Stronger by Paying Salaries and I Have 1 Billion Employees

Five days later, Penguin, Ah Li, Huake, and Kuai Pao signed a letter of intent in Hu City.

The letter covered core business terms such as the investment amount, valuation, equity stake, and closing conditions. It also included an exclusivity clause, requiring Kuai Pao not to discuss financing with any other investment firms for the next three months.

Until the due diligence was completed and a formal agreement was signed, the sole investors for Kuai Pao’s Series B financing would be Penguin, Ah Li, and Huake.

Kuai Pao’s total GMV for 2012 was 31.7 billion, primarily from its food delivery service. Based on the industry’s average price-to-sales ratio, combined with Kuai Pao’s 90% market share, the efforts of Gao Weilin and Pei Yi ultimately secured a 1.2x coefficient. With this, the valuation was set at 5.8 billion US Dollars.

Compared to the 1.2 billion valuation from its Series A financing a year ago, this represented an increase of 383.3%.

In other words, for an investment firm that participated in Kuai Pao’s Series A, an initial investment of 10 million would now be valued at 48.33 million—nearly a five-fold increase.

Ah Li led the round, with Penguin and Huake following, investing a total of 870 million US Dollars for a 15% equity stake in Kuai Pao.

Once the financing round closed, Senlian Capital’s stake would be 67.9%, Penguin’s 10.1%, Ah Li’s 9.4%, and Huake’s 4%. Chen Yansen would still maintain firm control over the company.

Although Kuai Pao didn’t make an immediate public announcement, news of the massive financing round quickly reached its competitors.

”870 million US Dollars? Have Penguin, Ah Li, and Huake lost their minds? How on earth does Kuai Pao deserve a 5.8 billion US Dollar valuation!”

Zhang Tao of Dianping was furious.

”While Kuai Pao’s annual sales were just over 30 billion, its growth is incredibly fast. Their food delivery and Group Buy services generated 4.3 billion in January alone. Total revenue for 2013 is estimated to exceed 50 billion Hua Yuan.”

Li Jing, his co-founder, explained from the side.

Zhang Tao sighed in defeat and waved his hand. ”I understand all that, but I still can’t accept it. Dianping fought for two years to emerge victorious from the Group Buy wars, but before we could even savor the victory, Senlian Capital swooped in and stole the prize. Is that fair?”

”Brother Tao, business is a battlefield. Where does fairness even come into it?” Li Jing said with a wry smile.

’After all, Dianping had also clawed its way into the industry’s top three by stepping on its competitors. Now that Kuai Pao had them under its boot, they really had no right to be shouting about fairness.’

”How many daily orders is the food delivery business getting?” Zhang Tao asked casually.

”We broke thirty thousand for the first time yesterday, but 85.7% of those were from new customers. Our next-day retention rate for first-time users is only 7.4%, and the repeat order rate is just 2.1%,” Li Jing said, finding the words difficult to get out.

To put it bluntly, users on Dianping’s food delivery channel were only there for the ”15 Hua Yuan off your first order” promotion. Out of every 100 customers who took advantage of the deal, only 7.4 would even open the app again the next day, and only 2.1 would place a second order.

’These numbers are fucking terrible!’

Zhang Tao’s mouth twitched. He sucked in a sharp breath, and his vision went dark. It took him a moment to recover.

’Compared to the conversion and retention data from the last couple of days, it seemed like the numbers had dropped by half again.’

’The delivery service had only been online for a week. Even though Dianping had no prior experience in this area, they had poached a team of core employees from Qian Du and Meituan Takeout. It couldn’t be this bad, could it?’

He looked at Li Jing and asked, ”Where’s the problem?”

”Our courier fulfillment capacity is insufficient, the order dispatch algorithm is constantly failing, and there are serious bugs in the delivery route planning.”

Li Jing told him the truth.

In reality, the technology Qian Du and Meituan Takeout used for these three aspects was also a complete mess.

Since Dianping had directly copied their technical solutions, it would have been a miracle if problems *didn’t* arise.

The barrier to entry for the food delivery industry was low, but the technological barrier was high.