Two year-old Luckin Coffee is known to have burned through at least Rmb3 billion ($450 million) in funding, fuelling a growth strategy that talks about overtaking Starbucks’ 3,600-store network in China this year (see WiC451).
For Charles Lu Zhengyao, one of Luckin’s earliest backers and now the coffee chain’s chairman, this has been money well spent. His 30.5% stake (held together with his wife) is now worth more than $1.5 billion, following Luckin’s successful IPO on Nasdaq this month.
Born in 1969 in Fujian, Lu studied at the University of Science and Technology Beijing (USTB), a college known as “the cradle of Chinese steel” thanks to its metallurgy programme. Most of USTB’s best students went on to join the government or state firms. Lu worked as a junior government clerk in Shijiazhuang for three years before starting his own business in 1994. His early ventures included trading telecom parts and systems. State giant China Telecom once gave two-thirds of its VOIP sourcing business to Lu.
Lu moved on to the auto sector in 2003 and founded UAA, an internet-based company that sold car insurance and maintenance services. The business wasn’t profitable but it managed to pair Lu with Liu Erhai, the founder of Joy Capital, one of China’s most successful venture capital firms in the TMT sector.
Before founding Joy Capital in 2016, Liu had worked at Legend Capital, the private equity firm under Legend Group (the parent firm of Lenovo).
Liu also invested in Lu’s next venture – the car rental firm CAR Inc in 2006. A year after going public in Hong Kong in 2014, CAR launched a ride-hailing start-up, Ucar, to compete with similar firms such as Didi.
Ucar also went public on the New Third Board two years ago and it has become one of the largest firms on the over-the-counter bourse. With a combined valuation of more than $6.5 billion, Lu’s stakes in CAR and Ucar are worth more than $500 million, Forbes says.
In 2018 Lu jumped into yet another entirely different business. This time he opted to brew up a coffee chain to rival Starbucks in China. Most of Luckin’s senior managers were poached from Ucar and once again the venture was backed by Liu’s Joy Capital.
Taking on Starbucks
Some market commentators think Lu’s private equity backers might want a quick exit from Luckin and take profit after its trading debut, which saw the coffee chain’s share price spiking more than 20% last Friday.
Some of Lu’s more carefree comments have reinforced this belief. At one point last year, when Starbucks’ market value had dropped more than $10 billion after reporting a decline in same-store sales in its China business, Lu could not help attributing its difficulties to Luckin’s aggressive growth.
“If Starbucks gave us $10 billion, we would stop fighting,” Lu told reporters jokingly at the time.
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