Alibaba’s fresh grocery delivery startup Freshippo to raise $500 million at a lower valuation of $6 billion

Alibaba Group’s grocery chain Freshippo (also known as Hema in Chinese) is considering raising funds at a valuation of about $6 billion, which is $4 billion lower than the $10 billion valuation the startup had hoped for back in January of this year, Reuters reported.

Three people familiar with the ongoing talks told Reuters that Freshippo is working with an adviser and a select list of potential financial investors that will be invited to join the funding round. The startup decided to cut its valuation expectations after China’s zero COVID-19 policy, especially covid restrictions in Shanghai, badly impacted its operations.

The sources, who declined to be identified as the information was confidential, also Reuters that the funding discussions are still in the final stages and the financial terms could change, two of the people cautioned, and a separate fourth source with knowledge of the matter.

Founded in Shanghai, China in 2015 and wholly-owned by e-commerce giant Alibaba, the yet-to-be-profitable  Freshippo is an online-to-offline retail platform. The startup currently has 300 stores in 27 cities that provide grocery delivery services, according to its website. The vast majority of its stores are located in first- and second-tier cities in China.

Two sources also told Reuters that investors are also skeptical about whether the money-losing Freshippo can continue to grow its operations and turn a profit anytime soon, especially given the company’s bleak outlook as China’s economy continues its zero covid policy.

The fourth source also said Freshippo had a healthy cash flow and was under no immediate pressure to raise fresh funds but added that the company would welcome good investors to help it grow.

Meanwhile, Freshippo is one of the many startups facing down round valuations. Earlier this morning, we wrote about Europe’s most valuable fintech startup Klarna after it raised $800M in funding, lowering its valuation from $45.6 billion a year ago to $6.7 billion.