Exclusive | Actually, DST Bought Xiaohongshu Secondary Shares

By Qian Ren

Edited by Zhiyan Chen

According to the Financial Times, Xiaohongshu recently completed a new funding round at a $17 billion valuation. DST Global and Hongshan co-invested, with other investors including Hillhouse Capital, Boyu Capital, and CITIC Capital. "An Yong Waves" has learned from multiple sources that this was not, as rumored, a "pre-IPO final new share issuance," but rather a secondary share transfer.

Secondary share transfers before an IPO are extremely common. When a high-quality private-market company has no near-term plans for a new funding round, investors eager to get in must find alternative routes — buying existing shares.

Multiple industry insiders say Xiaohongshu hasn't been short on cash these past two years. Prices for its secondary shares had at one point been rumored to approach $20 billion, but given current market conditions, DST's actual transaction price came in around $17 billion.

These sources told us that early investors had exit needs, and Xiaohongshu itself orchestrated the secondary sale. "Nearly every dollar-denominated PE firm looked at it. There was a $100 million minimum to buy in." The capital movement effectively began in March-April of this year.

Regarding this round and IPO rumors, "An Yong Waves" reached out to Xiaohongshu for comment; the company declined to respond.

As an internet company founded over a decade ago, Xiaohongshu has long been a household name, but competition for its shares in the capital markets has intensified dramatically since 2023.

Everything unfolded under two key variables.

In September 2023, sources said Hongshan bought into Xiaohongshu at roughly $14 billion — about 30% below its previous round valuation, and possibly even lower. Hongshan had not previously held Xiaohongshu shares. Once the news broke, multiple investment institutions privately sought opportunities to "buy Xiaohongshu shares in a similar manner," and were willing to pay slightly above $14 billion.

A more critical variable was likely Xiaohongshu's turn to profitability. Its 2023 monthly active users grew 20% year-over-year to 312 million; revenue surged 85% to $3.7 billion. Net profit hit $500 million as expected, compared to a $200 million loss in 2022.

At this point, Xiaohongshu had clearly become the "stronger" party in any fundraising dynamic. According to 36Kr's capital intelligence board, 2023 buyers seeking Xiaohongshu shares included family offices, overseas Chinese funds, and wealth management firms running special purpose vehicles. $14 billion was the market-accepted price by year-end. Later, Xiaohongshu itself stepped in to control secondary pricing, largely maintaining it in the $14–16 billion range.

Also worth noting is DST. Over the past two years, this globally renowned PE firm has barely invested in China.

In China, DST was once counted among the four mega funds alongside Tiger Global, Coatue, and SoftBank Vision Fund. In investment circles, they were known for deep pockets and exceptionally swift decision-making.

If one were to tally the most influential figures in the internet world, DST founder Yuri Milner would undoubtedly rank among them. This investment titan, who swept through both Chinese and American tech, backed iconic companies including Facebook, Zynga, Snapchat, and Twitter, and made major bets across numerous Chinese firms — from early investments in Alibaba, JD.com, Meituan, and ByteDance, to later deals in cross-border e-commerce companies SHEIN, Cider, and PatPat, edtech platform Yuanfudao, and SaaS platform Fentiaotong.

Perhaps most memorable was DST's role in China's last major internet battle four years ago — community group buying. DST simultaneously invested in Shihuituan and Dingdong Maicai. In March 2021, Alibaba and DST co-led Shihuituan's $750 million Series D. This very investment rapidly divided the "unexpected" community group buying war into old and new camps, setting off fierce hand-to-hand combat.

A dollar-fund investor told "An Yong Waves," "Xiaohongshu may be one of the few remaining assets we can actually look at and invest in."

Image source: IC Photo

Layout: Nan Yao