As December arrives, temperatures in Hangzhou have dropped to 10 degrees Celsius. It's not just the temperature that's cold. As a member of Dailuobo, Li Nuo's dream of entering the housing lottery in Hangzhou is fading away, along with the suspension of his social insurance and his forced departure. In fact, over the past week, suspicion, anger, and disappointment have swept over this man in his early 30s. The same chill is felt by the more than 300 employees of Dailuobo's Hangzhou branch. The facts need no elaboration: On November 22, fresh e-commerce company Dailuobo officially announced that due to poor management, it was facing a funding shortage. Immediately, public opinion was in an uproar. Rewind five months, and Dailuobo had announced it received a cumulative investment of 634 million yuan led by Morningside Capital and Hillhouse Capital. Compared to other internet companies that rely on burning cash to survive, Dailuobo's monthly GMV had exceeded 100 million. Lack of money seemed like an impossible phrase. As CEO Li Yang confidently stated, "The company has raised a total of 102 million USD, and 100% of this money is used for daily operations. If it were used for other purposes, I would have fled long ago." Zinc Finance exclusively interviewed three employees of Dailuobo's Hangzhou branch. The findings: CEO Li Yang practices nepotism in personnel arrangements; The so-called personnel outsourcing is suspected of money laundering; The procurement department, with purchases up to 90 million yuan, lacks effective supervision; Meanwhile, management turns a blind eye to "rat trading" behavior. The last straw that broke the camel's back was Hillhouse Capital withdrawing its prepared 200 million USD investment after discovering bad debts. Li Yang's radish was not frozen to death in winter; it rotted from the inside.
-01- Delayed Wages Over 18 million yuan—that was Li Nuo's initial estimate of the unpaid wages. "The Hangzhou branch has over 300 people, calculated at a monthly labor cost of 30,000 yuan per person," Li Nuo said. Including October and November, he has been owed nearly 60,000 yuan in wages. The facts have been chewed over countless times. On November 20, the day wages were supposed to be paid, there was no movement. By 8 PM, the Hangzhou branch sent a group email saying wages would be delayed by 20 days. Subsequently, employee social insurance was cut off, and R&D personnel had their permissions revoked. By the 25th, Hangzhou CTO Liu Feng admitted in a meeting that the company was finished. On the 28th, he announced via his Moments, "The Hangzhou branch is officially closed," declaring his severance from Dailuobo. Before leaving, he didn't forget to release a smoke screen, saying wages would be paid after 6 months. Employees joked about former CTO Liu Feng's Moments post. A CTO can leave at will, but employees cannot. Li Nuo, who was preparing for the housing lottery, was stunned; Luo Tian, who was paying off a mortgage, planned to sell his newly bought car; more employees hoping to settle in Hangzhou began to panic because of the social insurance suspension. Of the more than 300 people, over 100 eventually ran to the Hefei headquarters late at night to find CEO Li Yang. Li Nuo and Luo Tian were also there. In fact, like the other 100-plus people, it wasn't until they met Li Yang that they realized that, including other regions, the unpaid wages totaled over 30 million yuan. It wasn't the branch that was broken, but the whole tree. Employees demanding wages from CEO Li Yang. "I still have three cars; I can sell them for 5 million to pay your wages," CEO Li Yang joked, then offered two almost joking solutions. Option one: The company has no money; there's only 1 million in the account; declare bankruptcy and divide it among 5,000 people. Option two: Delay wages for one year, paying 1/12 each month. Li Nuo never understood when Dailuobo, which seemed to have plenty of money, started facing a cash crunch. Dailuobo indeed had money. Dailuobo's operating entity is Anhui Caicai E-commerce Co., Ltd., established in October 2015. As early as August 2018, it received tens of millions of dollars in financing; by June 2019, it announced it had received a cumulative investment of 634 million yuan from Hillhouse and Morningside. Moreover, the company was generating revenue. Public data shows that Dailuobo's monthly GMV reached 110 million yuan. "The bulk of the 600 million financing actually came in starting April this year," said Lufei, who is familiar with internal operations. From April to November 2019, with just financing plus GMV, Dailuobo's cash flow had reached 1.5 billion yuan. But it turned out that Dailuobo's cash-burning speed was beyond imagination. At the scene in Hefei, representatives calculated that the company's cash hole had reached 290 million yuan. This includes 150 million owed to suppliers, 50 million in store recharge funds, 50 million in partner deposits, and 40 million in employee wages and compensation. "Also, everything from decoration, warehousing, and suppliers is in arrears," Lufei said. By conservative estimates, in 8 months, Dailuobo burned through a full 1.8 billion yuan. The 2008 film "Changeling" tells the story of a working-class single mother who endures hardships to find her lost child, but never gives up. But reality is more surreal than the film. Li Nuo once felt that his 60,000 yuan in wages had long since vanished.
