PE-backed Xiaomi set for Hong Kong IPO

While the initial filing gives no indication as to the size or pricing of the offering, the company is reportedly seeking to raise at least $10 billion at a valuation that could reach $100 billion. It is set to be one of the largest-ever IPOs in Hong Kong and the first substantial offering since the introduction of weighted voting rights, which allow founders to retain control of companies even after their equity interest has fallen below 50% due to new share sales.

Founded in 2010 by serial entrepreneur Lei Jun (pictured), Xiaomi had three core business areas: the MI smart phone series, the Android-based MIUI operating system (OS), and messaging service MiTalk. Coming in at less than half the cost of handsets with comparable specifications, the company's debut smart phone received 300,000 pre-orders in the first 34 hours, thanks to innovative online marketing.

The company received $10 million in Series A funding from Morningside Ventures and Qiming Venture Partners. They were joined by IDG Capital Partners for the Series B round in late 2010. As Xiaomi’s handsets gained traction, its valuation rose. The Series D and E rounds in 2012 and 2013 valued the company at $4 billion and $10 billion, respectively. Then in late 2014, Xiaomi raised $1.1 billion at $45 billion, briefly becoming the world’s most valuable technology start-up.

But two years later, the company’s rapid growth caught up with it: handset sales were down amid rising competition from the likes of Oppo and Vivo, supply chains were challenged, and ambitious plans for international expansion weren’t delivering. Xiaomi confirmed in mid-2017 that it had raised $1 billion in debt funding – its second debt facility of that size – amid reports that stakes in the company were available at deep discounts to the last equity funding round.

The turnaround that has culminated in a mooted $100 billion public market valuation was based on an online-to-offline retail strategy and an investment portfolio constructed with a view to creating a technology ecosystem. As of March, 331 retail stores had been rolled out – up from 51 at the end of 2016 – offering Xiaomi’s core consumer electronics as well as products manufactured by over 210 companies. Of these, 90 focus on the development of smart hardware and lifestyle products.

Xiaomi remains among the top five smart phone manufacturers globally, but the company claims its ecosystem extends much further. There were 190 million monthly active users of the MIUI operating system as of March, and 1.4 million people had at least five Xiaomi-connected devices, excluding smart phones and laptops. The company says there are more than 100 million devices – again, excluding smart phones and laptops – in its ecosystem.

Xiaomi generated RMB114.6 billion ($18 billion) in revenue last year, up from RMB68.4 billion in 2016. Smart phones still accounted for 70% of sales despite ongoing efforts to diversify into internet services and lifestyle devices. Over the same period, the company swung from a net profit or RMB491.6 million to a loss of RMB43.9 billion. The loss was largely driven by changes in the fair value of convertible redeemable preferred shares.

Lei Jun currently holds a 31.4% stake in the company, while Lin Bin, one of the other founders, has 13.3%. Morningside owns approximately 17.2%, Qiming has 3.9%, and DST Global has 6.9%. Other investors – none of which owns more than 2% - include Matrix Partners China, Hopu Investment, IDG, Shunwei Capital, Nokia Growth Partners, Dragoneer Investment, All-Stars Investment, and Ratan Tata’s RNT Associates.

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• Topics
• Greater China
• Technology
• IPO
• China
• Hong Kong (China)
• Xiaomi
• Qiming Venture Partners
• Morningside Technologies
• All-Star Investments
• DST Advisors
• IDG Capital Partners