Liu Erhai cannot lose Ruixing


Welcome to follow the wechat subscription number of “creating notes”: sinacchangshiji
Lu Zhengyao, who made Liu Erhai’s past glory, will push him to another public opinion field in 2020. Thanks to the financial fraud of Ruixing coffee, Liu Erhai’s risk management ability has been repeatedly baked in public opinion.
Author: Qin Anna
Editor: Field
Source: a little reference
Liu Erhai is standing at the most critical watershed of his investment career.
The lucky coffee, which the founder of happy capital once gave high hopes, was informed by Nasdaq that it must be delisted.
Ruixing struggles to seek a chance to continue listing in the form of asking for a hearing, but the company, which destroys the credit degree of China Equity in the American capital market by its own efforts, is hardly qualified for survival.
For Liu Erhai, its main investor, Ruixing was forced to delist, which means that he had invested 82 million US dollars Five point eight Hundred million yuan) will be completely wiped out. Because he hasn’t sold shares of lucky.
At the moment, Liu Erhai’s problem is how to explain to the LP (the investor) who gives money to joyful capital, why he is indifferent in the face of the full-fledged short report?
As an investor who emphasizes risk and return, Liu Erhai lost his reputation and money.
Everything was given by luck.
But even so, Lu Zhengyao is a man Liu Erhai cannot lose.
It was Liu Erhai’s previous path to use funds and interpersonal relationships to make investments. “If you look at the right person, the projects he is involved in are worth my investment,” he said
Since 2003, Liu Erhai has invested in more than 10 Unicorn enterprises for nearly 18 years. These enterprises are closely linked with the founders Li Bin and Lu Zhengyao. The unicorn enterprises contributed by the two founders are close to half of the total.
Liu Erhai’s investment performance is closely related to Li Bin and Lu Zhengyao, and he will never give up any of them.
Trust acquaintances
You may find it hard to believe Liu Erhai is an investor.
He doesn’t fit the stereotype that investors are smart, strong and calm.
Liu Erhai is kind. He chats with media people with words like “we” and “home”. Under the cover of his half watermelon hair style, it’s hard to detect the sharpness of his body.
Figure: Liu Erhai, founder of joy capital
Long Yu, the founder and managing partner of Bai, described Liu Erhai’s aura as sincere, free and easy, not pretending to look down on others.
Long Yu and Liu Erhai met as early as 2009. Both of them invested in the e-Car founded by Li Bin. In 2015, Liu Erhai wanted to leave Junlian capital to establish an independent investment fund, joy capital, and Bai contributed to joy capital to become its LP.
However, the judgment logic of the two investors is not the same.
In 2015, Liu Erhai and long Yu received a call from Li Bin almost at the same time. Li Bin recommended to them his angel investment project, Mobai bicycle.
The first version of Mobai bike is heavy and looks thick with steel construction technology. For the first time, Liu Erhai tried riding Mobi, and the pedals of the car fell off. A product that has not yet been developed and formed does not show the fluency of industrial products.
But this did not affect Liu Erhai’s decision to enter. He used millions of dollars to gain the identity of the exclusive investor of Moby a round. There is no other reason. He believes that Li Bin will recommend excellent managers for Moby and will do well in the future. After that, Li Bin pulled Wang Xiaofeng, who was working in Uber, to Mobai bicycle, proving Liu Erhai’s judgment that outstanding people can attract outstanding people to join.
Also the first investor to contact Mobai, Longyu made a different judgment.
She hesitated because she was confused about the business model of Moby bike, such as vehicle damage and vehicle density. Until October 2016, the Bai managed by Longyu participated in Moby’s C + round financing.
In the investment circle, there are many investors who take people as the decisive factor. But most of the time, the simple appreciation of entrepreneurs will not affect the rational thinking after being moved.
This is the case with Lei Jun.
Li Bin found Lei Jun at the beginning of the idea of car building, but Lei Jun regarded him as another person who wanted to cheat money by borrowing the car building project. Before him, Lei Jun met at least 20 founders who wanted to build cars.
However, knowing that Li Bin is willing to pay 1 billion yuan to build a car, Lei Jun said the warmest words in the Internet circle in 2013: “when you pull the trigger, I will invest in the first time.”.
Lei Jun’s support is a kind of generosity that investors show when they understand that entrepreneurs are willing to take out their savings and start their own businesses, which is reasonable.
Liu Erhai’s trust is different.
Liu Erhai “gives more tolerance to innovation and entrepreneurship and more trust to entrepreneurs,” said long
In 2016, when Shen Boyang, former president of LinkedIn China, introduced Liu Erhai his angel round investment project eggshell apartment, the latter was hesitant. “There are more than 100000 rooms in the competition, and only 8000 eggshells.”.
Liu Erhai asked Chen Min, the founder of tuhu Car Co., Ltd., who invested in the car. Chen Min and Gao Jing, founder of eggshell, used to be colleagues and gave him a very positive evaluation.
