Thirteen years ago, Chinese entrepreneur Jia Yueting founded what is today known as LeEco – a sprawling business of TVs, smartphones, streaming video, and even electric cars. It made him a billionaire; one of China’s rag-to-riches legends.
However, Jia’s legacy at LeEco won’t be as rosy as the story of his rise. Earlier this week, the tech magnate resigned from his post as company CEO, following months of shrinking cash reserves and scandal. Top executives have abandoned Faraday Future, the Chinese tech company’s US self-driving car unit. In the span of just six years, the tech conglomerate has burned through more than US$7 billion, leaving its business units precariously strapped for cash.
“The philosophy of LeEco is either to be great or to die, but never to be mediocre,” was Jia’s cavalier response, in an interview with Chinese media.
Here’s a step-by-step look at how Jia turned LeEco into a multi-billion dollar business – and brought it dangerously close to the edge.
2004: Early mover in China’s paid video market
Jia began his empire with online video. In 2004, when he founded Le.com – the roots of his future tech conglomerate – few companies in China were streaming copyrighted movies and TV shows through a paid subscription model. Piracy was rampant. That meant that Jia’s company could obtain licensing deals at a relatively low price.
Leshi went public on the Shenzhen Stock Exchange in 2010. Today, it’s one of LeEco’s only profitable entities, according to LeEco’s head of corporate finance.
2011 to 2013: Selling hardware at razor-thin margins
LeEco prides itself on its array of online services: exclusive content, cloud services, music, and more. They’re part of the tech firm’s hardware bundling strategy, where subscriptions, paid content, and ads make up for the loss of selling hardware at near or below the cost of production. In LeEco’s media-centric approach, hardware – TVs, smartphones, even cars – are all channels for serving content.
The tech conglomerate began selling TVs as early as 2011. In 2013, LeEco jumped into the smart TV business, which tied in nicely with the company’s exclusive content offering. That year, Jia’s stake in his video streaming and smart TV business took his personal wealth to about US$3 billion.
2014 to 2015: The cash-burning begins
Set on building an integrated system of hardware and content, LeEco went on a spending – and scaling – spree.
It entered the smartphone business with Le Phone in 2015 – though it never took off, unable to rival domestic competitors like Xiaomi and Huawei. From 2014 onwards, the tech giant also began producing smart bikes and virtual reality headsets. At the same time it started developing Tesla-rivaling cars.
In 2014, Jia began financing a US-based self-driving car company called Faraday Future. His content business also expanded into sports broadcasting that year with LeSports.
LeEco also doubled down on existing business units, such as Le Vision Pictures, a movie production and distribution company. In 2014, the film unit co-distributed The Expendables III. More recently, it produced The Great Wall, a critically-panned flop starring Matt Damon.
2015: Fundraising and selling shares to slow the hemorrhaging of funds
As Jia’s empire expanded rapidly, he needed more capital, especially as deep-pocketed competitors moved in. Chinese unicorn Xiaomi wanted a piece of the smart TV and content business. Baidu, Tencent, and Alibaba were also pushing their own video streaming platforms, driving up the cost and competition for licensing deals and copyright purchases.
Jia sold hundreds of millions of his own personal shares.
In July and October of 2015, Jia sold hundreds of millions of his own personal shares, raising about US$830 million in total. That year, LeEco’s mobile development business raised a US$530 million series A to expand into India, the US, and Hong Kong. The tech firm’s sports unit also raked in US$128 million – and would pull in another US$1.2 billion about a year later.
2016: LeEco’s breaking point
In the midst of fundraising and selling shares, Jia continued to push his business to the max. In 2015, the tech giant invested US$700 million into car-hailing app Yidao Yongche. In 2016, it announced its intentions to buy US television maker Vizio for US$2 billion and became the majority shareholder of Coolpad. It also bought Yahoo’s property in Santa Clara, California.
LeEco also unveiled its own self-driving car brand, apparently separate from Faraday Future, and started making plans to produce the LeSee sedan in the US. Neither LeSee nor Faraday Future have set a firm launch date for their first cars.
Jia slashed his salary to 15 cents.
Not surprisingly, by the end of the year, Jia’s business found itself running out of cash. By November, things were dire. Jia slashed his salary to 15 cents and penned a long, confessional letter to employees, admitting that the company had grown too fast.
“We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy,” he wrote.
It was a starkly different attitude from earlier that year, when Jia scorned Apple as outdated and losing momentum.
Not long after Jia’s letter, the company raised another US$600 million, part of it coming from some of the founder’s business school classmates. Most of the capital went to LeEco’s car unit, which had already cost the company US$1.45 billion in early-stage development.
2017: Miraculous fundraising while LeEco continues to unravel
This year, LeEco’s cash crunch has continued. In January, Jia’s venture got some relief when it somehow raised US$2.2 billion from property developer Sunac.
In order to generate more capital, the tech conglomerate is in talks to sell its real estate assets and is laying off the majority of its US workforce. Meanwhile, LeEco’s purchase of US television maker Vizio fell through in April, and Faraday Future faces lawsuits from unpaid contractors.
With Jia’s resignation this week – though he’s staying on as chairman – it seems like LeEco’s struggles for this year have only just begun. Even if the cash-strapped tech giant raises more funds from investors, at some point, it will need to find a way to generate profit on its own.
Converted from Chinese yuan. Rate: US$1 = RMB 6.89
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