![Leo Chen, co-founder of Jumei (right).]()
Leo Chen, co-founder of Jumei (right).
If Leo Chen and Steven Liu didn’t quit Garena, then Jumei may not have existed. By now, everyone in the tech industry knows Jumei (NYSE:JMEI), an online cosmetics store in China. After all, it is one of many Chinese internet companies to list recently in the States, raising US$245 million in its New York Stock Exchange debut.
As its founder, Leo is now a billionaire: he owned a $1.2 billion stake in Jumei on the day of the listing. Jumei made $483 million in revenue and a profit of $25 million in 2013.
But Leo and Steven, both Chinese nationals, trekked a twisty road to the top. Not long ago, they were clueless student entrepreneurs sitting in their college dorm rooms, struggling to come up with their big idea.
The next few years consisted of a series of costly mistakes, power struggles, and betrayals which eventually caused both to leave Garena, which by now is the largest game publishing and online gaming platform in Southeast Asia. Forrest Li, a China-born Singaporean, took the reins as the CEO and founder – the latter is a title disputed by Steven.
So, who betrayed who? That depends on who you believe. On the Chinese internet sphere, a war of words broke out in the past week, starting with an accusatory note written anonymously to portray Leo as being less than the new golden boy of Chinese tech startups. Steven then wrote a lengthy rebuttal and published it on Chinese social network Weibo, siding with Leo and detailing his version of events. The timing coincided with Jumei’s IPO on the stock exchange.
“I had planned to write an article to clear up the facts, but Leo Ou (Leo Chen) stopped me. Things got pretty ugly and unhappy, but after all we were classmates. We wanted to give each other ‘face’, and we had a lot of good friends who were in Garena with us, and I was afraid I would hurt someone innocent in the process.”
“But after that anonymous, fact-distorting smear essay came out, I needed to say what I’ve been bottling up for two years. Leo is no longer my CEO, and he cannot stop me.”
Before Garena, there was GG
In Steven’s telling, Leo planted the seeds for GG when they met for snacks. It was 2006, and both of them were foreign students at the Nanyang Technological University in Singapore. Steven was curious about Leo because he was reputably the top WarCraft player in university, plus he ran its esports club.
Leo, meanwhile, sought expert programmers to build out his dream of creating an online platform for connecting competitive gamers globally. The goal was to bring esports beyond physical locations and onto the internet. Singapore would be a perfect base for expansion into Southeast Asia, followed by Europe and the Americas. Leo said to his new friend:
Steven, you’re a college freshman, have you ever thought about having your own business by the time you’re a junior, without having to squeeze into the subway everyday for work?
Steven doubted. Leo didn’t know how to code, but said he could learn as he went along. Nonetheless, Steven joined the project. He writes:
“When I was young, as soon as my brain got excited I turned into an idiot. And when two idiots get together, don’t underestimate their power.”
Leo committed to the idea from the onset. He only had textbook knowledge of the C programming language, but promised he would take charge of building the server and client. Though Steven remained unconvinced, they had no other choice as the team was small. Steven would focus on building the website and database.
Leo was a workaholic. For a few consecutive months, he slept only five hours a day, never left his home, and ate egg and tomatoes for all three meals everyday. He grew a beard because he didn’t shave.
“The handsome, professional esports player had become a bearded code monkey, sitting in a corner and staring blankly at a computer screen,” Steven writes. “He became like a hermit, spoke little words, and many college mates asked me if something happened to Leo. Apparently, many people pitied him. The Singapore mindset is that getting a job at a bank is the proper path. No one thought his venture could succeed.”
The GG platform – which stands for ‘good game’, an internet slang which means that a game was fair and enjoyable – materialized. The product was raw: Steven found that the software had “rubbish code”, and his girlfriend sketched the logo. But the product worked, and that was a cause for a drunken celebration.
“We had many wild thoughts about the company, from fundraising to listing. I became drunk and vomited, Leo was sprawling on the table, couldn’t move, and he mumbled to himself.”
After testing the software among professional gamers, the team believed that the product was epochal and would disrupt an entire industry. Those were big words – but what can you expect out of naive college kids with big dreams?
