Chinese coffee chain startup Luckin Coffee is one of the world’s fastest companies to hit a $1 billion valuation after it raised $200 million on Wednesday from a group of investors including Singapore’s sovereign wealth fund.
The series A round of fundraising was co-led by Singapore’s GIC Private as well as Chinese private equity funds Dazheng Capital, Joy Capital and Legend Capital, Luckin Coffee said in a statement on Wednesday.
Luckin Coffee’s rapid rise to a billion-dollar company underscores the massive liquidity in China’s private equity market and the huge demand for investment into early-stage companies that are poised to disrupt the industry.
China’s booming private equity market has seen even billion-dollar deals of late, with Ant Financial, Manbang and JD Logistics being the latest examples.
Founded by former Car Inc chief operating officer Jenny Qian only late last year, Luckin Coffee started soft launch in January in Beijing and Shanghai. In only five months’ time, the startup has expanded into 13 first and second-tier cities with 525 stores, becoming the second-largest coffee chain by store count after Starbucks.
In fact, Luckin Coffee has made it clear it aims to challenge the leading American coffee giant by introducing on-demand delivery services. The company partners with S.F. Express to offer free delivery services for orders over Rmb35 ($5.3) and promises delivery within 30 minutes.
As such, Luckin Coffee has tapped into an unexplored market of takeaways while most Starbucks customers are consuming in store. It is also competing on price since its products are offered mostly between Rmb20 to Rmb30, which are significantly cheaper than Starbucks’ at around Rmb30 to Rmb40.
Similar to many other Chinese internet-based startups, Luckin Coffee has been spending massively on cash discounts and promotions to gain market share. The company gives away a free cup of coffee on first purchase, while a consumer gets another free cup when they introduce a another first-time buyer.
Luckin Coffee is able to keep track of purchase records since it operates a fully internet-based sales platform. It does not accept cash on purchase and all orders have to be placed through its mobile app.
The company said it will use the new funds for product research, IT platform development and business expansion.