With additional reporting by Chris Ip and Richard Lai.
Behind the doors of the five-star Bohao Radegast Hotel in Beijing's central business district on Monday, troubled Chinese tech conglomerate LeEco held an extraordinary shareholder's meeting to elect new directors. Outside, some two dozen protesters set up tables and held up signs asking to be paid what they were owed for services rendered. According to multiple reports, they had come from 20 cities all over China and were reportedly due about 33 million yuan (around $5 million) in all. Many of them demanded to see Jia Yueting, but the company's billionaire founder and public face was nowhere to be seen.
LeEco's fall from grace has been spectacular. Once hailed as the "Netflix of China," the daring startup and its then-outspoken founder were bold enough to challenge Tesla and criticize Apple as "outdated." But in recent months, the company has faced a series of setbacks, and may be reaching its breaking point. Jia stepped down as chairman and CEO in May, while the company continues to fend off unhappy vendors who are protesting outside its Beijing headquarters. On the other side of the Pacific, LeEco has also massively scaled back its American operations, laying off hundreds of workers in the process, while facing two lawsuits from US TV maker Vizio. Faraday Future, a futuristic car company with close ties to LeEco, recently canceled its plans to build a $1 billion plant in Nevada as well.
This is the tale of a company that grew too quickly. It shows how a ravenous appetite for growth without a solid financial foundation can cause a business to topple. Simply tracing LeEco's cash flow is a Herculean task, since its financial activity is obscured by a dizzying organizational structure comprising a publicly listed holdings company, privately owned organization and dozens of subsidiaries.
It's incredible that LeEco was able to continue operations for as long as it did without getting into any real legal trouble. But since 2016, it has been slammed with several lawsuits. Manufacturing partners in Asia, including Zhejiang Haosheng Electronic Technology, Compal Electronics and Truly International Holdings have sued for outstanding debt. The most recent significant case was Vizio's $100 million claim for a failed $2 billion acquisition.
From interviews Engadget conducted with unpaid vendors, former employees and investors, some of whom spoke on the condition of anonymity out of concern for their careers, it became apparent that LeEco's future may be in serious trouble.
When LeEco first started making the news in the US two years ago, the media was fascinated. Jia had an intriguing, albeit complicated, involvement with Faraday Future, and in those early days it was easy to believe that the heretofore unknown company had the means to follow through on all its deals. After all, LeEco was well known in China as a startup darling that swiftly rose to the top of the Shenzhen Stock Exchange's ChiNext board, China's equivalent of Nasdaq.
LeEco's rapid expansion after its 2010 listing was impressive. In a few years, it broadened its offerings from an online streaming service to an ecosystem of hardware, including smart TVs, smartphones, bicycles and cars. This kind of diversification requires a sizable injection of cash, which is reasonable if a company is making money.
Many Silicon Valley startups rely on venture capital funding for years before even turning a profit. Snap Inc. and Uber report hundreds of millions in losses each year as they continue to survive on investments. But Uber focuses on ride-sharing and self-driving cars, while Snap has kept its hardware efforts limited. LeEco, on the other hand, has expanded on so many fronts that, rather than behaving like one startup, it's behaved like seven. Neither Uber nor Snap has been sued for unpaid bills or reported to be behind on payments to contractors yet either.
LeEco's holding company told Engadget that its "innovative ecosystem model has been widely recognized both at home and abroad," noting that it "received the 'North America Smart Technologies Visionary Innovation Award' from Frost & Sullivan" for "'having created a cross-functional ecosystem that allows seamless connectivity and a shared content experience across a variety of form factors and environments.'"
"It's a shell game of moving money from one company to another."
In 2015, LeEco raised at least 805 million yuan ($119 million) from Series A funding for its sports-streaming division as well as the sale of about 500 million shares. Meanwhile, LeEco's publicly listed umbrella holding, LeShi Internet, reported revenue of about 13 billion yuan ($1.9 billion) for 2015, and profits of 573 million yuan ($85 million). But because of its public-private structure, these figures don't even tell half the story.