Shulou(Shulou.com)11/24 Report--

Beijing time August 29 news, fresh e-commerce platform Youxian daily is on the verge of collapse, its capital chain has long been a problem. The company has tried every means to raise money from investors.

Based on court documents, investor presentations and interviews with people familiar with the matter, foreign media found that Daily Youxian was desperately trying to raise money before the crash this summer. The company's business model is flawed and profitability is extremely low, leading executives to keep raising money. So far, Youxian has raised a total of $1.8 billion (12.384 billion yuan) from investors, including Tiger Global Fund and a technology-focused fund run by Goldman Sachs.

Last year, executives of Youxiang Daily made a series of promises to unwitting investors to raise money ahead of the Nasdaq IPO to keep the company running.

Daily Youxian received $365 million last year from an investment fund set up by the local government of Qingdao and Carl Chang, a southern California real estate tycoon and chairman of the San Francisco Federal Reserve Bank. Zhang Junpei is also the brother of the famous tennis player Michael Chang. Every day Youxian promised the Qingdao government to build a new headquarters and supply chain park in Qingdao. Zhang Junpei said he was misled by Daily Youxian and its investment bank JPMorgan Chase.

▲ daily Youxiang event and stock price correlation chart

However, with the era of easy financing over, Daily Youxian admitted to exaggerating revenue and ran out of money after the last glimmer of hope in July. In mid-July, Daily Youxian announced that Shanxi Donghui Group would invest 200 million yuan in the company to acquire a 1/3 stake in the company, but the money has not yet been accounted for.

Most of the employees of Daily Youxian have now been fired and still owe many employees two months' wages. Creditors flocked to the company's offices across the country to protest. Takeout riders began stuffing competitors' merchandise into pink daily takeout boxes tied to the back of their electric cars.

"I'm delivering takeout for Meituan and ele.me now," said a 35-year-old rider, putting two hot lunch takeouts into a pink daily takeout box. "they owe everyone a lot of money."

Chen Yanqing, vice president of Youxian Daily, said the company is working on a debt restructuring plan for its main fresh distribution business.

Spending 600 million yuan in a single quarter just over a year ago, when the future of Daily Youxiang looked bright, company CEO Xu was again seeking financing to keep the company going public in New York that summer. By the end of December 2020, Youxiang had $132 million in cash in its daily account, but about $9000 (620 million yuan) was burned each quarter.

"Daily Youxian is desperate." Said one Beijing investor who had been looked for by Youxian Daily.

During the eight-year financing process, Xu either received investment from most of China's traditional science and technology investment funds or was rejected. "this company has been screened out by us several times," said a venture capitalist in Beijing. "Unit economic benefits are meaningless."

Join hands with investment banks to mislead investors? In preparing for IPO, the daily Youxian team began to turn to the Qingdao local government and Zhang Junpei of Orange County, California.

Kelos Investment Management (Kairos Investment Management), owned by Zhang Junpei, has widely promoted the IPO transaction of Youxian Daily. According to an investment presentation from Kelos, the company has established a "strategic relationship" with Daily Youxian, and investors will be able to buy shares in "one of the most anticipated Chinese IPO of 2021" at a "convincing discount".

▲ Zhang Junpei (right) and Michael Chang (middle)

On May 31, 2021, Zhang Junpei sent a text message to an investor: "We only get $5.27 a day in Youxin shares, with a valuation of $3.5 billion. JPMorgan mentioned in an exclusive conference call for us last week that they conservatively thought the valuation was about $12 billion."

A JPMorgan banker explained on a conference call how they came up with a valuation of $12 billion. The banker said the daily Youxian distribution business had a valuation price-to-earnings ratio similar to that of Amazon, while comparing the company's other businesses with Alibaba and Canadian ecommerce Shopify.

"the [price-to-earnings ratio] we use is quite conservative." The banker said on a conference call.

Xu also bluffed, adding that Youxian's target market is worth 2.8 trillion yuan ($407.5 billion) a day, and the company is the market leader. "We are making a slight loss and the cash flow is positive," he claimed. "We always put high-quality growth first."

As a result, less than a month later, on June 25, JPMorgan led the daily Youxian listing on Nasdaq, but valued it at just $3 billion, meaning Zhang's fund had lost money before trading began.

"due to miscalculation, the investment lost money when it was bought in front of IPO," said one person familiar with the matter. "then it became a death spiral."

Youxian's shares tumbled 26% on its first day of trading. By early November last year, the value of daily Youxian shares held by Zhang Junpei's fund had fallen by 75%. He sent an email to investors proposing a new plan to "correct the unfair treatment of us and our investors".

Zhang Junpei, a fraud lawsuit, explained that his Kelos investment had become a put option agreement (put agreement) with Xu Zhengda, allowing the fund to sell back its shares in about two years for a 20 per cent return. The deals are part of a lawsuit filed by Solaia Capital, a Connecticut-based investment fund that accuses Zhang Junpei of fraudulently defrauding the company into investing 500000 dollars.

The put option agreement, worth about 1/4 of its daily cash reserves at the time, was not publicly disclosed in filings with the Securities and Exchange Commission. Instead, Mr Xu told Wall Street analysts a few days later that Youxian was completing an internal plan to turn cash flows ahead of schedule. A few months later, the company began to delay or overdue payments to suppliers.

The defendants, including Kelos Investment and Zhang Junpei, denied the fraud charges in a court document. Zhang Junpei declined to comment, but lawyers for Kelos Investment said in court filings that the group was also deceived by guarantees from Daily Youxian and JPMorgan Chase that "the company had a minimum valuation of $5 billion at IPO". In January, they called Solaia's lawsuit "too hasty" and pointed out that the put option agreement "guaranteed a positive return on investment".

As of the end of June this year, Youxian owed 2 billion yuan ($300m) a day to suppliers and had only 200m yuan in cash on hand, most of which were frozen by Chinese courts because of unpaid bills, according to a former employee familiar with the daily account books. At the end of last month, the company closed its fast fresh distribution business.

JPMorgan declined to comment. Daily Youxian said that the communication between the IPO process and all investors is in line with regulatory regulations.

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