What ever happened to Luckin’s Yang Fei?

As Luckin Coffee gets its start on the NASDAQ, there’s a conspicuous absence in its corporate filings and press conferences. Yang Fei, Luckin’s CMO and one of the key architects of Luckin’s hyper-growth, is missing in action.

IPO pinch hitter

In March, a month before Luckin Coffee filed for its IPO, I wrote a three-part series on the company. I explained how Luckin was built with money from a network with arguably a few too many personal interests at stake and sketched out the rationale behind questionable freebies and discounts.

One of those articles profiled Luckin CMO Yang Fei. Yang is an unlikely star: in five years, he’s gone from prison to C-suite. Between 2013 and 2015, Yang was arrested, remanded, and sentenced to 18 months’ imprisonment (Chinese link) for violations of China’s advertising law. After his release, he served as the CMO of UCAR, a ride-hailing firm. There, Yang claims to have invented a set of growth hacking techniques which took UCAR from incubation to a $5.5 billion IPO on China’s NASDAQ equivalent in less than 18 months. Luckin CEO Qian Zhiya was previously UCAR’s COO.

Qian and Yang repeated their IPO pinch-hitting with Luckin, which debuted on the NASDAQ a little more than 18 months after being founded. Its shares opened at $25, an almost 50% jump from its IPO price of $17. At the time of writing, Luckin’s share price sits above its IPO price.

An end to the dynamic duo?

On the back of its warm stock market reception, Qian announced plans for Luckin to open 10,000 stores by the end of 2021. That’s four times the 2,370 store locations across 20 Chinese cities it operates as of March 2019. At 10,000, Luckin’s footprint would be far larger than Starbucks, China’s current leading coffee franchise. Seattle-based Starbucks had 3,700 stores in February 2019 and is aiming for 6,000 by 2022.

Qian’s announcement made a break from Luckin’s previous practice, in which significant announcements featured both Qian and Yang Fei.

There’s a mounting body of evidence that the dynamic duo may have broken up: Yang hasn’t made a public appearance as CMO since January. Luckin’s IPO filing documents don’t mention his name or title. And, according to the same documents, he doesn’t have any equity in the company. He’s even absent from Luckin’s Investor Relations website, and they contain no reference to an alternative CMO.

This is all a little strange, given Yang’s previous status as named co-founder, architect behind Luckin’s growth model and the guy who proclaimed that Luckin will keep subsidies in place for the next three to five years.

We’ve asked Luckin Coffee for formal comment, but they’ve declined to speak to us about Yang Fei’s current association with the company and future.

Fall guy

Chinese sources have speculated (Chinese link) that Yang stepped down because of reports about his chequered past. In the lead up to IPO, Chinese media examined his advertising law conviction—something I was first to mention in English in my own column for TechNode. In March, Reuters reported that Luckin Chair Lu Zhengyao sought out blue-chip banks for a loan of $200 million in exchange for a mandate on Luckin’s IPO. Personal financing in exchange for an IPO mandate is rare, and one firm apparently declined to participate in the IPO on this basis.

Perhaps it makes sense for Yang to have stepped down for reputation reasons: his previous misdemeanours may have further complicated the IPO. But, if Yang Fei has departed, then what does it mean for Luckin?

The answer turns on Yang’s current relationship with the company. Even though Yang’s out of the spotlight, I’m not inclined to think he’s out of the picture entirely. Photos of the Luckin’s NASDAQ debut show Yang was present in New York when the company’s stock listed in May. His presence in New York and his absence from any investor-facing documents or organizational charts suggests that Yang’s departure was indeed a PR play.

Indeed, Chinese sources have speculated (Chinese link) that the former CMO is now serving Luckin through an advertising agency he established. If that’s true, then it’s likely business as usual for Luckin and its growth model—aggressive spending on physical locations, operations, promotions, and loyalty programs.

It also means that investors need to keep a careful eye on Luckin’s advertising spend—without the competitive pressure of other firms, Yang’s advertising agency could be taking some cream off the top.

However, if Yang’s completely removed himself from the company, then Luckin’s management team will need to make a call on whether they stick to Yang’s brand of growth. As Luckin gears up to increase its footprint fourfold, unchecked freebies and discounts may weight too heavily on the balance sheet.

With Luckin tight-lipped on Yang’s current role, it might be a slow drip until we have a clear answer on what the future holds for Yang and Luckin’s growth model.