These comments gave Liu Erhai confidence. After learning more data, he invested in eggshells and added only one additional investment term: Shen Boyang had to add eggshells. He thinks Shen’s working experience in Google and LinkedIn is very helpful to the management of eggshells, and Shen Boyang’s contacts will help eggshells find excellent employees.
Without much discussion on the price, Liu Erhai signed a 10 million dollar TermSheet.
This is Liu Erhai’s investment style. He pays more attention to who does these things than to the business model of entrepreneurial projects. His control of risk comes directly from his recognition of entrepreneurs.
Rely on acquaintances
Investment is the art of balancing risk and return, and investors are the operators who precisely control risk.
Each investor’s investment philosophy, the track they like to bet on and the entrepreneurs they like are different, but they all tend to look for opportunities in familiar areas.
Familiarity is an effective way for investors to control risks.

Liu Erhai’s investment career in the past 18 years has been bound up with Li Bin and Lu Zhengyao.
The e-Car, Mobai bicycle and Weilai automobile he participated in were founded or led by Li Bin, and the second-hand car of Youxin was recommended to him by Li Bin. At that time, Liu Erhai was already looking at the second-hand car industry. Li Bin recommended Dai Kun, and he quickly entered. “It’s a natural process.” Liu Erhai once described it this way.
Now in the whirlpool, Lu Zhengyao is also the founder of Liu Erhai’s multiple bets. He has participated in the car rental business in Shenzhou of Lu Zhengyao with car rental as the core business, the car rental business in Shenzhou Youche with special car as the core business, and Ruixing who was involved in the investigation due to financial fraud.
In September 2005, Liu Erhai, who is still investing in Lenovo, found Lu Zhengyao, who wants to invest in UAA (United Automobile), a club engaged in automobile rescue business founded by the latter.
Their friendship for more than ten years is connected. Liu Erhai not only provides capital support, but also helps with business transformation.
In 2007, UAA, whose main business is automobile rescue and insurance agency, was impacted. Its main income is insurance intermediary fee, because the insurance company changes its business to the form of paying first and then issuing the policy, resulting in the loss of value of insurance intermediary business.
Car rental has become another business option. Liu Erhai and Lu Zhengyao went to the United States to investigate the car rental business, believing that China’s credit card development and GPS vehicle positioning system can support the car rental business in China. Subsequently, UAA transformed and all businesses were incorporated into car rental in Shenzhou.
Shenzhou car rental project has an example significance in China’s investment history. A financial investment institution becomes a controlling shareholder of an enterprise. In 2014, when the car rental in Shenzhou went public, Lenovo holding held the car rental in Shenzhou 64.5% Of. (Note: Liu Erhai once worked for Lenovo investment under Lenovo holding)
With the help of Shenzhou car rental, Liu Erhai was listed on Forbes China’s best investor list in 2014. This is a project that brings honor and money back to Liu Erhai.
When Liu Erhai introduced himself to the outside world after the establishment of the independent fund happy capital, he often mentioned Shenzhou car rental.
Lu Zhengyao, who made Liu Erhai’s past glory, will push him to another public opinion field in 2020. Thanks to the financial fraud of Ruixing coffee, Liu Erhai’s risk management ability has been repeatedly baked in public opinion.
Investors are closely bound with entrepreneurs, and the most obvious benefit is to get the earliest opportunity to enter the relevant projects.
Shen NANPENG, who quit Ctrip’s management transformation as an investor in 2003, once talked to Zhou Hongyi outside the Great Hall of the people about starting to invest and asked him to “tell me no matter what company you do or invest”.
The two met while Zhou Hongyi was working for IDG. IDG invested in Ctrip, Shen NANPENG’s co-founder, and the two met since then.
In January 2006, Sequoia capital invested $6 million in Qihu 360, 50 cents per share at that time, and invested $1 million, 66 cents per share, in the second round of investment in November 2006. In 2011, Qihoo 360 went public in the United States at the issue price of each share fourteen point five Dollars. The share price has increased 25 times.
Shen NANPENG has done a good business based on acquaintances.
LP once said that investment often involves poor information, scale and relationship. Star investors are independent to do investment funds. In the initial stage, they usually compete for relationships and participate in projects that have been invested before. Li Feng, who left IDG to establish Fengrui capital, invested in three squirrels at the initial stage, which he had invested in when he was in IDG.
However, just like Liu Erhai, few investors are betting heavily on the two founders.
Lu Zhengyao’s loss is particularly heavy for pleasant capital. After all, in the project of Li Bin’s entrepreneurship, except Mobai bike, the participation of other projects is not high.
Credulous acquaintance
“Stay where you are best” is regarded by Buffett as the essence of all business. Liu Erhai was impressed by this sentence and regarded it as one of the strategies of pleasant capital.
