Deal focus: Xingyun’s trade flow proposition

Xingyun Group is a start-up in demand. The China-based digital supply chain provider for cross-border e-commerce closed the first tranche of its Series C round last year with $200 million in commitments. On completing a fundraising roadshow for tranche two, it received a dozen term sheets, over half of them offering to write checks of $100 million.

Xingyun ended up raising $600 million, about one-third of it coming from three lead investors: HI Transformational Fund, Yunfeng Capital, and Crescent Point.

HI Transformational Fund’s background might have tipped the balance in its favor. The private equity firm was incubated by Harvest Fund Management, one of China’s largest mutual funds. This translates into deep insights into both primary and secondary markets – a useful tool for a growth-stage start-up pondering an IPO.

“In general, the Hong Kong market gives more of a premium to size, while US markets give more of a premium to growth. It is risky for companies with a relatively small market capitalization or weak liquidity to go public in Hong Kong because they can trade at a discount. A fast-growing business – no matter what the size – can get a good premium in the US,” says Xiaochuan Qiu, a partner at HI Transformational Fund.

Alibaba Group’s secondary listing in Hong Kong in 2019 established a trend. Numerous other companies have followed in its footsteps, from online game developer NetEase to live streaming platform Bilibili. Search giant Baidu is expected to be next. Qiu suggests that Xingyun could take the same path.

“You can first enjoy your growth premium in the US. Then, once you’ve reached a relatively large size, you can consider a secondary listing in Hong Kong and get that size premium. In this way, you take advantage of both stock markets,” he explains.

Xingyun has helped nearly 200,000 small and mid-size Chinese retailers sell 50,000 product lines representing 3,000 overseas brands. It does this by providing the supporting online-to-offline infrastructure that connects these retailers to 200 domestic e-commerce platforms and 150 logistics centers. Retailers take orders from consumers, request the relevant items from Xingyun’s platform, and input a delivery address. Xingyun takes care of the rest.

According to Qiu, the company’s growth potential is inextricably linked to the habits of Generation Z shoppers. Key opinion leaders such as bloggers and internet celebrities wield immense influence over these purchasing decisions – to the point that an individual can build a sourcing, marketing, and delivery operation around themselves.

“These sellers have no financial and technology resources to manage and continuously iterate the supply chain. If we can gather them together, taking over the supply chain management, offer real-time delivery to their end-customers, and give them greater bargaining power, we can form a new ecosystem,” he says.

Xingyun is no longer content limiting itself to the distribution of imported goods; it wants to ship Chinese brands all over the world. The company is well-positioned to do this because it already sits at the center of a giant trade flow, where goods are passed to merchants. The same information and infrastructure can be used to enable transactions flowing out of China as well as those flowing into the country.

Moreover, it is not necessarily just a China-centric business model. The company could feasibly facilitate sales of US-made goods in Europe and vice versa and it has a ready-made network across different jurisdictions used to handle imports. Part of the proceeds of the Series C extension will go towards expanding this coverage to more than 70 territories.

“We often talk about the concept of customer flows, which relate to online traffic – we chase consumers and look at what they buy. But Xingyun founder Billy Wang pursues a different logic, he follows the goods,” Qiu says. “That focus on trade flows will help Xingyun expand globally, while some other companies struggle to enter overseas markets.”

HI Transformational Fund targets enterprise technology investments that are at an inflection point in their development. The firm closed its debut US-dollar denominated fund at $110 million last year. It also has three renminbi vehicles and several project funds, taking total assets under management to RMB10 billion ($1.5 billion).

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• Topics
• Greater China
• Expansion
• Technology
• Support services
• China
• HI Transformational Fund
• Yunfeng Capital
• Crescent Point
• TMT
• Logistics
• e-commerce
• Growth capital