Chapter Eleven: Zhang Tao’s Shock, Zhang Xu’s Admiration

Page 1/3

Zhang Tao poured a cup of tea for Yan Fei and smiled, saying, “I heard that Mr. Yan is interested in investing in our company. How much do you know about our platform, Dazhong Dianping?”

Yan Fei smiled in response. “I understand that Mr. Zhang’s team was inspired by the American ‘Zagat Survey’ and tailored it to the Chinese market. Initially, it used user-generated content (UGC) for restaurant reviews. In 2005, it expanded into group buying, becoming China’s first UGC restaurant review platform—preceding the Chinese version of Yelp—and pioneered the O2O model of ‘online booking plus offline consumption.’”

Hearing Yan Fei’s precise summary, Zhang Tao grew serious and looked at him intently. “We don’t reject individual investors, but you should know we’ve gone through several rounds of financing. What resources can you bring us? We need more than just cash flow now; we need strategic resources.”

Taking a sip of tea, Yan Fei said confidently, “Certainly. Your team raised angel funding in 2003, secured about $10 million in Series A from Sequoia Capital China in 2006, and $25 million from Google in Series B in 2007. It’s been nearly two years since the B round, and Dazhong Dianping hasn’t raised a Series C. Is it not short on funds? I’m sure you understand your cash flow better than I do. Although heavy subsidies for group buying help rapidly gain market share, they also create strong dependence on capital. Since 2009, your market growth has slowed sharply. Is the market saturated?”

Listening to Yan Fei’s confident analysis, Zhang Tao realized this young man was no ordinary investor. Not only had he seen through Dazhong Dianping’s business model at a glance, but he also pointed out its weaknesses and current predicament.

Taking a deep breath, Zhang Tao said seriously, “Mr. Yan, you truly are a promising young man. Since we’re being candid, please tell me your specific purpose for coming today.”

Yan Fei understood Zhang Tao’s interest and replied calmly, “Google’s investment valued the company at $200 million, but last year’s financial crisis has yet to ease, and valuations in the internet sector have dropped significantly. You must have approached many investors in the past two years but failed to close a deal, likely due to disagreements over valuation.”

Zhang Tao nodded solemnly. “Compared to two years ago, we’ve more than doubled our market share. I believe a $500 million valuation is appropriate.”

Yan Fei smiled faintly and said slowly, “Market share is just one key metric for valuation; growth rate matters too. I don’t think Dazhong Dianping’s current growth justifies a $500 million valuation. Frankly, I’m skeptical about your group buying business.”

Zhang Tao furrowed his brow, unsure if Yan Fei’s assessment was accurate, but sensed he was sincere. He said gravely, “Please elaborate.”

Yan Fei took another sip of tea and explained, “Group buying depends excessively on capital. Without fresh investment, it can’t quickly capture market share. Users have no loyalty to group buying sites; they flock to whichever platform offers the best discounts. Once major capital floods into the market, all small enterprises will perish swiftly.”

Seeing Zhang Tao’s conflicted expression, Yan Fei delivered his final point calmly: “Once big capital enters, Mr. Zhang, you face only two choices: accept it or die. And after large investors come in, do you really think you’ll still control the company?”

Zhang Tao’s face darkened. Earlier this year, he had recognized Dazhong Dianping’s overreliance on capital but saw no alternative. He had to keep accepting capital’s constraints, inevitably heading toward the very fate Yan Fei described.

Seeing Zhang Tao’s fear surface, Yan Fei continued in a low voice, “Compared to institutional investors, individual investors are more flexible. I can be purely a financial investor without interfering in your decisions. Moreover, I will unconditionally support your voting rights on my shares, forever.”

“Is that for real?” Zhang Tao’s eyes widened in shock. He became excited and said, “Mr. Yan, if you put that into a contract, I’m willing to accept your investment at the $200 million valuation from two years ago.”

“Of course,” Yan Fei smiled faintly. “I’m willing to invest $40 million for a 20% stake, with priority rights for future financing. I also require that $25 million of that be allocated to expanding Dazhong Dianping’s food delivery business, rapidly building teams in all major cities nationwide.”

“Food delivery?” Zhang Tao was stunned. He didn’t understand why Yan Fei placed such importance on this relatively new, small-scale business with limited national presence.

Yan Fei nodded earnestly. “Food delivery is a massive market worth trillions, with potential ten times that of group buying. Dazhong Dianping must shift its focus to food delivery.”

Zhang Tao pondered Yan Fei’s words seriously and replied slowly, “Mr. Yan, I will consider your proposal carefully. I will allocate your $40 million investment as you requested, but I must see how the food delivery business develops before deciding on future priorities.”

They then discussed investment details and payment timing thoroughly. Zhang Tao also informed Sequoia Capital China and Google about Yan Fei’s investment to inquire whether they planned to co-invest.

After leaving Dazhong Dianping, Yan Fei felt exhilarated. He hailed a taxi and headed straight to the School of Mechanical and Power Engineering at Shanghai Jiao Tong University, aiming to acquire a stake in Ele.me food delivery to see if this fledgling venture could bring surprises.

Page 2/3

The taxi stopped at the engineering school’s entrance. Yan Fei got out, quickly located Zhang Xuhao’s dormitory after asking around, and met a slightly plump young man about one or two years older than himself.

Yan Fei extended his hand with a smile. “Hello, Zhang. I’m Yan Fei.”

Zhang Xuhao looked a bit puzzled but shook Yan Fei’s hand and asked, “Junior, you’re looking for me?”

