@SoonCrush: Xiaohongshu's Hong Kong IPO will most likely not fall through, but the timing and valuation will be heavily discounted. But this whole thing is truly entertaining—kept me laughing till late at night. The problem with the VIE structure is that when companies want to show off their strength, they say they are one with their domestic company. When they want to avoid risks, they say the domestic company has nothing to do with them...

Xiaohongshu’s Hong Kong IPO is most likely not going to fall through, but the timing and valuation will take a big hit. Still, this whole thing is truly dramatic—I was laughing so hard I couldn’t sleep late at night.

The problem with VIE structures is exactly this: when a company wants to show off its strength, it says “we are one and the same with the domestic company.” When it wants to avoid risk, it says “the domestic company has nothing to do with us—sorry, you’re looking for the wrong person.”

Choosing a corporate structure is the company’s business, but why screw over your own employees?

And from what I’ve seen from the account of the person involved, Chen Hao, he wasn’t the only one who experienced this.

After the public backlash, more than 50 former colleagues came to him crying—all of them were terminated without cause and had their stock options zeroed out. It just shows how common this kind of thing is in the workplace—so common that people don’t dare speak up.

And now? Xiaohongshu’s HR team, in an attempt to save money, managed to turn this into a textbook legal case.

So it’s not just about losing the lawsuit and paying damages—the affected party has taken the final judicial ruling and filed a complaint with the Hong Kong Stock Exchange.

My guess is that Xiaohongshu will now face a delayed listing, and its valuation will also be discounted. After all, in the ESG investment framework, the “S” (Social) score has taken a major hit due to the intentional layoffs that harmed employees.

And then there are the lawsuits from the other 50+ employees coming down the pipeline, plus the strict future review by the China Securities Regulatory Commission for Xiaohongshu’s overseas listing filing. I can only say: this is just too damn entertaining!

Homework Copy (Gossip Edition) (@chaozuoye): Hilarious—Xiaohongshu’s IPO failed because of layoffs.

To make its financials look better for the IPO, Xiaohongshu saved money by firing dozens of employees who held stock options.

One of those employees went through labor arbitration. Xiaohongshu’s legal team basically argued:

“The options were issued by an overseas entity, unrelated to the domestic company. If you want to sue, sue the overseas company.”

Translation:

You’re suing Lu Xun—what does that have to do with Zhou Shuren? 🤣