle either. In 2015, Liu Erhai founded his own Joy Capital; in 2017. Li Hui founded Dazheng Capital. These two investment institutions are Ruixing’s financial backers.

Among them, Dacheng Capital does not have any investment cases and is specially prepared for Ruixing.

In November 2017, Qian Zhiya "resigned" from China, founded Ruixing, and served as CEO. "Crazy" Yang Fei resigned at the same time and served as CMO. In May 2018, "honest man" Liu Jian served as COO. Samsung is back, a grassroots "strong woman", a new person, and an unknown person. They will pounce in the face of adversity in the capital winter, lead Ruixing to realize the entrepreneurial myth of listing in 18 months, and build the world's fastest company from company establishment to IPO. .

The Three Musketeers operate behind the scenes. The Chinese giants composed of Lu Zhengyao, Liu Erhai, and Li Hui provide support to young people behind the scenes, asking for money and people. According to Luckin employees, even the interviews were held at the China Car Rental office building.

Just do it, the routine remains the same: low price, expansion, burning money.

The average sales price of a single cup of Luckin Coffee is 11 yuan, which is only 1/3 of Starbucks. In fact, one cup is sold at a loss. Coupled with a large number of coupons, discounts and subsidies, Ruixing has reached the terrifying rhythm of selling one cup and losing two.

Relying on this low-price strategy, Luckin will attract a large number of middle class people who do not have high requirements for coffee quality but are price-sensitive. This diaosi economy and long tail effect are the basis for Ruixing’s scale expansion.

In just 5 months since its establishment, Luckin has 525 stores. In 2018, 1,500 new stores were opened. In 2019, it was announced that 2,500 new stores would be opened. Before going public in May 2019, the total number of stores had reached 2,500.

How exaggerated is this expansion?

Starbucks entered China in 1999, and so far there are only 3,600 stores, an average of 0.5 stores per day. Luckin is 10 times as many; Costa entered China in 2006, and so far there are only 450 stores. At home, Luckin Coffee, which was founded five months ago, has surpassed its rivals in more than 10 years of expansion. This kind of speed makes countless colleagues envious and stunned!

Luckin dares to be so aggressive because Audio-Technica provides monetary ammunition from behind.

In July 2018, Series A financing raised US$200 million. The investors were Li Hui’s Dazheng Capital, Liu Erhai’s Joy Capital, and “old acquaintance” Legend Capital (Lenovo Investment), the Government of Singapore Investment Corporation (GIC) (is an LP of Dacheng Capital and provides money to Dacheng Capital)

In December 2018, Series B financing raised US$200 million , the investors just exchanged the GIC in Series A for CICC Capital, and other investors remained unchanged.

What is the relationship between CICC Capital and the "Iron Triangle of China"?

Ding Wei, President of CICC Capital, is an independent director of China Car Rental, and Chen Liangyun, CFO of CICC Capital, is Secretary to the Board of Directors of China Car Rental.

There is no doubt that all the funds are from our own people.

The whole process is a game set up by the Shenzhou system composed of the Shenzhou Iron Triangle and the Luckin Three Musketeers.

By April 2019, Ruixing had been 18 months old, and the bubble it had saved with money was big enough, so it was time to launch an IPO. In order to ensure nothing went wrong, Lu Zhengyao played a trick.

On April 18, five days before applying for an IPO, BlackRock, Starbucks’ largest shareholder, made a surprise investment of US$150 million. This financing is very critical. It tells American investors that the major shareholders of Starbucks have invested in me. Why are you worried?

Of course, BlackRock also received generous returns. After Luckin went public, BlackRock liquidated all its positions and made a lot of money.

Everything is ready, and there is no shortage of east wind. On May 17, 2019, Ruixing was successfully listed on NASDAQ in the United States.

Before Luckin, the fastest time for Chinese-funded companies to go public was 2 years and 2 months for Kong Kong.com, while Luckin refreshed it to one and a half years!

At the listing ceremony, China Audio-Technica and Luckin were all present, with Lu Zhengyao standing in the C position.

In terms of equity ratio, Lu Zhengyao and his sister hold a total of 42.93 shares, Qian Zhiya holds 19.68 shares, Li Hui’s Dacheng Capital holds 11.9 shares, and Liu Erhai’s Joy Capital holds 11.9 shares. 6.75.

Ruixing went public and achieved a gorgeous transformation, but it is not done yet.

First of all, stocks have a lock-up period. Ruixing’s is 6 months, which means that stocks cannot be sold until November 2019.

Secondly, the stock price is not high enough. The stock price on the first day of listing was US$17. Ruixing’s market value was 4.2 billion, which was not much higher than the pre-listing valuation of 2.9 billion, so it was impossible to cash out. Maximize revenue.

Therefore, in the second half of 2019, Ruixing has only one mission: to increase its stock price.

This is how the shocking conspiracy of 2.2 billion financial fraud emerged.

Because after listing, you can’t just draw a pie. You must increase revenue and let investors see the prospect of profitability, so that the stock price can be increased. For example, JD.com suffered huge losses every year. It was listed in 2014 and achieved full profitability in just three years. The stock price reached a historical high in the year of profitability.

Let’s first take a look at Ruixing’s profitability.

Before going public, revenue in 2018 was 841 million yuan, and losses were as high as 1.619 billion yuan, almost twice the revenue; in the first quarter of 2019, revenue was 480 million yuan , the loss was 550 million yuan.

