Shein’s long-awaited public listing has delivered a stark valuation reset for some of the private investors that backed the fast-fashion retailer during its rapid expansion, according to a report by Bloomberg.
The company raised $1.7bn in its Hong Kong IPO after years of considering potential listings in London and New York. However, its market value at listing was around 73% below the approximately $98bn valuation it reached in early 2022.
That decline means a number of investors that backed Shein at later stages, including Boyu Capital, Coatue Management, Thrive Capital and General Atlantic, are facing significant paper losses on those investments, based on the IPO valuation.
The impact varies considerably between investors, however, depending on when they invested and whether they continued to participate in subsequent funding rounds.
HSG, formerly known as Sequoia China, was an early backer, investing during Shein’s Series C round when the company was valued at approximately $2.4bn. It acquired both newly issued and secondary shares and subsequently participated in later fundraising rounds as Shein’s valuation climbed.
Investors that participated in Shein’s Series D financing at the company’s peak $98bn valuation are receiving some protection from the dramatic fall in value. According to documents filed in Hong Kong, those investors are entitled to billions of dollars in compensation and interest payments following the listing under a conversion adjustment agreed with the company.
Shein’s valuation journey highlights the challenges facing private equity and venture capital investors attempting to build exposure to Chinese companies amid a more uncertain regulatory and geopolitical environment.
Beijing’s sweeping technology-sector crackdown exposed investors to a dramatically different regulatory landscape, while high-profile setbacks such as Ant Group’s abandoned IPO demonstrated the potential risks surrounding Chinese companies approaching the public markets.
Shein has faced additional scrutiny because of its Chinese origins and corporate structure, despite moving its headquarters to Singapore. Its path towards an IPO has been further complicated by geopolitical tensions and concerns over its international operations.
The company is also contending with more difficult operating conditions. US tariffs and higher input costs following the conflict in the Middle East have added pressure to a business model built around shipping low-cost apparel across international borders. Shein’s preliminary prospectus also pointed to slowing revenue and profit growth.
For some of its earliest investors, however, the IPO still represents a potentially substantial success.
IDG Capital invested when Shein was valued at just 1.1bn yuan ($164m) and increased its exposure in the following financing round. The enormous potential returns generated by such early investments help explain why institutional investors continue to seek opportunities in China despite the regulatory and geopolitical risks.
