(Bloomberg) — Xiaohongshu’s biggest shareholders are in talks to sell shares in the Chinese Instagram-like service at a valuation of at least $20 billion, drawing interest from Tencent Holdings Ltd. and other big names as a potential TikTok US ban approaches.
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Backers GGV Capital, GSR Ventures and Tiantu Capital are negotiating to sell part of their holdings in China’s closest parallel to Instagram, according to people familiar with the matter. Funds that showed interest included existing stakeholders HongShan Capital Group (formerly Sequoia China Capital) and Hillhouse Investment, the people said, requesting not to be named because the matter is private. Tencent is also considering whether to buy more shares, one person added.
A successful deal will propel Xiaohongshu’s valuation back to levels last seen during its peak in 2021, just as the social media firm welcomes a flood of American users fleeing TikTok. That would be a boost for an initial public offering that the industry expects to happen as soon as this year, depending on market conditions.
Still, the transaction has yet to close because a raft of existing shareholders have a right of first refusal and priority to buy shares in any sale, the people said. Negotiations may still fall through if potential buyers decide to hold off for now, particularly as the Tiktok situation remains fluid. Xiaohongshu — considered one of several viable alternatives to TikTok — became the most downloaded free app on iOS for the first time this week.
Started in 2013 by Charlwin Mao Wenchao and Miranda Qu Fang as a shopping guide for Chinese tourists, Xiaohongshu now counts some 300 million monthly active users. The company, whose name literally means “little red book,” started out like its US cousin as a repository of personal travel and dining photos before branching out into reviews and live shopping.
Even before a potential TikTok ban gained momentum, some investors have been trying to jump on its sizzling post-Covid growth.
Xiaohongshu — loosely pronounced “Shau Hong Shew” — stands out in China’s startup sector, which has been pummeled by policy crackdowns and shrinking global capital because of US-Chinese tensions. The company was on track to double profits to more than $1 billion in 2024, Bloomberg News reported in December.
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A number of big fund houses including a Citic Group fund affiliate and Loyal Valley Capital scooped up shares of Xiaohongshu at a valuation of around $17 billion-plus in the second half of 2024, according to people familiar with those deals. That dragged the company’s equity below the $20 billion valuation it last fetched in 2021, during the peak of China’s internet industry boom.
A GGV representative declined to comment. Xiaohongshu representatives didn’t respond to requests for comment. Tencent, Hongshan, the Citic affiliate, Hillhouse, GSR and Tiantu didn’t respond to emailed requests for comment. And a representative for Loyal Valley couldn’t immediately comment when contacted.
Xiaohongshu’s rapid growth comes in part at the expense of incumbent e-commerce leaders Alibaba Group Holding Ltd. and JD.com Inc.
Like ByteDance Ltd.’s Douyin, the startup enjoyed explosive growth through getting influencers to sell products to millions of users. When shoppers scroll through videos and photos, they can buy tagged products with just a few clicks.
Xiaohongshu’s other investors include ZhenFund, Alibaba, DST Global and Boyu Capital. GGV, which split into Granite Asia and Notable Capital, holds shares in the startup via its existing funds.
–With assistance from Claire Che and Zheping Huang.
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