JD, soaring ambition and Achilles’ heel (1)

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Part I. From obscurity to satisfied ego

What would make a man feel he is on top of the world? At the age of 40, his company JD, is the second largest e-commerce platform in China, closely trailing behind Alibaba in terms of market share. At the age of 40, he was exultant to witness the pinnacle of JD’s IPO debut day on Nasdaq with a surge of net worth of USD6.1 billion and he instantly became one of the richest men in China. At the age of 40, he published his autobiography of 10 years of experience and adventure as a headstrong entrepreneur. At the age of 40, as a divorcé, he wedded again, to nation’s much exalted online celebrity reputable for her refreshing beauty nicknamed as “Milk Tea Girl”, who is almost 20 years his junior and now bearing his second child, even though he already has a son from his first marriage.

Apparently, we would surmise Richard(Qiangdong) Liu, the founder of JD would not suffer any symptom of mid-life crises. After all what could he wish for more? Yet just when you imagine he would grin all day all night and be confident in his possessions of success, wealth, fame and trophy wife which majority of Chinese men could only dream in their wildest fantasies. We might be wrong here. He has his Achilles’ heel.

JD has been losing money for consecutive quarters. See chart below:

JD financial

Net loss for the 3rd quarter of 2015 was RMB530.8 million (US$83.5 million), even though some experts might argue that JD future prospect of growth is robust, for example:

  • GMV (Gross Merchandise Volume) for the third quarter of 2015 was RMB115.0 billion (US$ 2 18.1 billion), an increase of 71% compared with the third quarter of 2014.
  • Net revenues for the third quarter of 2015 were RMB44.1 billion (US$6.9 billion), an increase of 52% from the third quarter of 2014.
  • Annual active customer accounts increased by 59% to 131.9 million by now

Still loss is a disquieting issue. In fact JD has always been operating beyond its means. Some had predicted its doom day many years ago. Some had criticized it would have depleted all its cash and failed to hit the IPO home run. But against all odds, it has managed to survive till this day and akin to US Amazon, one extraordinary element of JD’s wonder is the company has been growing by losing money. Such is the enigmatic story about JD and its founder, China’s Amazon in a twisted version, a business story which the most gifted novelist probably could not have dared to invent under certain reasoning.

Year 2004 marked the humble birth of JD, a time in vivid contrast with Alibaba meteoric rise to power, which already received second round funding of USD 60 million from Softbank, was working in rapid progress of launching escrow payment system Alipay and vigorously beating down international C2C rival ebay.

Born into an ordinary family in a rural town in Jiangsu province, the founder Richard Liu, fitting the typical profile of grass-root, self made China internet billionare, had obscure background and origin as well. It was said his resume before 2004, included but not limited to:

  • a sociology degree from Renmin University of China
  • a freelance coder (By the way, he taught himself computer programming)
  • failure as restaurant owner,
  • a white collar worker for a Japanese health company
  • a moderately successful entrepreneur with 12 brick & mortar shops of selling optical disks & consumer electronics

It was in 2003, the eruption of epidemic SARS in China which led millions of Chinese consumers resort to online shopping that convinced Liu the huge potentials of B2C e-commerce in the country. He decided to shift his whole 12 offline shops’ retailing business onto the cyber in 2004. The move was tough because at the very outset he started to embrace negative profit.

Teetering on the brink of bankruptcy, he dragged JD, like a broken train, into the year 2007. A turning point of his life began to emerge. Any titan legend often tells he would need a kingmaker. And unlike Jack Ma’s Joseph Tsai, this time Liu’s kingmaker was a woman VC called “Kathy Xu” who established her own private equity firm called “Capital Today” in Shanghai. That year, she was looking for a “killer” startup in Beijing and JD’s remarkable 10% monthly sale growth and RMB50 million sales volume caught her eyes. Having done further interview, she realized JD also performed well in customer retention and converted many into repeat buyers for the online site. Rash as it might appear even for a male VC, Kathy Xu made up her mind the very next day after the first meetup with Liu.

“How much money do you think you would need from me?” She raised the question.

Liu hesitated a moment and answered, “I suppose USD2 million”

“I will give you USD10 million, and I think USD2 million is not going to be enough for you” Kathy Xu decisively opened her checkbook. 7 years later, on JD’s IPO day, her return would be 100 times bigger than this initial USD10 million. It would catapult her to the title of “the most powerful female VC in China”. JD, is and will more likely remain to be her most successful and iconic deal during her investment career.

As for Liu, that night upon accomplishing JD’s first round financing, his fluttered heart and frustrated mind due to constantly seeking for capital injection, could finally have a moment of serenity. But it was transient. For many years ahead, JD was still besieged by the hunger of funding raising and its appetite was simply getting bigger than bigger. And along the way, Liu would learn the tactics of how to burn the VC money recklessly, fearlessly or sometimes aimlessly.

 

                                                                                          to be continued…

 

 

 

 

Cecilia Wu

A witty, nutty and frosty writer who hopes to jot down moments of inspiration from her daily life

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