Summary of Key Issues
In order to fulfill the agreement for a public offering by the end of 2026 (which stipulates that if the company fails, the founder must repurchase investors' shares at an interest rate of 9%, potentially resulting in billions in compensation), REDnote has invested one billion yuan to acquire the rights to the World Cup to boost user numbers and create the narrative of a "social platform for all demographics." At the same time, the company has been terminating employee stock options en masse before they become exercisable, using tactics such as claiming employees are "unqualified" or creating non-existent positions. During labor lawsuits, REDnote has asserted that its domestic and overseas entities are unrelated in order to avoid stock option compensation obligations. However, when disclosing information for the IPO, it emphasizes the integration of these domestic and overseas operations. These contradictions have been reported by employees, and while the company is attempting to resolve them financially, the existing legal rulings, financial adjustment pressures, and potential disputes will continue to hinder the pace of its listing.
I. The Hypocrisy of the VIE Structure: Denying Relationship in Court, Claiming Family Ties During the IPO
REDnote adopted a VIE (Variable Interest Entity) structure for its overseas listing, which essentially binds its domestic operations with the overseas listed entity to facilitate financing. In labor lawsuits involving stock options, the company claimed that the domestic and overseas entities are unrelated, attempting to push the disputes to Hong Kong arbitration. But during the IPO process, the Hong Kong Stock Exchange required disclosure of the fact that both entities are controlled by the same agreement and have consolidated financial statements. These two contradictory statements—saying "I don't know you in court" while claiming "we're family" to investors—are unavoidable compliance issues.
Even if the company reaches a settlement with its employees, the effective judgment (the first case in China to recognize stock options as part of labor compensation under the VIE structure) cannot be removed from the public record. When submitting the IPO documents, the Hong Kong Stock Exchange will review the files and require lawyers to explain these contradictions. Overseas investors will also question the company's credibility; after all, if a company can't even clarify its own organizational structure, who would invest in it?
II. Stock Option Incentives Turned into a Tool for Exploiting Employees
Stock options were originally designed to align employees' interests with those of the company (long-term commitment and good performance leading to financial benefits for employees). However, REDnote has used them as a means to save money. Nearly 50 key employees in areas such as product development and technology were persuaded to leave before their options became exercisable, with reasons such as being "unqualified for the job" or having non-existent positions, effectively nullifying years of their contributions.
What's more infuriating is the double-standard pricing: current employees can repurchase their options at $25.5 per share, while former employees can only do so for $21 per share, despite the option value increasing by 120% in just one year. The terminated employees are left with nothing to show for their years of effort. This is not a matter of individual mismanagement but a standardized company practice aimed at "optimizing" the workforce at the point of option exercise.
III. The Billion-Dollar Investment in World Cup Rights: Not for Profit, But to Enhance the IPO
REDnote spent one billion yuan to obtain the rights to broadcast the World Cup (making it the only platform with such rights, aside from CCTV and Migu). Industry analysts have calculated that the advertising revenue generated by the event will not cover the costs. So why make this investment? The reason is simple: REDnote previously had a majority of female users, but the World Cup can quickly attract male users, boosting daily active user numbers. This allows the company to claim in its prospectus that it is a "social platform for all demographics," thereby increasing its valuation. The pressure to go public is significant; if the listing fails by the end of the year, the founder will have to pay billions in compensation, and investors (such as Sequoia Capital, SoftBank, Tencent, and Alibaba) are eager to realize their profits. Therefore, the company needs to present a positive growth narrative.
IV. Settlements Are Just a Band-Aid: Fundamental Issues Hinder the Listing Process
The company's current efforts to settle with employees are essentially a way of "paying to avoid trouble." Compared to the amount of money raised through an IPO, the settlement fees are insignificant, and confidentiality agreements can be used to improve the appearance of the prospectus. However, these do not address the underlying issues:
1. Financial Delays: Compensating employees with stock options or cash will increase the cost of "share-based payments," directly reducing net profits. Financial data will need to be re-verified, and since Hong Kong IPO prospectuses are only valid for six months, such adjustments will delay the listing process.
2. Potential Dispute Risks: The settlement only covers employees who took proactive legal action; those who did not may still file claims in the future. If these disputes erupt simultaneously, the company will continue to incur costs and face issues with information disclosure.
3. Setbacks from Industry Precedents: The ruling that recognized stock options as part of labor compensation under the VIE structure has set a new standard. In the future, all internet companies going public will have their intermediaries check for contradictions between labor lawsuits and their descriptions of VIE structures. Trying to evade responsibility with different narratives will no longer be effective.
Conclusion: The Core Contradictions Surrounding the Listing
All of REDnote's current actions are aimed at achieving its listing by the end of 2026. However, the most critical issue remains unresolved: which version of the company's structure is true—the claim that domestic and overseas entities are unrelated in court or the claim of integration for the IPO? The capital market may overlook attractive financial figures, but it will never tolerate compliance violations and lack of integrity. These are the real obstacles on REDnote's path to a successful listing.