-02- Where Did the Money Go? For the disappearance of 1.8 billion, Li Yang came up with a good explanation. "Our expectations and demand for growth were too high, and we underestimated the 'cash-burning' speed of fresh food, leading to excessive consumption. That's where we 'went wrong'." Later, Li Nuo, who was in operations, Luo Tian, in R&D, and Lufei, who was in the business line, figured it out. The whole drama was a surreal spectacle from the start. The core figures, led by CEO Li Yang, were directing and acting in it themselves. The employees' rights protection, tears, and appeals were just minor climaxes. "The boss practices nepotism in hiring; the core people are all his own, with no professional managers brought in. In the key procurement department, there is a lack of effective management systems, with slow-moving goods amounting to nearly 30 million yuan. The introduction of outsourced personnel seems like 'ghost payroll,' but in reality, it's suspected of laundering investors' money..." At once, the climaxes kept coming. The first highlight of this surreal drama is hidden in the most core procurement department, which lacks supervision. Dailuobo's Hangzhou branch was sealed. How core is the procurement department? "Our average monthly GMV is about 100 million yuan. Actually, our gross margin is not high. Fresh vegetables are bought and sold at cost, basically no margin. The gross margin for standard products is about 10 points, so basically, our monthly procurement should be around 90 million yuan," Li Nuo said. What's bizarre is that the procurement department, which spends 90 million yuan a month, has no mature system of supervision. "There's no internal audit institution for regular audits. It's actually a messy account, all calculated by hand," Li Nuo told Zinc Finance. "Generally, for large-scale procurement, a third-party department would regularly check whether prices are reasonable, transparent, and in line with market prices. But apart from fresh food, the company doesn't have such a department for supervision. We find it very unbelievable." Dailuobo app. The lack of supervision directly led to inventory backlog. "We've seen that there are still tens of millions of yuan in slow-moving goods that can't be sold in the warehouse. Initially estimated at about 30-40 million yuan, which is almost impossible for a company with high turnover." Behind the lack of supervision in the procurement department lies the second surreal aspect of this fast-growing company: the personnel structure of core departments. "The key personnel in these critical departments are all Li Yang's confidants," Li Nuo told Zinc Finance. Luo Tian told Zinc Finance that the head of the fresh food warehouse is Yang Linzhi, a former subordinate of Li Yang and also the company's supervisor. "There must be problems at the warehouse end; how big, we don't know." Lufei, who was in the business line, said, "The person directly responsible for salary distribution is the CEO's cousin." In Lufei's view, Li Yang has turned Dailuobo into a family business. "They're all his own people, so it's convenient to do whatever he wants." Interestingly, when facing employees demanding wages, Li Yang said righteously, "This company is not mine; I'm just an employee." If not for the collapse, it's believed that in the near future, Li Yang would have had his whole family listed on the stock market. The cousin in charge of finance, the old subordinate in charge of warehousing, and various unknown relatives would have continued the glory of Chinese family businesses. The most absurd and climactic part of the whole drama is the opaque process of recruiting outsourced personnel. "I saw data shared by the HR department at the time. The monthly labor cost for in-house warehouse staff was about 4,500 yuan. But outsourced employees were actually 5,500 yuan," Li Nuo said. In his view, the main reason a company outsources is to reduce costs, but the labor cost of outsourced employees being higher than regular employees is unbelievable. Additionally, the issue of outsourced employees being 'ghost workers' also exposed the company's loopholes. "Internally, we got information that around October, the investor's audit found a large number of ghost workers in the warehouse. Ghost payroll is easy to operate. We do warehouse sorting, and from midnight to 2 AM is the busiest time. So we recruit hourly workers. But the problem is it's hard to monitor how many people are actually there. The audit found a large number of ghost workers, like moths, not working but getting paid," Li Nuo told Zinc Finance. Lufei agreed, "There's some room for manipulation in labor costs, which is suspected of money