BILLIONAIRE Jia Yueting’s cash crunch may be starting to affect his expansion into new businesses.

    Jia, CEO and largest shareholder of LeEco, made a fortune from his Netflix-like video business and used the profits to move into a dizzying array of businesses, including smartphones, TVs and electric vehicles. But his effort to take on Uber-killer Didi Chuxing in car hailing may have hit a serious roadblock.

    Yidao Yongche, the limo service 70 percent owned by LeEco, has been trying for months to hit its fundraising targets and fallen short, according to strategy chief Zhang Fan. The distant runner-up to Didi has been unable to close the round amid shifting local regulations and intense competition. Yidao’s aiming for up to 8 billion yuan (US$1.2 billion), according to people familiar with the process.

    The startup’s struggle to secure cash underscores the upheaval gripping LeEco, the holding company for a coterie of enterprises from online streaming to cars and phones. In a memo to employees last week, Jia admitted his ambitions had run ahead of reality, and LeEco faced a cash crunch after years of breakneck expansion without adequate capital raising.

    Leshi Internet Information & Technology Corp., his flagship Shenzhen-listed company, has denied reports it owed its suppliers more than 10 billion yuan in back-payments, which had forced a halt to production. Jia told domestic media that LeEco’s revenue will more than double to at least 50 billion yuan in 2016, driven by its video streaming business. Still, Coolpad Group Ltd., his other listed unit, has lost more than 25 percent of its value since Jia’s missive emerged.

    LeEco’s new endeavors “are at an early stage but the company isn’t likely to cut current businesses despite a cash shortage,” said Zhu Dalin, an analyst with Beijing-based Analysys International. “To do so, LeEco will try to cut cost.”

    Yidao, which operates independently from other parts of LeEco’s empire, is going through an ownership structure overhaul that may be giving investors pause, Zhang said. The company is dismantling its so called VIE, or variable interest entity, structure — a controversial framework intended to allow foreign investment in sensitive Chinese companies — after abandoning a plan to list overseas, he added.

    “In terms of when it will close, it’s hard to nail down a time because the VIE structure tear-down will take some time to get done,” he said of the fundraising effort.

    Zhang said he understands fears from some investors about returns but said similar problems plagued China’s O2O — or online-to-offline — industry, and affected other companies to a greater degree. Hefty subsidies and discounts on everything from food delivery to movie tickets have proven unsustainable and spurred heavy losses across the sector. Uber Technologies Inc., for one, threw in the towel rather than continue waging a costly war with Didi.

    In his letter, Jia flagged cut-backs and decreased subsidies for customers. That’s something that will have a direct impact on Yidao, which like Didi relies on incentives to get and keep riders and drivers.

    “Other O2O companies like food delivery businesses and others are facing the same problem, which is how to set up an exit mechanism,” Zhang said. “It’s perplexing the whole industry.”

    One investment firm approached by Yidao passed because of the uncertainty around pending regulations that may allow only locals to drive for ride sharing companies — depriving Yidao or Didi of the majority of their chauffeurs. But Zhang argues that Yidao’s diminutive size actually means it can adapt more quickly to the new regulations and it’s already changing its systems to match the forthcoming rules on drivers. (SD-Agencies)