An employee holds a MI Mix 2S smartphone inside a Xiaomi Corp. store (Photographer: Christophe Morin/Bloomberg)

Following the Twists and Turns of Xiaomi’s IPO

(Bloomberg) -- In anticipation of the smartphone maker's upcoming IPO, Xiaomi founder Lei Jun handed out a set of screwdrivers to a group of visiting bankers a few weeks back. The Xiaomi-designed screwdrivers were intended as a token of appreciation.

The gift was also meant to remind them to think of Xiaomi as a creator of smart gadgets and Internet services, rather than just a hardware maker. There was just one problem: On the bankers' flights back, people familiar with the story say, the screwdrivers set off security alarms at the Beijing airport and were confiscated by security guards who stacked them up in a tall pile near the metal detectors. And so it goes for Xiaomi, which has managed to go from one of the most anticipated tech IPOs of the year to a cautionary tale.

The screwdriver goof illustrates a string of blunders for Xiaomi, which launched its IPO this week and is expected to start trading on the Hong Kong Stock Exchange on July 9. First came a valuation rollercoaster, where execs pushed for $100 billion, which bankers downsized to $50 billion to $70 billion after investors couldn't quite stomach the lofty target. Then came a botched attempt to become the first Chinese tech company to simultaneously list abroad and in mainland China through a plan hatched by the government to lure tech firms. The Chinese Depository Receipts were supposed to help Xiaomi raise an additional $5 billion or so and jazz up mom and pop investors. The CDRs are on hold, for now. 

Other unsettling factors include Xiaomi's reliance on its two big business partners (its chip supplier and mobile network provider) as cornerstone investors, a weak reception from initial individual orders, and a 9.83 billion yuan ($1.5 billion) no-strings-attached stock award for the CEO tied to the IPO but unaccompanied by any kind of future performance target.

Sure, shares of Xiaomi could still skyrocket come July (though lackluster performance by recent Chinese tech IPOs suggest otherwise). But either way, Xiaomi's stumbles should serve as a warning to the two dozen Chinese tech companies expected to go public over the next year, including Meituan, the food delivery and restaurant reviews that filed for an IPO this week.

Key takeaways: Manage the expectations of investors, bankers and regulators proactively, and prep company executives on the realities of operating a publicly-traded company, which necessitates more realistic financial metrics than the starry-eyed venture world. Otherwise, everyone might just get, well, screwed.

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