Two Masterstrokes in NIO's Fundraising History

By Lili Yu and Jiaxiang Shi

Edited by Jing Liu

William Li has worked his magic again.

A few days ago, NIO announced it had secured a $2.2 billion strategic investment from CYVN, an Abu Dhabi-based investment vehicle. Combined with the $1.1 billion CYVN injected in July, NIO has raised roughly RMB 23 billion from the Middle Eastern fund this year alone.

This was the Middle Eastern money everyone wanted in 2023.

For most people, the last time NIO was rescued by capital like this was early 2020. In 2019, NIO was on death's door. It was the Hefei municipal government — which had once pulled BOE Technology back from the brink — that dragged NIO "out of the ICU" with a RMB 7 billion equity investment.

In just eight years, NIO has completed over 20 funding rounds under William Li's leadership, raising more than RMB 100 billion in total. Each successful fundraise has felt like a narrow escape. Though funding is only the beginning of the complex game that is the auto industry.

A CEO is a company's biggest IR officer. In this sense, Li may be the most capital-sensitive IR in China. From aggressive dollar funds to steady, pragmatic government guidance funds, to the currently surging Middle Eastern capital, Li always seems to find exactly the money he needs, exactly when he needs it.

He operates like a sharp reporter — never missing the most important story of the era, and always managing to land on the hottest headline.

Hefei's RMB 7 Billion: A Stroke of Genius Beyond the Market

As the first Chinese EV maker to list in the US, NIO had something of a trailblazer's burden. But almost immediately after its IPO, the geopolitical climate took a sharp turn.

The gloom persisted through late 2019. NIO's stock slid from a peak of $10 to a low of $1.32 in October, wiping out over 80% of its market value.

The most prominent fund selloff happened during this period. At the end of 2019, Hillhouse Capital — which had held a 6.2% stake as recently as February — liquidated its entire NIO position. Hongshan also chose to reduce its holdings around this time.

When top-tier funds dump a stock, it sends a signal. One investor recalled to Anyong Waves that a state-owned asset manager, considering an investment, once invited a major existing shareholder to dinner to get the real story. Over the meal, the shareholder described Li as someone who "spends money recklessly." Similar criticisms about NIO's high management costs still circulate today.

NIO's number two, Lihong Qin, later recalled: "NIO was on the verge of bankruptcy. EV subsidies had been cut, and the company had to recall vehicles due to battery fires."

Li had been scrambling for cash. According to Anyong Waves, he even texted the head of an old shareholder — one of the country's deepest pockets — only to be left on read.

Market-based capital had dried up.

So in 2019, Li made the rounds to local governments: Beijing E-Town Capital, Wuxing District in Huzhou, Changsha, Xi'an, even Qingdao. The loudest rumors involved Beijing E-Town Capital and Huzhou Wuxing District.

But unfortunately, a series of battery fire incidents during this period caused the potential RMB 10 billion from Beijing E-Town to evaporate. And the Zhejiang Huzhou government's RMB 5 billion investment intention fell through after internal risk assessments and some management concerns.

This lent a certain fated quality to Hefei's eventual appearance: neither a moment too soon, nor too late.

The story is full of chance. Li had sent a New Year's greeting on WeChat to the chairman of Anhui State Investment, who then invited him for a chat. One coincidental number: the message was sent on January 8, after Li had been rejected by 18 cities.

As a model for local government investment attraction, Hefei had already made two big bets before NIO: once committing one-third of the city's fiscal revenue to rescue BOE Technology during the financial crisis; and again in 2016, putting over RMB 10 billion into semiconductor companies like CXMT.

This experience clearly gave Hefei an added ability to see through surface appearances and place bold bets.

Sources also indicate that Joy Capital played a facilitating role in bringing NIO to Anhui.

In April 2020, the NIO China project was formally signed, with Hefei committing RMB 7 billion. This was only the first step — NIO later announced it would center its China operations in Hefei, building R&D and production facilities and deepening partnerships with local supply chain companies like JAC Motors.

From then on, Hefei's moniker as "the venture capital city" became more firmly established.

Looking back at the wave of local government and state capital that has transformed the primary market in recent years, Li recognized this capital migration earlier than most.

Zeng Yu of Magic Stone Capital once told Anyong Waves that beyond Li's decisive execution and strong delivery ability, he had better data points and earlier insights.

In fact, as far back as NIO's disappointing US IPO, Li told his wife in their room at the Park Central Hotel in New York: "An era has ended."

The Middle East's RMB 23 Billion: The Best Money Is Never Just Money

Li's ability to read where money is flowing was on full display once again in his latest fundraise.

Over the past six months, NIO has secured roughly RMB 23 billion from CYVN, an investment vehicle under Abu Dhabi Investment Authority (ADIA). Founded in 1976, ADIA has long been considered one of the world's most mysterious sovereign wealth funds.

