Did Luckin Coffee Invest in E-Cigarettes?

Recently, a representative from the investment firm Dazhong Capital, which recently went public on NASDAQ with the coffee brand Luckin Coffee, appeared in the business registration changes of an e-cigarette startup, suggesting a potential investment in the e-cigarette project.

According to data from Tianyancha, on May 17, the company underwent three business registration changes, increasing its registered capital from 1 million to 1.311111 million. Two new individual shareholders, Chen Xiang and Liu Rui, were added, along with two new directors, Lin Xiaoqin and Lian Jie, and a supervisor, Wei Lianlian.

Among the new shareholders, Chen Xiang holds 3.39% of the shares, while Liu Rui holds 16.95%. Further investigation suggests that Chen Xiang may be from the Chaoshan region.
 
Supervisors are typically company employees, so we mainly focus on the newly added directors, Lin Xiaoqin and Lian Jie. While Lian Jie has not been linked to any investment institution, Lin Xiaoqin appears to be a partner at Dazhong Capital and previously served as vice president at Gaorong Capital.

This e-cigarette brand had previously experienced the departure of an important co-founder in April. The CEO publicly announced on April 4 that the co-founder had left in early March and exited the shareholder list.

According to insiders, the departing executive has already founded a new e-cigarette brand with the support of new investors, which has yet to be announced.

A senior executive at Luckin Coffee inquired whether Lin Xiaoqin was employed at Dazhong Capital, to which the individual confirmed, but it remains unclear if the two Lin Xiaoqins are the same person.

Generally, there are two scenarios for someone to become a company director: one is a representative of the investors entering the board, and the other is a shareholder entering the board. However, in the aforementioned changes, the shareholders and directors do not overlap, leaving some ambiguity, and it cannot be ruled out that the new director shares the same name as Lin Xiaoqin from Dazhong Capital.

Another corroborating piece of information is that Dazhong Capital has been exploring e-cigarette startup projects since the Spring Festival, with executive Liu actively following up on multiple e-cigarette projects. If the Lin Xiaoqin mentioned in the business registration changes is indeed the same person from Dazhong Capital, it would indicate that Dazhong Capital is entering the e-cigarette industry.

Dazhong Capital was established in February 2017, focusing on investment opportunities in the Chinese consumer and healthcare sectors, with Luckin Coffee being its flagship project.

Luckin recently successfully listed on NASDAQ on May 17, becoming the fastest company to go public globally. However, Luckin's stock has since fallen below its issue price, dropping from a high of $26 to the current $15.79, with a market capitalization of $3.7 billion.

Similar to the rapid growth of coffee and tea beverage sectors, the e-cigarette industry is also becoming a rapidly developing new sector. The American e-cigarette brand Juul was valued at over $38 billion last year, while the domestic brand RELX has recently reached a valuation of around $2.6 billion. After helping Luckin go public, Dazhong Capital is indeed likely to seek the next rapidly growing new consumer sector and brand.

As of March 31, Luckin Coffee has opened 2,370 stores nationwide, establishing a retail channel in core commercial areas. Selling coffee while also recommending a certain e-cigarette product seems quite reasonable.

Currently, 20 e-cigarette companies in China have publicly announced that they have secured funding, and the industry is in a fierce competition phase, with no clear top five players recognized yet. Thus, there are still opportunities to create new brands at this stage.

Just as the industry has yet to fully understand the value and model of Luckin Coffee, it has successfully listed on the public capital market, raising over $600 million.

If Dazhong Capital's entry into the e-cigarette industry is confirmed, it would indicate that a batch of trendy e-cigarette brands founded around the Spring Festival have gained recognition from the market, which would be extremely positive news for the e-cigarette industry.