Shein IPO leaves some private backers facing 73% valuation reset

Shein's highly anticipated public offering has resulted in a significant equity adjustment for certain private backers, according to Bloomberg. The Chinese fast-fashion giant raised $1.7 billion during its Hong Kong IPO, but its market value at listing was roughly 73% lower than the $98 billion valuation it reached in early 2022.

Several investors, including Boyu Capital, Coatue Management, Thrive Capital, and General Atlantic, are now grappling with substantial paper losses on their investments, judging from the IPO valuation. However, differences in the impact depend on when and how much each investor participated in Shein's subsequent funding rounds. Early backers, such as Sequoia China (formerly HSG), who invested during Shein's Series C round when the company was valued at around $2.4 billion, have acquired and held both new and secondary shares, ultimately benefiting from the company's subsequent valuation climb.

Investors who participated in Shein's Series D financing at the company's peak $98 billion valuation are protected by a conversion adjustment agreement that entitles them to billions in compensation and interest payments following the listing. Shein's valuation journey underscores the challenges faced by private and venture capital investors trying to gain exposure to Chinese companies amidst a more uncertain regulatory and geopolitical environment.

Beijing's strict technology-sector regulations and high-profile setbacks, like Ant Group's abandoned IPO, have exposed investors to a drastically different regulatory landscape and potential risks associated with Chinese companies going public. Shein's path to an IPO was complicated by additional scrutiny due to its Chinese origins and corporate structure, despite moving its headquarters to Singapore.

The IPO process was further complicated by geopolitical tensions and concerns over the company's international operations. The company is also struggling with more challenging operating conditions, including US tariffs and rising input costs following the conflict in the Middle East, which have put pressure on a business model built around shipping low-cost apparel across international borders.

While Shein's preliminary prospectus warned of slowing revenue and profit growth, some of its earliest investors, such as IDG Capital, still view the IPO as a potentially substantial success due to the enormous potential returns generated by their early investments.