Using his influence in the esports community, Leo reached out to fellow gamers. He brought together two world champions for an online showdown using GG, then unprecedented in the esports world.
The platform was starting to get some recognition. Servers overloaded, and user numbers were “jumping crazily”. That happened at the start of 2006.
![Coverage of GG in the esports media.]()
Coverage of GG in the esports media.
Reality smashes through the door
GG continued growing. The platform was breaking its own records every day, and leading European Warcraft competitions like INCUP and WC3L were using GG for intercontinental competitive play.
Since GG’s code base was still rudimentary, they did not open it up for registration. Instead, they sent out invite codes. Many top gamers joined, and a GG invite became a sort of status symbol.
It was time to take the next step: get sponsors. In reality, they had no choice. GG teetered on collapse as they couldn’t pay for the server costs needed to manage GG’s growing bandwidth needs. Leo relied on scholarship money and competitive game prizes to fund the business. But those sources were drying up.
GG did not face a shortage of sponsorship requests from around the world. But finding the right one was tough: the team was well aware that many sponsors ultimately want to control the product, and Leo knew he needed to avoid that trap.
“In those days, Leo would wear his best shirt to meet sponsors. Before leaving the house, he would tell us: Do great work today, brothers, and wait for me to bring back the money. But the money wasn’t enough,” says Steven.
“Leo would tell me excitedly how he got a reply from an investor. Yet not long after, he would be at his seat staring blankly. Leo doesn’t hide his emotions, so we saw his helplessness and anxiety. Since I only know how to code, there wasn’t much I could do to help.”
Investors kept their distance. Leo heard from few of those he wrote to. An investor agreed to a meeting, only to abandon it later.
It turned out that getting investors at 5,000 users was a pipe dream, especially back in 2006 when Singapore didn’t have a lot of tech startup-friendly investors. Yet they saw competitors with inferior products get funding, and that angered them.
The team reasoned that their competitors got money because of their MBA backgrounds, so investors trusted MBAs rather than a bunch of broke kids. That was the exact term investors used against Leo.
Leo faced objection, both from his family, and his then-girlfriend’s parents. His family owned a traditional mindset, believing that entrepreneurship was a hopeless career. Leo avoided defying his parents in their faces, but they could not stop him either since they were back home in China.
His girlfriend’s parents found Leo’s business bewildering since it eschewed revenue in favor of growing a user-base.
“His college romance was in a precarious position,” Steven writes. “During meetings, Leo would confidently tell everyone that the challenges were about to pass. But we know he frowns when no one is around.”
Forrest Li enters the scene
Under siege on all fronts, Leo reasoned that the best way out was to do an MBA at Stanford in San Francisco. Over there, he could raise money from American investors for GG. Soon after 2007 arrived, Stanford accepted the 24-year-old Leo.
“Upon getting the confirmation letter, a drunk Leo hugged me and wept, with no words to express how he felt. That year, the young Leo became GG’s father and the team’s big brother.”
Yet things started to turn around. GG had reached the 10,000 user mark. Advertising money came in and boosted revenue. Its financing problems were going away. Leo had no need to go to Stanford anymore.
But he was still worried: how far can GG go without an experienced manager at the helm – the proverbial ‘adult in the room’? As he mulled the question, a friend at Stanford, a student who interviewed Leo as part of the admission process, introduced him to Forrest Li, an MBA graduate who had worked in Motorola China. Leo found the solution he desperately sought.
“Forrest looked honest, and when we met he had a warm and generous smile, which made people comfortable,” Steven says.
He came on board as a part-time business development manager. After witnessing GG’s growth, Forrest asked to join full-time as the CEO, with Leo becoming the president.
“In hindsight, investors were right to call us kids: we made a series of painful mistakes. Forrest was too skilled a ‘professional manager’ for us to handle,” writes Steven.
Forrest explained his request this way: the president is the company’s head, and the CEO is responsible only for business operations. The founders don’t typically become CEOs, and engineers especially aren’t suitable for the role.
According to Steven, Forrest’s explanation confused them, but they agreed to the demands because they never valued company titles anyway. They failed to realize that the CEO was usually the big boss, with the president taking orders from him.
