China's LeEco Gets $600M Lifeline Amid Cash Crunch

LeEco CEO Jia Yueting - Getty H 2016
Courtesy of Getty Images

The ambitious company spooked investors two weeks ago when its CEO said it had expanded too quickly and was running out of cash.

Just weeks after warning of a cash crunch, Chinese technology and entertainment conglomerate LeEco has raised $600 million in fresh funds.

The financing boost comes at a crucial juncture for the company. In an internal memo to employees on Tuesday, LeEco said it was recalibrating its expansion strategy to focus on existing market positions and stemming cash-flow problems.

Earlier in the month, LeEco's charismatic CEO Jia Yueting wrote to employees saying that the company had expanded too quickly and was running out of cash. As an apology to investors, he cut his annual salary to 1 Chinese yuan (15 cents).

In Tuesday's memo, the company said new funds had come from a combination of Jia's personal friends from business school and Chinese corporations, such as Chengxin Green Integration and China Heilan Group. LeEco also said that the capital would mostly be split between its group holding company and its startup electric car business. The conglomerate plans to freeze "horizontal expansion in the Asia-Pacific market," while focusing on "rapid cash flow growth" and an increase in subscriber numbers.

LeEco's wild ambition in the Chinese technology sector is without peer — it aspires to be something like Netflix, Tesla and Apple rolled into one. It began in 2004 as LeTV, a streaming video and online TV service that grew into a local market leader. The company has since adopted a Netflix-like subscription model, built around an in-house production arm and growing library of licensed sports and entertainment content. The company's film subsidiary, Le Vision Pictures, was China's third-largest studio by box-office revenue last year.

But LeEco also has burned through billions over the past few years as it attempts to become a major device maker across multiple categories, pouring capital into the development and production of mobile phones, smart TVs, electric cars and even a smart bicycle that features GPS, a video screen and lasers. In August, it boosted its U.S. expansion with the acquisition of Vizio — the Irvine, Calif.-based smart TV maker — for $2 billion.

It's all part of Jia's audacious vision to create an all-encompassing "eco-system" spanning content, software and hardware for the home, road and individual on the go. 

Trying to create China's answer to Tesla has been the company's biggest drain on resources, though. LeEco has poured billions into its own Chinese electric car brand, LeSee, and into U.S. auto startup Faraday Future, of which it is a major backer. LeEco previously suggested that production models of the two companies' flagship cars, the LeSee Pro and FFZero1, could be unveiled as soon as 2017. But many analysts believe the projects will require major investment before LeEco is able to present anything road-ready.

News of the company's cash-flow issues spooked investors earlier this month. Leshi Internet Information & Technology Corp Beijing, the group's flagship streaming video service, saw its shares fall 14 percent on the Shenzhen stock exchange within one week. After Tuesday's letter was made public, shares were up 1.3 percent to 39.31 Chinese yuan on Wednesday. But that's still 30 percent below a high last December.

Le Vision Pictures, led by industry veteran Zhang Zhao, has exhibited a trailblazing approach, too. Last month, the film subsidiary hired former Paramount Pictures president Adam Goodman to head Le Vision Entertainment, a new Los Angeles-based production arm, which will seek to produce English-language film, TV, VR and digital content for the worldwide market.

Le Vision Pictures' next release will be The Great Wall, starring Matt Damon and directed by Zhang Yimou. Produced in partnership with Legendary Entertainment and China Film Group, the film has an estimated budget of $160 million, making it the biggest China-Hollywood co-production ever. It is set to open Dec. 18 in China and Feb. 17 in the U.S.