Xiaomi’s IPO will make dozens of lucky workers millionaires

Their stake in the company may soon be worth RM4b to RM11.9b, depending on the stock sale

Hong Kong • Eight years ago, before China’s Xiaomi Corp had sold a single smartphone, 56 of the earliest employees pulled together US$11 million (RM43.67 million) to invest in the start-up. Rank-and-file workers dipped into savings and borrowed from parents. One receptionist tapped her dowry.

Today, they’re the Lucky 56. Xiaomi is one of the most successful smartphone makers in the world and it’s prepping a blockbuster initial public offering (IPO). Their stake in the company may soon be worth US$1 billion to US$3 billion, depending on the stock sale. That works out to US$36 million each at the midpoint.

The fortuitous decision began with workers like Li Weixing, an ex-Microsoft Corp engineer who was employee No 12. Back in 2010, staffers were working seven days a week out of a bare-bones Beijing office park to get the unknown mobile-phone maker up and running. When word spread that Lei Jun (picture) and his co-founders were chipping in their own money for a venture financing round, Li and others wanted to join them.

Weixing, who helped create Xiaomi’s mobile operating system, had around 500,000 yuan (RM310,000) saved up. “It wasn’t enough to buy a house, so he asked if he could invest in Xiaomi instead,” CEO Lei said in a March interview at Beijing headquarters. “We said, we can’t let only Weixing invest, so we let everyone in.”

Some early Xiaomi employees were already wealthy, including Lei who made his first fortune leading software developer Kingsoft Corp and investing in Chinese startups. But many staffers in those days had to scrape together cash to participate. Weixing and others preferred invest- ing in an effort they knew rather than the uncertain stock market. Now Weixing stands to make US$10 million to US$20 million, depending on Xiaomi’s IPO value.

It was employee No 14, a receptionist now working in Xiaomi’s human resources office, who contributed her dowry of around 100,000 to 200,000 yuan. That stake could be worth between US$1 million and US$8 million. Xiaomi declined to make her or other early employees available for interviews. Weixing declined to comment.

After a first surge of interest, Lei decided to cap rank-and-file investments at about 300,000 yuan each to limit risk and stop employees from taking out loans to invest. “The interest was overwhelming, but we put a cap on it because we worried, if everyone put in too much money, it would be very bad if the company failed,” said co-founder Li Wanqiang in a March interview.

The group collectively stands to gain as much as US$3 billion if Xiaomi floats 15% of the company at a US$100 billion valuation when it goes public in Hong Kong later this year, according to calculations based on Xiaomi’s prospectus. A more conservative estimate would yield a US$1.4 billion payout for the 56 employees if Xiaomi floats 25% of the company at a US$50 billion valuation. (Calculations assume existing shareholders haven’t sold their stakes and the US$11 million from employees was invested during what Xiaomi’s prospectus refers to as Series B-2.) Employees stand to make roughly 200 times their original investment. A greater number of Xiaomi’s workers should be enriched through stock options, which don’t require capital upfront.

Lei and his co-founders put in the heftiest amounts in that round and stand to make far more than the average. Five are poised to become newly minted billionaires, according to Bloomberg calculations, and Lei’s stake, accumulated over several investment rounds, could be worth US$27 billion. Investment powerhouses from Qiming Venture Partners to Morningside Group are also expected to reap mega-returns when Xiaomi goes public this year in what may be the biggest IPO since Alibaba Group Holding Ltd’s 2014 debut.

None of this was obvious in 2010. Back then, Xiaomi was really just an idea in Lei’s head, said Hans Tung, one of his earliest backers. Lei was a local tech celebrity with one million follows on Weibo, China’s answer to Twitter, but it was far from clear he could compete with Apple Inc, Samsung Electronics Co and Huawei Technologies Co. He would host smoke-and-booze-filled meetings at Beijing hotels, showing up with bags of cell phones and gadgets for his friends to try.

But after Lei lured seven co-founders away from cushy jobs at Microsoft and Alphabet Inc’s Google in a matter of months, Qiming, where Tung worked at the time, and Morningside decided to bet on him. They led fundraising rounds in late 2010 and early 2011 that valued the company at about US$250 million. That’s when employees put in their US$11 million too. Now Xiaomi is the fourth-largest smartphone maker in the world and likely will be valued at more than 200 times that amount.

“Lei is the founder. He could afford all the capital. But why did he share with everyone?” said Morning- side co-founder Richard Liu. “He has a vision and he can build up that strong belief and people are willing to take the huge risks.”

Silicon Valley is known for its secret millionaires who were early joiners at companies like Facebook Inc. Among the more famous examples is Bonnie Brown, the massage therapist who bargained for stock options to accompany the US$450 a week she was making at her part-time job at Google. She retired a millionaire after five years at the company.

In China, such riches are virtually unknown. “These employees already had enough risk working for a small, untested start-up and it showed this great enthusiasm,” said Tung. “They turned out to be right.” — Bloomberg