Tiger Global-backed grocery delivery start-up Missfresh is struggling to survive as it closes operations across China, becomes embroiled in an accounting scandal and seeks capital to keep its business afloat.
The Nasdaq-listed company’s shares have lost 97 percent of their value since its IPO in June last year, and this week it announced it would further dilute struggling shareholders by issuing 300 million shares to coal mining group Shanxi for Rmb200 million (Rmb30 million dollars).
The sale will see Shanxi Donghui Group acquire approximately 30 percent of Missfresh and will be able to appoint two directors as part of the transaction.
One person close to the company said it had held talks with a wide range of suitors in recent months, including GOME Electrical Appliances, SF Express and China Resources, as management looked for financing or a buyer.
The turnaround marks a major turnaround for Missfresh, which attracted more than $1 billion in funding from investors such as Tiger Global and Goldman Sachs and was valued at $3 billion in New York a year ago. His market value has now dropped to $88 million.
It’s the latest investment to sour Tiger, which has been hit with losses of about $17 billion during this year’s selloff in publicly traded technology stocks, marking one of the biggest drops in the dollar for a hedge fund in history.
Missfresh pioneered a strategy of blanketing cities with mini-warehouses that combined storage of a small number of high-volume items with delivery capability, allowing its pink riders to ship fresh fruit and meat to Chinese households in about 30 minutes.
Management argued that the low-cost model would allow Missfresh to cost-effectively deliver groceries, a notoriously difficult proposition. Investors stepped up to fund the venture, with Tiger investing $117 million over several years for a 12 percent stake, while Goldman Sachs put in $66 million.
The funding launched Missfresh’s expansion into 16 Chinese cities where it had 625 warehouses by June 30 last year. But a person close to Missfresh said the company “blindly expanded, blindly opened new warehouses and blindly entered new cities”.
“Cash flow is drying up. . . if we don’t pay vendors on time, it will cause stock shortages,” said the person, who asked not to be named.
Missfresh denied it was looking for a buyer and said the company had enough stock.
Although Missfresh was unable to issue audited financial statements or its annual report for the year to Dec. 31, the company estimated that losses last year reached Rmb3.7 billion.
The cash-strapped start-up is also facing more lawsuits in China as debts pile up. One supplier surnamed Li told the Financial Times that his company was still owed more than Rmb226,000 for fruit sold to Missfresh in 2020.
“All payments went smoothly in 2019, but from 2020 they started delaying payments, so we stopped shipping. . . and we are taking it to court,” Lee said.
This year, Missfresh has closed its mini warehouses in at least nine cities, leaving mostly customers in Beijing, Shanghai and Tianjin to enjoy the fast 30-minute delivery service.
Earlier this month, the company admitted that employees in one business unit created “suspicious transactions” that led to revenue being overstated by Rmb677 million in the first nine months of last year.
The company said an independent audit found no evidence of executive involvement and that the employees involved have left the company. With share prices falling below $1, Missfresh faces the threat of delisting in November.
Missfresh said that the closure of warehouses in some cities was done to reduce costs and that some products from suppliers did not meet standards, which may have caused payment delays. Tiger Global did not immediately respond to requests for comment.