Xiaohongshu Secures Financing Worth $500 Million, Valuation Reaches $20 Billion

Chinese media outlet 36Kr reported on Monday that Xiaohongshu, a lifestyle sharing platform, recently completed a new round of financing worth $500 million, led by Temasek and Tencent, followed by previous shareholders such as Alibaba, Tiantu Capital and Genesis Capital.

The company’s valuation now sits at about $20 billion. Xiaohongshu commented that this round of financing was mainly made up of investment from prior shareholders.

Xiaohongshu, which was founded eight years ago, has completed five rounds of financing to date, the latest of which took place in June 2018. At that time, the company secured a $300 million round D financing deal led by Alibaba. However, 36Kr‘s sources said that Xiaohongshu also conducted a round of private financing in the first half of last year. By that time, its valuation had hit $5 billion, and by the end of last year, it had risen to $6 billion.

According to Quest Mobile’s data, since March this year, Xiaohongshu’s monthly active users (MAU) and daily active users (DAU) have been rising. In August, its MAU exceeded 130 million, while its DAU exceeded 45 million, both increasing by more than 70% year-on-year.

Xiaohongshu has two main sources of income: advertising and e-commerce. According to previous media reports, in 2020, its advertising business revenue tripled and hit between $600 million to $800 million, accounting for about 80% of its total revenue. Its gross merchandise volume (GMV) of e-commerce goods reached about $1 billion (including self-operated e-commerce and third-party platform e-commerce). Its e-commerce business revenue accounted for about 15%-20% of total revenue in the same year.

A leading private equity institution told 36 Kr that, after this round of financing started, it had looked into Xiaohongshu as a company, but decided to give up investment for two reasons. First, as a content company with over 100 million users, Xiaohongshu now has potential regulatory risks. Second, its source of income relies heavily on advertising, which is difficult to support its growth valuation.

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Earlier, it was reported that Xiaohongshu was considering listing in Hong Kong instead of the U.S. with a bid of at least $500 million. The deal has been denied by Xiaohongshu. Recently, Xiaohongshu has also been plagued by negative news, including heavily altered scenic spot photos and ghostwritten content.