Over the past year or two, "going to the Middle East" has been a key imperative for Chinese companies and institutions. But most have come back empty-handed. Even though NIO seemed uniquely positioned — the energy transition is a major investment theme for Gulf states — it is still the company in its peer group that has raised by far the most capital.

It wasn't even the first to be targeted by Middle Eastern capital. In June, Saudi Arabia's Ministry of Investment partnered with Human Horizons; CH-Auto signed with Jordan's largest private company Manaseer; and in October, B-ON, Pony.ai, and Saudi Arabia completed various forms of investment or cooperation.

The value of any capital lies in it being more than just money. Beyond the cash, the Middle East represents an ideal market with policy stability and massive consumer spending power.

Rumors have emerged that Li Auto will begin overseas expansion in 2024, with initial markets including the UAE, Saudi Arabia, and other Middle Eastern and North African countries. XPeng and Zeekr announced partnerships with Israeli auto dealers or automotive groups in July. In the following two months, Leapmotor, HiPhi, and Neta all announced Middle East partnerships. The great-power politics underlying all this is a fascinating topic in itself.

The Chinese auto industry, which once had to offer "market access for technology" to partner with foreign companies, saw a new reverse movement in 2023.

An industry investor who backed NIO told Anyong Waves that whether it's Volkswagen investing in XPeng or Stellantis investing in Leapmotor, these events were extraordinarily significant this year, meaning that "in the new energy vehicle era, China's EV upstarts have achieved world-class competitiveness."

The Funds That Stood by Li Through the Valley

Among NIO's market-based investors, Joy Capital was one of the few that extended a hand during its darkest hour.

The initial story of Joy's investment in NIO is fairly well known. But according to Anyong Waves, as early as the beginning of 2020, before Hefei's RMB 7 billion, Joy added to its NIO position: $30 million.

On February 6, 2020, NIO announced a $100 million financing. The "Asian investment fund" referenced in the announcement was Joy.

However, Joy's $30 million came in the form of convertible bonds. A convertible bond gives the holder the right to convert into stock at a predetermined price.

This was understandable: at the time, NIO was still hanging by a thread, and for a VC firm, the risk was genuinely high — some reassurance for LPs was warranted. And according to our understanding, Erhai Liu spread this investment across several of Joy's dollar funds, also to reduce concentration risk for any single fund.

Joy's convertible bonds were later converted to stock, and NIO's share price soon took off, peaking above $60, while Joy's entry price was just $3. This became one of the highest-returning investments in Joy's history. Liu later revealed that the returns were equivalent to "getting back several funds."

Additionally, Joy's $30 million was committed first, serving as a pricing reference for the remaining $70 million.

Many VC firms have had close ties to NIO. For instance, everyone associates Anna Fang with the company in various ways — Li even gave her daughter NIO ES8 number "0003," and Fang herself sits on NIO's board as an independent director.

But in fact, BAI never invested in NIO. Fang once explained to Anyong Waves, in essence: NIO was a game for the big players.

However, BAI is an LP in Joy Capital. Traced through, Fang was indirectly invested in NIO.

Beyond Joy, Tencent also reappeared. But Tencent's attitude was hesitant. In September 2019, NIO issued $200 million in convertible bonds; Tencent subscribed to $100 million, with the remaining half personally taken by Li — funds he raised by pledging his Yiche stock to Tencent.

One NIO investor believed this second $100 million investment from Tencent was conditional on the privatization of Yiche and gaining control of Yiche's auto finance subsidiary, Yixin Capital.

A source close to both Li and Tencent's senior leadership once told 36Kr that at a NIO management meeting in Q4 2019, Tencent's investor representative issued an ultimatum to management: "Within two months, either solve the money problem or get costs under control."

Also worth mentioning is Baillie Gifford. They invested heavily at NIO's IPO and became the third-largest shareholder after Li and Tencent, barely selling even when the stock was near bottom. But considering they had held Tesla since 2013 and endured Elon Musk for a decade, this perhaps isn't surprising.

What Missing EV Means for a Fund

Let's briefly discuss the investors behind several EV companies.

A few years ago, Mingming Huang of Ming Shi Capital told Anyong Waves that domestic institutions could be divided into two types: those that invested in EV, and those that didn't.

Though this statement carried his own bias — Ming Shi's story of "seven rounds" in Li Auto was well-known — whether a fund made meaningful moves in EV, and how meaningful, is indeed a useful metric for evaluation.

For the past decade or two, the hierarchy of Chinese funds has been shaped largely by their performance in the mobile internet era. And EV, represented by NIO, Li Auto, and XPeng, sits at a perfect intersection: between the internet and manufacturing. The latter points to another major battlefield for capital in the coming decade.

Huadong Wang of Matrix Partners China once admitted to Anyong Waves that investing in Li Auto was significant for him not just for the investment itself, but for opening his eyes to a world beyond the internet. Another NIO investor expressed something similar: "For Tencent, early NIO was a key into the auto industry; now NIO is just a project. Whether to keep supporting it depends on performance."