After the listing, in the second quarter of 2019, the revenue was 910 million yuan and the loss was 610 million yuan. Compared with the first quarter, the revenue nearly doubled, the loss increased slightly, and the profit The situation has improved significantly; in the third quarter, the revenue was 1.54 billion yuan, an increase of 70% compared with the second quarter, and the loss was 532 million yuan, which was also a decrease, and profits were further improved.

So, when did Luckin’s stock price start to rise? It’s November!

Before November, the stock price had been hovering near $20. After the third quarter report was released on November 7, the stock price has been rising. On January 7, it was quoted at US$44, with a market value of more than 10 billion, and reached its highest point of US$50 on January 13.

November happens to be the time when the stock lock-up period expires!

To say it was not a long-planned conspiracy would be an understatement for the word "conspiracy."

By the end of 2019, BlackRock will liquidate all its positions.

In January, when the stock price reached a high, Li Hui’s Dazheng Capital reduced its holdings by 38.4 million shares, cashed out US$230 million, and recovered its principal. Then he continued to reduce his holdings by 44.16 million shares and cashed out more than US$1 billion, making a lot of money.

Lu Zhengyao and Qian Zhiya have not reduced their holdings, because the reduction of stock holdings by major shareholders and founders is an obvious negative, but they have pledged their Ruixing shares respectively. 30 and 47, the total value of the pledge was US$2.5 billion, which was successfully cashed out in the form of equity pledge.

Yang Fei has no equity, but he became the co-founder of the NEEQ company "Hydrogen Interactive". This company is an affiliate of Lu Zhengyao. According to Ruixing's prospectus, The advertising fee paid by Ruixing to Hydrogen Interactive was 42.9 million yuan.

Liu Jian also has no equity, but he has 47,000 share options, which is worth US$7.41 million based on a stock price of US$25.

Among the Iron Triangle and the Three Musketeers, the only "scammer" was Liu Erhai's Joy Capital. He did not sell a single share and suffered a loss of at least US$80 million. As Lu Zhengyao's benefactor and nobleman, we cannot understand the logic of Liu Erhai's abnormal operation. Assuming that he was not tricked by Lu Zhengyao, it can only be a miscalculation of his investment. He often walks by the river and this time his shoes got wet.

What many people don’t understand is that if you are playing well, why do you suddenly expose yourself to financial fraud? Isn't this suicide?

In fact, inflating income is an unspoken rule in the industry and is not a new thing at all. Just grasp the right amount, but Ruixing went too far.

Luckin’s revenue from January to September was 2.93 billion yuan, and it could have been covered by a fake of 4 to 5 billion yuan, but Luckin suddenly faked 2.2 billion yuan! This is too scary.

Ernst & Young, as an audit institution, would not dare to sign it under any circumstances, because signing would destroy its brand or even close its doors. In 2001, Enron committed financial fraud, and Arthur Andersen, the world's number one auditing institution, went bankrupt.

The US Securities Regulatory Commission stipulates that if it cannot submit an annual report, it will be delisted, and Ruixing’s market value of billions of dollars will be wiped out. If the company admits to financial fraud, the company can pay up to $25 million in compensation, plus a possible prison sentence of 10 to 25 years.

It is clear at a glance which one is more important. The key is who will bear the punishment, and COO Liu Jian has become the scapegoat.

It is possible to avoid a sentence of 10-25 years. There is no doubt that the Three Musketeers of China Iron Triangle and Luckin are staying up late and working overtime to study how to Avoid penalties. At the same time, Lu Zhengyao must have negotiated the price of imprisonment with Liu Jian. Once he is sentenced, he will use money to relieve Liu Jian's worries.

When we use angry words to criticize Ruixing, in fact, all startups follow this routine:

1. The founder invests 100 million, the company is valued at 1 billion, and the shareholding is 100;

2. Investor A comes in, investing 100 million, the company is valued at 1 billion, and the shareholding is 10;

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3. Investor B came in and invested 200 million, with a company valuation of 2 billion and a shareholding of 10;

4. Investor C came in and invested 500 million, with a company valuation of 5 billion. Shareholding 10;

5. After the founders and investors invested a total of 900 million, the company IPO with a valuation of 20 billion;

6. The founders and investors accumulated Cash out 10 billion and achieve dozens of times of profits;

7. Once something goes wrong with the company and the stock plummets, the existing stock holders become the takers.

The only difference lies in whether the listing was successful and whether anything happened after the listing.

Wang Sicong couldn’t find investors and was disgraced; Didi Taxi failed to go public and was anxious; Li Zekai had a baby daddy to protect him and everything was going smoothly. The endings are different, but are their means and ends any different?

UAA-China Car Rental-China UCAR-Luckin, the same team of people, the same routine, behind the repeated trials is the complete victory of capital over human nature, behind the increasingly radical It's human nature's greed for capital. It’s hard to tell whether people control capital or capital controls people.

No matter what the punishment for financial fraud is, whether Ruixing will be delisted or bankrupt, it will not have any essential impact on the big guys, let alone will lead them to self-destruction, whether they make it ashore or not. There is only one kind of victim: the weak people around Ruixing. Moral criticism cannot change this cruel fact.

One year later, the instigator Lu Zhengyao was fined a huge sum of 300,000 yuan by the China Securities Regulatory Commission, and the Chinese investors’ lawsuit in the Xiamen Intermediate People’s Court came to nothing. Finally, when searching for information related to Luckin on Baidu's webpage, most of the news was from April to May 2020. Even the "scapegoat" Liu Jian didn't know where he went. It seemed like he had disappeared, but he definitely did not serve his sentence.

The public has long forgotten this matter and continues to pursue other hot topics.

Everything remains the same.

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