The Chagee Funding Story: From a Terrible Hand to Changing Its Fate

"More Than Just Luck."

By Shi Jiaxiang

Edited by Jing Liu

In 2022, Zhang Junjie predicted at a private gathering that the domestic battle would wrap up within three to four years, after which the company would set its sights overseas. Now, everything is unfolding exactly as rehearsed. On April 17, North American time, Chagee — China's first publicly traded fresh milk tea brand using original tea leaves — debuted on Nasdaq, surging over 48% at its peak before closing up more than 15% at $32 per share.

Ahead of the IPO, the company filed striking financials: full-year 2024 revenue of roughly RMB 12.4 billion, 1.5x the previous year, with net profit around RMB 2.5 billion — double the year before.

We've used The Pursuit of Happyness to describe Zhang Junjie's life story. Today, with its market cap surpassing $6 billion, we rewind four years to the funding round that changed everything. For investors, what separated those who won Chagee from those who missed it came down to one thing: judgment of the founder. "Who could have predicted he would evolve to this degree?"

XVC, the Biggest Winner: A Sniper's Decisiveness and Hands-Off Approach

As an early-stage VC founded in 2016, XVC founder Boyu Hu has repeatedly emphasized a sniper-style focus — making heavy bets early. Chagee was the "whale" that embodied this philosophy.

Waves has heard from multiple investors about how XVC landed the Chagee deal. Here's where their accounts converge:

The first at XVC to meet Chagee was an investment manager who had just graduated and joined the firm a year and a half prior. He started in food and beverage, looking at fast food, braised snacks, and barbecue. He later realized that only categories with standardization potential — tea drinks, coffee, braised snacks, fast food — were worth serious time. By then, fruit tea was already dominated by Nayuki and Hey Tea, but newer categories still held promise.

Chagee entered his view at this juncture. The three-year-old milk tea brand had just 200 stores, concentrated in Yunnan, Guizhou, and Sichuan, with monthly sales per store under RMB 200,000. But two things caught his attention: Chagee could continuously densify within its region while same-store sales kept growing; and it was among the few players in the market actually taking tea seriously.

Most tea brands prefer to open franchise nationwide to capture the broadest market. This was Chagee's early expansion strategy too — until Zhang Junjie recognized the problem, shut down numerous franchises in southern cities, and retrenched to Yunnan, Guizhou, and Sichuan.

In December 2020, he flew to Yunnan amid the pandemic's shadow and talked with Zhang Junjie from evening past midnight, drinking over ten cups of fresh milk tea with original tea leaves. Over seven hours, Zhang was fluent on early store-opening strategy, store densification, and more. They also discussed vision. Zhang said that in ten years, Chagee would have 15,000 stores and be an international brand.

The investment manager was largely convinced on the flight back. What remained was validation across more dimensions.

Boyu Hu once said that during his first conversation with Zhang Junjie, Zhang told him he hadn't attended school. Hu's first reaction was that he hadn't gone to college; he later discovered it meant "no formal education whatsoever" — Zhang had been homeless from ages 10 to 17, so he couldn't read before 18. When Zhang later wrote on the whiteboard for them, he still wrote certain characters in pinyin.

But through "continuous questioning," they found Zhang was a remarkably self-taught learner. He had consumed numerous audiobooks and entrepreneur biographies. His understanding of business models and management insight surpassed most CEOs Hu knew.

Another risk factor: at the time, Chagee actually had four partners with equal shares and no controlling stakeholder. Due to disagreements over the company's later direction, Zhang hoped to buy out the others at a valuation exceeding RMB 100 million. This meant that a Chagee with barely 200 stores needed a valuation in the hundreds of millions, and much of the investment would go toward founder share buybacks.

In the end, conviction in Zhang Junjie himself overcame all negatives. According to Waves, Zhang's hoped-for post-money valuation was RMB 700 million. XVC didn't negotiate down, investing over RMB 100 million — the largest single-round deployment in the firm's history. From the team's first meeting with Zhang to issuing the term sheet: seven days total.

This investment, which sounded crazy in retrospect, rewrote Chagee's fate and earned XVC a home run.

Fosun: Guo Guangchang's 5-Minute Decision

Investing alongside XVC was Fosun. In fact, Fosun met Zhang Junjie even earlier. Back in January 2020, Cong Yonggang — Fosun global partner and chief investment officer of Fosun Capital — brought Zhang to Fosun's annual work conference. CEOs from dozens of countries worldwide were present, leaving a deep impression on Zhang and giving him a visceral feel for what globalization meant.