Forrest pressed further. He told Steven that CEOs who join a startup typically get 30 percent of the shares. Steven was afraid of that figure, because angel investors typically take only around 10 percent. Further, he later found out that CEOs who join a startup after its founding typically take less than a 10 percent stake. Forrest also asked that they give him the title of ‘co-founder’.
“Now that I think about it, this request to be a co-founder seems honest coming from him, compared to his claim that he is now the ‘founder’,” writes Steven.
Leo lacked experience to deal with all this. According to Steven, Leo was a person who slaves away for the company to the extent of sacrificing self-interest. Faced again and again with Forrest’s requests, he gave in, choosing to believe in his “Stanford aura”.
But Forrest’s requests may not be that unreasonable. He quit his job at MTV Networks to join GG, he did not collect a salary despite being a full-timer, and GG struggled despite its early traction.
Broken promises
In Steven’s perspective, things went from bad to worse for Leo. The share distribution was as follows: Leo held on to 35 percent, Forrest had 30 percent, a new investor held 10 percent, and another 25 percent went to the employees’ option pool. The company had three board seats, one for Leo, another for Forrest, and the last one for the investor.
A takeover became a legitimate threat. With this structure, Forrest and the investor could gang up on Leo and override his decisions. The investor turned out to be a classmate of Forrest’s wife. But Leo still believed Forrest would not override his authority.
The stage was set for Leo’s departure. But circumstances under which it happened are contentious. The threat of Forrest stamping on him may not have materialized.
The anonymous note, allegedly written by a venture capitalist who spoke to both parties, portrayed Leo as an irresponsible business partner who reneged on a promise to Forrest to give up his Stanford dream and focus on GG. The note alleges that Leo made his decision unilaterally:
[Forrest] and Leo sat next to each other, and Leo would be filling up some application forms from Stanford. So Forrest felt uneasy about their initial agreement. One day, Forrest could no longer tolerate it but asked Leo point-blank if he has changed his mind and would still go to the US to study. Leo admitted it: his parents asked him to do it, and he had no other choice. He emphasized he’s doing it for the company, and that he would continue working on GG.
Forrest called Leo out on it, citing how the 16-hour time difference and the remote working environment would make working for GG impossible. Getting a degree at Stanford is no walk in the park; it’s one of the most rigorous colleges in America.
In fact, leaving for the States could jeopardize GG’s ability to raise funds. The note’s author writes that investors could see Leo as a burden since he would be holding significant equity while contributing little to the company. Staff would be unhappy too since they would pour so much more into the company, only to get comparatively less shares in return.
But Leo was adamant. In September 2007, after a dinner together, he left and never returned.
In Steven’s narration, Leo’s flight to Stanford was a product of Forrest’s manipulation as well as an attempt to save the company from internal strife.
The two had one major difference in decision-making. Leo, with his science and mathematics background, was numbers driven, while Forrest, in Steven’s words, was more adept at “playing tai-chi analysis”. So whenever Leo raised his doubts, Forrest would tell him off for lacking business sense while emphasizing his own experience and proven track record. Steven writes:
“Leo likes to communicate transparently, and he willingly shares his frank thoughts with others. He lacks subtlety, and would never hide his viewpoint. But Forrest speaks little, and is rarely vocal about his position. Every time Leo speaks, he would think he has brought across a point clearly and reached a consensus. But the real result was that Forrest got to know Leo more, but Leo could not decipher what Forrest was up to.
While the conflict was simmering when Forrest first joined GG, the differences became irreconcilable once Leo shed control of the company.
Within half a year of Forrest’s entry, the pioneer members of the team were marginalized while GG achieved rapid growth after the investment.
“Aside from the code and the server, we have lost total control over the company,” Steven notes.
The company splintered into two factions. Yet Steven failed to explain how Forrest cut off the pioneers from the company, if it happened at all. The two sides may have distanced themselves naturally due to mutual dislike.
In the end, Leo’s decision to leave was informed by the famous Chinese phrase of how one mountain cannot have two tigers. If the two sides battled one another without ceasing, GG could not go far. Leo could have stayed and fought, after all, his side still owned the code and the servers.