Pleasant capital has long been in the “base area” of travel, residence and consumption. These areas often mean heavy investment of funds. Similar to the project of pig short rent and eggshell apartment, if there is not enough money, it will not be able to serve the table.
Liu Erhai believes in scale.
Chen Min, the founder of the tuhu car project invested by him, is cautious and rarely aggressive. At the “double 11” event in 2014, when Chen Min hesitated to rush, Liu Erhai advised him not to let go of the opportunity and even promised that Junlian capital (Liu Shang was in Junlian at that time) could participate in the next round of financing of tuhu.
Figure: Chen Min, CEO of tuhu car
Bold Liu Erhai and Chen Min complement each other. Liu Erhai will point out when Chen Min needs to be released and encourage him to make bold mistakes.
The combination of Liu Erhai and Lu Zhengyao is on the way of burning money. Ruixing went public in the United States only 18 months after its establishment, at the cost of a cumulative loss of nearly 2.2 billion yuan.
Ruixing coffee has conducted two rounds of financing on June 26, 2018 and November 15, 2018, with each round of financing scale of US $200 million.
According to the email from happy capital to LP, happy capital invested in lucky through joy II and joy opportunity. Among them, fund 2 contributed US $33 million, accounting for 10.3% , the investment cost per share is six point six eight USD; Opportunity Fund contributed USD 49 million, accounting for 15% of the fund’s scale, and the investment cost is eleven point seven five Dollars.
Before Ruixing’s “stall”, although its circle of friends financing from acquaintances was widely criticized, at that time, most domestic funds focused on new retail would like to invest in Ruixing. For investment institutions, failure to invest is dereliction of duty, and they will lose points in LP’s mind.
Pleasant capital has obtained the qualification to invest in Ruixing, because Liu Erhai was the investor who accompanied Lu Zhengyao for the longest time.
It’s the judgment of the investors that the investment institutions are willing to do the projects and entrepreneurs. In most business judgments in the investment industry, “big” is the core element.

In 2010, Hillhouse invested 300 million US dollars in Jingdong. At that time, Liu wanted to raise only $75 million, but Zhang Lei insisted on giving Liu $300 million. He estimated that JD needs to do heavy e-commerce in large cities, build warehouses and build logistics centers at least 2.5 billion yuan. $75 million, not meeting the target.
Even now, there are only a few investors in China who can make 300 million US dollars in a single investment.
Zhang Lei dares to invest a lot in the business development stage of the start-up company, and also adjusts the investment portfolio according to the development stage of the company. The second quarter report from Hillhouse in 2018 shows that in the quarter, Hillhouse reduced its holdings of JD by US $600 million and placed us $900 million heavily in Alibaba – 2018 is the year of Jingdong’s swing, the growth rate slows down, monthly live users are the same as last year, and face double line competition from Taobao, tmall and pinduoduo.
In the process of investing in the future, Hillhouse shows its control over risk again.
At the beginning of 2018, Hillhouse capital participated in the equity investment of Tal of US $500 million, and after that, Hillhouse significantly reduced its shares due to the muddy water short of tal.
At that time, the short report of muddy water did not form a significant shock to the stock price of tal. At the beginning of 2019, Hillhouse again took part in the equity investment of Tal $500 million, and continued to increase its holdings thereafter. By the third quarter, tal had become Hillhouse’s third largest position in US stocks.
However, from the fourth quarter of last year, Hillhouse began to reduce its holdings of Tal stocks, and in the first quarter of this year, it again reduced its holdings, reducing its positions by 53% twice. Similar to Ruixing, tal also announced recently that some “employee misconduct” was found in the routine internal audit process.
Some media people once commented that in many high-level businesses, you can see the typical “discipline of old money” of dollar fund, which is quite different from many RMB funds in China, because there are many domestic capitals that believe in the heart: relationship and money can do everything.
Investors are wandering among entrepreneurs, playing games and choosing between earnings and investment discipline with keen and correct capture of market trends.
In Ruixing coffee’s investment, Liu Erhai didn’t show a clear judgment, and even saw the full-fledged short report, there was no risk hedging action. Liu Erhai even discussed Ruixing at the investment meeting of joyful capital, saying that he was very optimistic about Ruixing’s development.
The misjudgment of Ruixing may be due to Liu Erhai’s blind optimism.
Optimism has created returns for Liu Erhai’s investment career, and joyful capital has been the exclusive investment institution of round a for many star projects. Exclusive investment is the greatest glory of investors, which proves that investors can see the value that others can’t see.
When others are cautious, Liu Erhai is optimistic, which makes him believe in the founder and dare to bet more than the investors who are good at calculation.
Today, however, the optimism pit is a disaster. Ruixing’s disaster is not a natural disaster, but a man-made disaster. It is the result of Ruixing’s founding team breaking through the bottom line of business ethics. The worst part is that Liu Erhai, who is in it, behaves imperceptibly.
(statement: This article only represents the author’s point of view, not Sina’s point of view.)