As for the meeting with Guo Guangchang, an early news report claimed: "Guo Guangchang decided to invest in five minutes." According to our understanding, the two actually spoke for 40 minutes.

As a family consumer industry group founded in 1992, Fosun's brand recognition lent valuable credibility to early-stage Chagee. The company's investment was prominently featured in Chagee's franchisee recruitment materials.

Congbi Qiushi: No Preconceptions

This is a rare, somewhat unconventional fund that had primarily invested in content e-commerce; it was also an investor in Weinian. Around 2020, Congbi Qiushi systematically surveyed the new consumer sector, allocating along the logic of tobacco, alcohol, tea, and sugar. Chagee, with its "tea latte" positioning, fell within this framework.

By then Chagee had completed its first funding round. Store count had only grown by a few dozen, but valuation had already doubled from the previous round. Still, Congbi Qiushi pulled the trigger.

Two reasons. First, their options were limited: Chayan Yuese at RMB 20 billion valuation, Hey Tea at RMB 60 billion, and Guming and Cha Bai Dao both exceeding RMB 10 billion — these were "no longer VC deals, but PE." Internally, they also judged that tea drinks wouldn't be a winner-take-all market; there would always be dark horses.

The second, more critical factor: perception of the founder.

Different investor types tend to have their comfort zones. One dollar-fund investor told us that a company and founder like Chagee would be beyond their reach — "We wouldn't even know them, and even if we did, they'd be outside our capability boundary."

Congbi Qiushi held no fixed views on particular products or founders. From 2019 to 2020, the fund had repeatedly internally debated whether to take a position in Pinduoduo on the secondary market.

Two Missed Chances, and a Stroke of Luck

Last year, Chagee became the project that nearly every consumer investor rued.

According to Waves, many funds had looked at Chagee — and not just once.

The first opportunity came around early 2020, before XVC's round. Chagee wanted to accelerate expansion and pitched in Beijing, Shanghai, and Shenzhen, meeting with forty to fifty investors. But at the critical moment, COVID hit and investment institutions froze collectively.

After the pandemic slowed, one investor revealed that Tang Binsen, founder of Genki Forest, had actually met Zhang Junjie before XVC and on the spot offered a RMB 300 million valuation. For a tea brand with just 200 stores, this was fair. But Zhang needed tens of millions to buy out other shareholders at that point, and a RMB 300 million valuation wasn't enough.

The second chance came after two funding rounds. Because Chagee had aggressively expanded during the pandemic, GMV doubled year-over-year but flipped from profit to loss, with losses exceeding RMB 10 million. Chagee then restarted fundraising, writing in its Series C deck that China could birth a company like Starbucks, seeking RMB 300 million.

Perhaps because it had only five or six hundred stores, or because the numbers weren't eye-catching enough, or because valuation had already reached the low billions — every investor who looked passed.

By early 2023, Chagee's true inflection point arrived. From zero to 1,000 stores took five years; from 1,000 to 6,000 took just two. One Chagee investor said the growth trajectory had been visible since November 2022, though even they hadn't imagined it would be this rapid.

For a consumer company that had already skyrocketed, this simultaneously meant it no longer needed outside capital — and mainstream funds permanently lost their chance to invest.

One consumer investor who had looked at nearly every tea company on the market said that when he surveyed the sector in 2021, he found nearly 60 milk tea chains in China with over 300 stores. Each had its characteristics, its audience, and "the entire market was telling the Chayan Yuese story." After looking at Chagee, he felt its advantages weren't standout: "Dollar funds don't invest in companies with low upside."

This may explain why most funds missed: they used logic and data to model Chagee's ceiling, but misjudged Zhang Junjie's potential.

One Chagee investor told us: After seeing enough deals, people feel decision-making is hard, constantly wavering. But the truth is, the deals you can actually catch and truly want to invest in are rare. So once you're convinced, you don't overthink it.

On December 5, 2020, the day he signed with XVC, Zhang Junjie rushed to catch a high-speed train from Guangxi back to Yunnan. Unable to hail a cab, he flagged down a motorcycle on the roadside. The rider wasn't a professional moto-taxi driver — just someone who saw he was in a hurry and helped out.

He felt his luck was extraordinary.

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