Lei Zhang's investment in NIO was made on a ski slope in Changbai Mountain. Zhang asked Li: "You've done well in the internet, but what could create even greater value?" Li simply described his vision for new energy vehicles, and Zhang committed on the spot, adding to his position multiple times thereafter. Perhaps it's easier to make long-term bets when you're already on a long slope with deep snow.

As for Hongshan, it was Neil Shen, industrial partner Fu Xin — who had years of experience in the industrial sector — and Li, the three of them who talked it through. Though the discussion took a while, they moved to invest quickly after.

Interestingly, however, Hongshan and Hillhouse Capital — two of China's most representative primary market firms — both had mediocre showings in EV. Hillhouse's exit from NIO is well known. And while Hongshan invested in NIO, XPeng, Leapmotor, and WM Motor, its stakes in "the biggest fish" were never substantial. Later, Hongshan's industrial team was merged with its TMT team into what is now the high-tech group.

The Secret of the No. 1 "IR"

Returning to Li: his ability to attract capital has deep roots. Early in NIO's history, Zhai Bin, then CEO of Benling Wealth, assessed him thus: "He attracted China's best investors, the biggest private equity funds, the largest B2C company — even his biggest competitor invested in him."

Before going public, NIO already had over 50 investors across six funding rounds, raising more than $2.4 billion. Li once said his pain was having to turn people down: "Can you invest less? Instead of $100 million, how about $30 million? Instead of $30 million, how about $10 million?"

This wasn't exaggeration. In the widely circulated video featuring "Milk Tea Sister" Zetian Zhang and Wang Yizhi, the story of Richard Liu's earliest investment in Li leaked out: Li went to Liu's home, spent 15 minutes explaining his idea, and Liu said yes in 10 seconds. And securing Pony Ma's commitment reportedly took just one hour.

How did Li pull all this off?

In the view of one investor who knows Li well, it starts with the fact that through the IPOs of Yiche and Yixin, and his artful exit from Mobike, Li made everyone who participated understand: doing business with Li makes money.

As for why he still bet on NIO at its darkest hour, Erhai Liu later recalled that at that year's NIO Day, he once again strongly felt that NIO was a company with die-hard fans. Of course, such emotional factors were only part of the decision. More importantly, he believed Li was a top-tier entrepreneur, and he saw NIO's delivery numbers rising normally and substantially — the company had the capacity to generate its own blood.

But the better guarantee of safety was that he was putting his own real money into building cars.

Initially, Lei Jun also believed that people who made cars were basically con artists, until he asked Li: "You've already made it, why would you want to eat bitterness twice, suffer twice?" Li didn't answer directly. Instead, he said he was personally willing to invest $150 million. This willingness to put skin in the game completely dispelled Jun's doubts.

And the larger logic, of course, was that NIO was the specimen that best fit the imagination of dollar funds and certain industrial capital at that moment.

One NIO investor once believed that from 2014 to 2015, virtually every major dollar fund thought the new energy vehicle wave had arrived. They needed a portfolio company to replicate Tesla's miracle, and Li and NIO happened to appear.

Song Chunyu, partner at Lenovo Capital who invested in NIO, once told us why many traditional automaker entrepreneurs fell while the EV upstarts survived to today: the electric vehicle is a new species, and new species "must be created by cross-sector disruptors."

And Li, who deliberated for two years before entering the fray, was undoubtedly a paragon.

If money operates by some law of attraction, then the ability to gather money is the ability to gather people. Undoubtedly, Li has the capacity to draw people who control capital to his side. And from past experience, Li has rarely shied away from more powerful, even potentially swallowing capital. As far back as Yiche and Mobike, Li learned that larger capital entering could mean being swallowed — but he didn't let that deter or regret him. He accepts failure, is tolerant and welcoming of capital, and cares more about whether the thing grows bigger because of it.

In a sense, this has partly enabled Li's funding machine to keep running to this day.

A Postscript

In a curious twist, the list of NIO's rescuers actually includes its rival — Tesla. Contrary to outside speculation, NIO originally wanted to build its factory in Shanghai, and Shanghai was very supportive, even offering better terms than Tesla. NIO had pre-ordered much long-lead equipment accordingly.

The problem emerged after going public. NIO didn't raise the planned $2 billion, and the factory plan was shelved. To free up capital, NIO sold its pre-ordered stamping line equipment to Tesla — which, rushing to build its factory, was the only one desperate enough for equipment.

On the surface, this batch of equipment saved Tesla six or seven months of waiting time. But simultaneously, without that more than $100 million, NIO likely would have collapsed then and there.

History lives in the details.

(Anyong Waves analyst Yunxiao Guo also contributed to this article.)

References:

[1] Dialogue with William Li: After a Perfect Storm, My Appetite for Risk Has Grown

[2] William Li, the Key Man, in the Final Hundred Meters

Image sources: IC photo

Layout: Yunxiao Guo