But he reasoned he could bring GG more money by being in Silicon Valley. He could do anything and not obstruct the startup’s progress.
Steven describes Leo’s departure as tumultuous. Leo changed his mind before boarding a flight from Beijing to the States. Apparently, he was thinking of ways to escape, and his family compelled him to board the flight. They only left after the plane closed its doors.
Whitewashed?
According to Steven, Forrest wasn’t done “plundering” GG. In the States, Leo persuaded investors to back the company. He even accused Forrest of orchestrating an information blackout between the pioneer team and Leo. Then, in February 2008, Forrest sent out an email announcing that he was renaming GG as Garena. He kept Leo out of the thread.
“When Leo asked me on MSN why Forrest suddenly changed the platform’s name, I fell silent. And so did he.”
Forrest started calling himself the founder of Garena, and allegedly began whitewashing Leo’s name, both within the company and to the media. In a recent interview with PEdaily, Forrest says this was a miscommunication.
There were two Garenas – one which Leo contributed to under GG, and the new company Forrest registered which also used the Garena name, but it had nothing to do with Leo. The use of the name caused confusion in public and within the team with regards to the two entities, leading to accusations of whitewashing.
In any case, Steven wanted to stay on in the company at first. He believed Forrest dared not touch him because he, after all, held the technical expertise in the startup.
But he received another piece of bad news: Leo intended to sell his shares in GG. Steven saw it coming, after all, it was a battle with no prospects of victory, “a tragic drama where the child in the family gets maimed”. For the first time, Steven felt like leaving.
To the media, Forrest portrays Leo’s decision as a reckless one which left Garena in a lurch. Its financial status was still unstable, which meant Forrest had to make a huge sacrifice to buy back Leo’s shares, to the tune of $700,000. Leo’s initial demand was $1 million. He took months to scrape together the money, which included his own. The transaction was done in May 2008.
Forrest says he acceded to Leo’s demand out of goodwill. He could’ve easily liquidated the company right away, declare it bankrupt, and start fresh. He didn’t need to give Leo a single cent.
He adds that after the transaction, Leo was grateful as he needed the money to pay the school fees and some daily expenses.
“We were still working together after all, and no matter the result, I sought a dignified end to this. We’ve always had a decent private relationship anyway,” Forrest says, adding that Leo initiated the exit, which means that Steven’s claim that Leo and himself were ‘ousted’ is inaccurate.
Garena faced a rough transition in the months ahead. Without Leo’s expertise, Forrest scrambled to keep the platform afloat while seeking a CTO to put things in order. He found Taiwanese Yang Heng Xian, who eventually rewrote all the code for the Garena software.
The company discovered another problem. Leo previously told the media that GG had 500,000 users, but the team realized that their engagement levels were unusually low.
An investigation surfaced the truth: Leo obtained customer data of over 400,000 individuals from a website in China, and put them into GG’s database. These registered users didn’t even know they were there. The company removed the data since holding on to them is illegal and unethical in Singapore.
Forrest eventually did dissolve the old Garena, sensing that the business model of relying purely on ads and digital content sales would fail. He formed a new one in 2009, bringing over 80 percent of the staff from the old firm.
Garena would still remain an online platform for gamers, but under Forrest’s direction would become a game publisher. By 2012, the company was making S$31.5 million (US$25.1 million) in annual revenue – triple the year before – and S$7.86 million (US$6.23 million) in profits, according to a financial statement released online. Garena turned into a sustainable business under Forrest’s watch.
Picking up the pieces
As the dust simmered, Steven and Leo consoled themselves into thinking that at least their baby now has a chance to grow without internal strife. Steven then began figuring out his next steps. Leo, as usual, had a bright idea.
“I’m about to graduate from Stanford,” he told Steven in April 2009. “I plan to start a company in China, and I’m not heading back to Singapore.”
“So, what do you plan to do?”
“I’ve not thought it through, Steven, but why don’t we do it together?”
Steven remembered that conversation vividly, because it brought him back to that moment four years ago, when on a rainy day, Leo asked him: “Do you want to have your own business before you graduate?”
Steven returned to China, sold his shares in Garena, and devoted four years to Jumei.
Vanessa Tan and Charlie Custer contributed with translation work.