laundering. The person distributing salaries is Li Yang's cousin. How could he (Li Yang) not know?" Additionally, Lufei told Zinc Finance, "In procurement, especially fresh food, there's also a money laundering move: the payment cycle. The industry norm for fresh food is daily settlement or at most within a week, but Dailuobo could extend it up to five weeks." Why could it be so long? In Lufei's view, the key is defaulting on payments. "In the end, good suppliers withdrew. To keep the business running, it's said that people on the procurement side found outsiders to set up supply chain companies to supply the platform. Then, using the long payment cycle as an excuse, they raised supply prices and included inferior quality goods." In Li Nuo's view, the surreal operations also extend to warehouse rents. "Our warehouse is actually very large. We rent it for half a year or a year, but that's very harmful to cash flow. We should rent it in segments, but all our warehouses and stores are rented for half a year or even a year. In this situation, it's very damaging to your cash flow." Lufei also told Zinc Finance, "The warehouse inventory utilization rate was falsified. In reality, the vacancy rate of warehouses in all cities except Hefei was over 95%. Even knowing the capital chain was tight, Li Yang did not terminate the leases in time but let them sit empty for a long time before taking action. For unknown reasons." But following the example from the top, merchants and employees also joined the army of 'fleecing capital.' The example Lufei gave was stark. "At that time, we announced a 50 million yuan pork subsidy. The actual operation was: half-price pork, priced at 40, with a discount of 20. Then black market operators bought it and returned 30 to the butcher, who could continue selling it in his own shop, effectively each pocketing 10 yuan. To cheat the subsidy, sales that were originally a few thousand yuan a day skyrocketed to tens of thousands." Additionally, employees stealing from the company and falsely reporting losses added enough drama to the show. "How could they not know? But management didn't care at all," Lufei said.
-03- The Disappearing 200 Million USD In Lufei's view, a direct trigger was that Hillhouse originally planned to continue leading the Series B round, but after seeing the accounts, it withdrew in time, causing a massive avalanche. "The second-hand information I got was that Hillhouse planned to invest 200 million USD in Series B, and the money was ready. But after checking the accounts, they were disheartened," Lufei said. But in Li Nuo's view, the situation was much more serious. "The investors found the hole was too big, which means the company had hidden some actions even from major shareholders like the investors." Dailuobo's financing history. In response, Zinc Finance consulted a partner at Puhua Capital. The partner told Zinc Finance that generally, VCs provide post-investment services and continuously track the company's financial situation, so they are aware of the basic financial status before reinvesting. If they lead the next round, they will conduct a detailed due diligence again; if they follow, they usually rely on the lead investor's DD report. According to Lufei, behind Hillhouse stood a group of investment companies. After Hillhouse gave up injecting funds, the latter also stopped. God wants to destroy him, first makes him mad. In fact, before the Series B financing came in, Dailuobo had already become a hollow radish. "On the 20th, we were all waiting for the investors' money to come in to pay wages. Later, senior management said the investors abandoned the deal. It was then that we realized the company might be finished," Li Nuo said. Some say autumn in Hangzhou lasts only two weeks. After the fleeting autumn comes the severe cold, which is also a true portrayal of Li Nuo and others. "The Hangzhou company closed last week; everything was moved out, and we can't get in anymore." Lufei told Zinc Finance that with government intervention, Ma'anshan and Nanjing have partially settled wages. "Actually, Li Yang still has the ability to repay, but for now, we can only wait." One thing that left a deep impression on Luo Tian was that after receiving dozens of dismissed employees in a row, a lawyer from a legal aid center sighed, "Previously, those who came to defend their rights were migrant workers demanding a few thousand yuan in wages. I didn't expect white-collar workers to have it so hard, but they're just demanding tens of thousands of yuan." After hearing this, Luo Tian was stunned and didn't speak for a long time. Source: Zinc Finance (ID: xincaijing) Tips will be paid 400-2000 yuan once adopted.