Chinese entrepreneur Yu Xiaodan, founder of an e-commerce startup targeting female millennials, 26 years old, experienced perhaps the darkest twenty days of her life this November: after months of struggle, hard work finally sent her to hospital. Then she, the CEO of a company valued between RMB 200 million (USD 29 million) and RMB 400 million, holding over 60% of its shares, was forced out of the game.
Yu and her bittersweet story
The company to which Yu once committed her time and life runs a secondhand product trading platform called Kongkonghu, an app analogous to Alibaba’s Xianyu. Kongkonghu mainly targets female users who want to trade their used clothes, shoes, or handbags.
Yu founded Kongkonghu in 2014, after she graduated with a Master’s degree from the University of Illinois. The app secured Series A financing of RMB 20 million led by Sequoia Capital in June of 2015, and Series B of USD 15 million led by Beijing Kunlun Tech in August of 2015. Yet problems started to grow because the word “secured” in this case turned out to mean something more like “promised” than “ensured”.
What exactly had Yu experienced? Just how much pressure is there for a startup CEO? Although solid evidence from other parties is still unavailable, from an article that Yu wrote at the end of this November – 20 days after she was sent to hospital unconscious – we may catch a glimpse of the sword that lingers at the throat of the likes of Yu.
Financing that failed to arrive
Despite of the millions of USD dollars secured from Kunlun Tech chairman Zhou Yahui, Source Code Capital, and other investors, Kongkonghu was almost running out of operation because the arrival of the promised money was always delayed without a clear deadline.
Months before Yu was sent to hospital this November, she had already completely quit alcohol and coffee, and there was always a pack of medicine in her bag. She went to meet investors who were surprised by her paleness yet without knowing that it was caused by pain.
The financing promised by investors hadn’t arrived, and Yu could do nothing but to continuously burn the midnight oil and exhaust herself with travels between cities to borrow money so that, together with her own savings, she could pay off her employees and support the company.
Yu recalled that the investors kept on holding telephone meetings, finding excuses not to transfer the promised amount; and without completing the last round of financing, the next round can hardly take any steps forward.
Why not sue the investors for not keeping their promise? “Suing would be lethal,” wrote Yu in her article. She pointed out that even if it were possible for her to win, the trial might take months and even years to come to an end, during which time her company would completely go broke from a lack of funds.
More importantly, if she were to sue, the partnership would be sure to terminate, and the whole affair might even put off potential investors in the future.
Deprived of decision-making rights
The trouble goes beyond a lack of funding. Yu was also deprived of her decision-making power when investor Sequoia Capital declared that Xianyu’s operations manager Ji Nuo would become Kongkonghu COO.
The Chairman of Kunlun Tech would directly pay an annual wage of over RMB two million to Ji, an amount larger than the sum of all the other employees’ salary, and would be counted as part of the financing.
Yu surely believed that the RMB two million figure was unacceptable, and she planned to find a way to reduce the amount after the financing was ensured.
Yet before she could do that, the available funding for the company was already running out. With the borrowed money and her own savings, Yu could only pay her employees, except for Ji and herself, who had to be paid later – there was simply no more money.
Yu made a clear decision. A couple of minutes later, she received a phone call from Ji the COO, threatening her, demanding that she write him a job-leaving certificate instantly, or else.
Even though the sudden leaving of a top manager might cause uneasiness for other employees, Yu had no choice but to contact the board directors, and did as the Sequoia Capital chairman said, writing a job leaving certificate for Ji.
At 7pm on that very day, Yu lost consciousness and was sent to hospital.
Broken health: a curse or a favor?
Yu was later told that she suffered from a seizure that day before she fainted; after much inspection and analysis, it was diagnosed that there was a lesion in her hippocampus, which might be the cause of that seizure. In addition, there was a cyst on the left half of her brain, and her cranial pressure was much higher than normal.
At this time, Kunlun Tech chairman Zhou proposed that Kunlun Tech would take over Kongkonghu by injecting RMB five million into the company. However, the condition was that Yu, Kongkonghu’s founder, must keep a mere of 10% shares of Kongkonghu and transfer the rest to Kunlun Tech unconditionally .
Again, Yu had no choice but to accept, so that her employees could still be paid and Kongkonghu users could safely withdraw money from their accounts at anytime.
“I had never lowered my head or gone down on my knees to investors before, but this time, I’m shouldering the benefits of all my employees. I do not need to hesitate to kneel down,” wrote Yu.
Two days before Yu wrote the article, the transfer of shares was completed. Zhou changed the receiver name of “Kunlun Tech” into his own before the contract was sealed, thus Kongkonghu’s 90% shares are now held by Zhou.
On the other hand, Yu said that she was forced out of the board of directors, and her 10% shares are likely to be diluted to 0.1% or even less in the near future.
Yu admitted that, in the past three years, she had made many mistakes: she didn’t tackle well with the pressure from the investors, she failed to do sufficient work in bringing in a top manager, and she was too busy in securing financing to focus enough on the team itself.
“Nevertheless, the failure allowed me to learn more and faster than ever,” wrote Yu. “The past three years is a beginning, and for the future, I still have many dreams to fight for.”
According to Yu, her illness is, fortunately, curable. Now without savings, house, or job, she is currently recuperating at her parents’ place and has finished watching the first season of Westworld.
(Top photo from Baidu Images)