Startup scam shocks Wall Street

Tram Ho

Last year, in a rush to raise more money, the leaders of Chinese grocery delivery app Missfresh made a series of pledges. In the end, the company stood firm and successfully IPOed on Nasdaq.

Missfresh is a pioneer in fast grocery delivery in China. They have raised $1.8 billion from investors including tech-focused funds run by Tiger Global and Goldman Sachs. Missfresh was valued at $3 billion in its IPO a year ago, just before collapsing this summer.

Missfresh’s problematic and unprofitable business model has led executives to constantly seek ways to raise capital, including deals made shortly before the IPO, which has now become the focus of the company. investor lawsuits.

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The case of Missfresh exposes the danger of investors over-indulging in the hype of a company seen as a pioneer in the Chinese tech start-up scene in the hope of a quick profit.

Missfresh raised $365 million last year from the Qingdao local government and an investment fund founded by Carl Chang, a Southern California real estate mogul and branch president of Project Bank. San Francisco Federal Reserve. He was accused of being defrauded by Missfresh and the banker JPMorgan.

As the era of cheap money ended, Missfresh admitted to exaggerating revenue and running out of cash after receiving a “last resort” of $30 million from a coal mining corporation in exchange for a third of the company. . The deal takes place in July.

Most of Missfresh’s workforce has now been laid off, many still owed two months’ wages. Unpaid creditors have flocked to the company’s offices around the country to protest, and scores of their delivery drivers have begun switching to rival companies.

I’m driving for Meituan and now ,” said a 35-year-old driver as he stuffed two hot lunches into his pink Missfresh box. “They owe people a lot of money.”

Missfresh spokesman Chen Yanqing said the company is working on a debt restructuring plan for its main grocery delivery business.

Just over a year ago, when the company’s future was still bright, Xu as usual was continuing to seek funding to “polish” Missfresh until the planned IPO in New York in the summer. The company had $132 million in cash in its account at the end of December 2020 but had spent about $90 million each quarter.

Missfresh has no hope left ,” said an investor in Beijing.

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In eight years of fundraising, Xu has been snubbed by most of China’s traditional tech investment funds. So, in the lead up to the IPO, Missfresh’s team turned the focus of “hunting” on investors to the local government of Qingdao and Mr. Chang in Orange County.

Chang’s company Kairos Investment Management advertised the deal far and wide. The “strategic relationship” with Missfresh means that investors will receive “attractive discounts” for “one of the most anticipated Chinese corporate IPOs of 2021,” according to the company’s presentation. Kairos investor is reported by the Financial Times.

Our stock is at $5.27 a share valued at $3.5 billion, ” Chang texted an investor on May 31, 2021. “ JP Morgan mentioned in our exclusive call last week that it conservatively believes the valuation of the company is around $12 billion, ” he added.

During the call, a JPMorgan banker explained how they achieved a valuation of $12 billion. The bank boss said that Missfresh’s delivery segment deserves a similar valuation multiple to Amazon’s, while being able to compare other parts of its business with Alibaba and Shopify.

We are using multiples quite conservatively ,” the person said.

Xu added bravely: Missfresh’s target market is worth 2.8 trillion yuan ($405 billion) and it’s the market leader. “ We are suffering a slight loss but the cash flow is still positive,” he stated. We have always placed the greatest emphasis on high-quality growth .”

Less than a month later, on June 25, Missfresh IPOed on Nasdaq but with a valuation of just $3 billion, meaning Chang’s fund was already losing money before trading started.

A person familiar with the situation said: “ This investment lost as soon as they bought it before the IPO due to miscalculation. Then everything fell into a death spiral .”

Shares of Missfresh fell 26% in its first trading day. In early November, Chang’s fund saw the value of his investment drop 75% and he emailed his investors with a new plan to ” redress the injustice that we and our investors are doing.” our private has to suffer ”.

Kairos signed a deal with Xu, allowing the fund to resell its shares over a period of about two years at a 20% profit, Chang explained. The transactions are part of a lawsuit by Connecticut-based hedge fund Solaia Capital, which accuses Chang of defrauding the investment firm of $500,000.

At the end of June, Missfresh owed its suppliers 2 billion yuan and had only 200 million yuan in cash, most of which had been frozen by Chinese courts due to unpaid bills, according to a former employee with access to the company’s books. The company closed its grocery delivery business on the fly late last month.

JPMorgan declined to comment. Missfresh says its IPO process and all communications with investors are in compliance with the regulations.

The company almost disintegrated, causing the city of Qingdao to lose an investment of up to 290 million USD.

The investment also makes Qingdao partly responsible for Missfresh’s failures against unpaid suppliers like Zhang Le, which is still 1.8 million yuan in debt for supplying meat snacks. Dried beef and dried seaweed for digital supermarket. “ They are a shareholder so they have to bear some responsibility, ” said Zhang.

In recent weeks, she has joined a group of more than 40 creditors, collectively owed tens of millions of dollars, protesting against payments at Missfresh offices across China.

Source: Financial Times

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Source : Genk