Yan Fei nodded and smiled, “Senior, I’m two years younger than you. I graduated from East China University of Economics and Finance. I’m a private investor and very optimistic about the Ele.me food delivery platform you founded. I want to invest.”

Zhang Xuhao was surprised and excited, saying, “You know about Ele.me and want to invest?”

Yan Fei nodded calmly. “Although Ele.me only operates in a few Shanghai universities with daily orders just over a hundred, I believe in this model’s potential.”

As they talked, another young man entered. Zhang Xuhao greeted him cheerfully, “Kang Jia, come here! Mr. Yan wants to invest in Ele.me.”

Kang Jia approached, eyeing Yan Fei suspiciously, then sat down to listen as Zhang Xuhao introduced Yan Fei’s identity.

After introductions, Zhang Xuhao said, “Kang Jia, call Wang Yuan, Ye Feng, and Deng Ye. Let’s all come back to discuss financing with Mr. Yan.”

Yan Fei nodded, feeling it necessary to meet all five founders for Ele.me’s future development. Soon, the others returned, and after Zhang Xuhao’s introduction, the group respectfully regarded Yan Fei.

Looking at the five, Yan Fei said solemnly, “Ele.me is newly established, with limited market share and uncertain valuation. Here’s my offer: I will invest 5 million RMB to acquire the company and leave you founders a 30% equity incentive.”

Zhang Xuhao’s face showed displeasure. “We don’t intend to sell Ele.me. If you want to invest, we can negotiate.”

Yan Fei was unfazed. “Then I invest 5 million RMB for 70% ownership. You keep 30%. I won’t interfere with daily operations, only provide strategic advice.”

Kang Jia immediately objected, “70% is too much. We lose control and motivation.”

Seeing their reactions, Yan Fei smiled. “How about 10 million RMB for 70%? With that, you could quickly cover the entire Shanghai delivery market.”

The five were shocked and excited. Zhang Xuhao composed himself and said, “Let us discuss. Please wait, Mr. Yan.”

Yan Fei nodded, left the dormitory, and strolled around campus, waiting for their decision. About half an hour later, Zhang Xuhao called.

Sitting on the dorm bed, Yan Fei smiled and asked, “What’s the result of your discussion?”

Zhang Xuhao said solemnly, “Mr. Yan, we’ve agreed to give you controlling stake, but the maximum we accept is 51%. Also, you must invest 10 million RMB. Otherwise, we prefer slow growth.”

Glancing at the determined five, Yan Fei considered briefly, then said slowly, “I can’t accept those terms.”

Their faces fell, yet they breathed a sigh of relief. Yan Fei continued, “Investing 10 million RMB is fine, but I need 52% equity. That’s my bottom line.”

The five’s faces lit up with surprise and joy. Though puzzled by his insistence on that extra 1%, they agreed enthusiastically.

Initially, the five believed Yan Fei sought controlling interest and offered 51% to test the waters. Their own bottom line was 60%.

After roughly settling equity terms, Yan Fei discussed investment details with them. Then he stood and said, “It’s dinner time. My treat. Let’s eat together.”

Everyone happily accepted. They went to a nearby small restaurant, ordered a large spread, opened two cases of beer, and quickly bonded as close brothers.

After the meal, their relationship deepened. They exchanged numbers and addressed each other as equals—typical youthful camaraderie. Yan Fei enjoyed this feeling, reminiscent of his college days and playful dorm life sixteen years ago.

Back at the hotel, Yan Fei fell asleep immediately. The next morning, he took a taxi to the scheduled meeting at Dehong Law Firm to engage a lawyer to draft investment agreements for Dazhong Dianping and Ele.me.

At the law firm, a beautiful receptionist rose and smiled. “Hello, sir. Whom are you here to see? Do you have an appointment?”

Yan Fei smiled, “Yes, I’m Yan Fei. I booked an appointment a few days ago to discuss legal services for equity investment.”

The receptionist found his appointment and said cheerfully, “Right this way, Mr. Yan.”

In a modest conference room, Yan Fei waited briefly before an elegant, poised woman entered. She looked at him seriously. “Hello, Mr. Yan. I’m Shen Siqing, your lawyer for equity investment.”

Yan Fei shook her hand firmly. “I’m investing in two companies: Ele.me with 10 million RMB for 52% equity, and Dazhong Dianping with $40 million for 20% equity.”

Shen Siqing was taken aback. Such a large personal investment was rare, and her curiosity was piqued.

Yan Fei proceeded to explain the investment details for both companies thoroughly, ensuring Shen Siqing fully understood his intentions to provide solid legal protection.

After listening, Shen Siqing said gravely, “Mr. Yan, I understand your intentions and all details clearly. The complexity is manageable. Our firm charges a service fee of 50,000 RMB to handle these matters.”

Without hesitation, Yan Fei signed the service contract and immediately transferred the fee to Dehong’s account. He then said firmly, “Let’s start with the Ele.me investment contract. The Dazhong Dianping agreement will wait until other shareholders finalize their positions.”

Shen Siqing nodded. They left the building, and Yan Fei rode in her Mercedes toward Shanghai Jiao Tong University. During the ride, chatting revealed Yan Fei lived in Shen’an City and had come to Shanghai specifically to invest in these companies.

Within an hour, the car stopped at the Jiao Tong campus parking lot. Shen Siqing looked at the familiar campus and said, “I graduated from here three years ago. I never imagined students starting businesses in dorms could secure such large investments.”

Yan Fei smiled. “Jiao Tong is indeed outstanding, full of talent. Zhang and the others are excellent. I’m optimistic about their future, which is why I’m investing in Ele.me.”