Luckin offers $6.7 million in assets as lease collateral, signaling money woes

Apr 3, 2019

|In On the Cusp, With Chinese Characteristics

1 min read

*A Luckin takeout order on a counter in a Shanghai store (Image credit: TechNode / Jiayi Shi).*

Luckin Coffee, the loss-making Chinese coffee startup, registered RMB 45 million ($6.7 million) worth of movable assets as collateral to Zhongguancun Technology Lease Co., Ltd. (our translation), according to Chinese enterprise intelligence platform Qichacha.com.

Although it concerns relatively small sum, the move signals financial pressures, Zhuang Shuai, the founder of Beijing-based consulting firm Bailian, told TechNode. The startup aims to surpass US rival Starbucks in China store count this year. Starbucks has 3,600 outlets in China, according to the company.

Blitzscaling has worked for software companies but it remains to be seen whether it can work for physical assets, according to Michael Norris, strategy and research manager at AgencyChina in Shanghai. He cites examples in bike rental and co-working sectors to illustrate the level of investment required to build enormous scale very quickly across physical assets. “In a large number of cases, it’s more money than most investors can handle,” Norris told TechNode in a written response on Tuesday.

“It’s trite to say that 2019 is a critical year for Luckin. But rumors of Luckin Coffee’s chairman tapping up banks for a personal loan in exchange for IPO mandates and assets being pledged as collateral, there is an emerging set of evidence which suggests Luckin’s model is close to overheating,” Norris added.

Luckin was unavailable for comment when contacted by TechNode on Wednesday.

The loan period runs from March 27, 2019 to March 31, 2020. Collateral items registered include around 100 coffee machines and storage furniture from Luckin’s outlets across all major Chinese cities such as Beijing, Shenzhen, Shanghai, and Guangzhou, according to the site.

Founded by the team behind Chinese mobility company CAR Inc., Luckin grown exponentially since its establishment in October 2017. The company had more than 2,000 outlets across the country as of end-2018. The Starbucks rival plans to add about 2,500 new outlets this year.

Luckin’s access to capital has been an important driver for its growth. It raised $200 million in a Series B for a total valuation of $2.2 billion in December 2018, only six months after it raised $200 million in a Series A in June.