Xiaomi, the fast-rising Chinese smartphone maker, is in talks to raise close to $1.5 billion in new capital at a valuation set to exceed $40 billion, in the largest private financing for a venture-backed company since Facebook in 2011.
Negotiations with investors including DST– the Russian internet company that also backed Alibaba, Facebook and Airbnb – are yet to be finalized, according to people familiar with the discussions. But if completed, the deal would propel the four-year-old Chinese company to the top tier of the global technology industry at a valuation exceeding that of Sony and Lenovo put together.
Xiaomi declined to comment on its fundraising plans.
The private stake sale would also price Xiaomi at more than double Silicon Valley's most richly-valued private company, Uber, which raised $1.2 billion at a $17 billion valuation this summer.
According to CBInsights, which tracks private financings, a $1.5 billion capital injection would match Facebook's 2011 fundraising, which valued the social network at $50 billion inits last round before it went public, as the largest amount ever raised by a venture-backed company.
Both Wall Street and Silicon Valley investors are largely sidelined in the fundraising for the latest Chinese technology sensation after Alibaba, which has a market capitalization of $270 billion after going public in New York in September. Instead Xiaomi is hoping to secure funds from Asia-based investors.
"Alibaba and Xiaomi are similar in that there's a lot of people out there who wished they had invested, but at the time they thought the valuations were way too high and then they missed it", said a person with knowledge of both companies. "In retrospect they regret it."
IDC, the technology researcher, said last month that Xiaomi's smartphone sales were outstripped only by Samsung and Apple in the third quarter, thanks to the popularity of the Mi4 handset launched in August. The company has built its brand on producing handsets that aim to compete with international rivals on quality, but at a much lower price.
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Xiaomi shipped 17.3 million smartphones in the three months ending in September, up 211 percent on the third quarter of 2013, just ahead of Lenovo and LG Electronics, IDC said, although Xiaomi still holds only 5 percent of the market.
Despite such growth, some argue that Xiaomi remains a risky proposition at such a high price, given the rapid rise and fall of smartphone makers such as Motorola and HTC, and the emergence of lower-cost handsets in Asia.
Unlike Apple, which controls its own hardware, software and services, Xiaomi is reliant on Google's Android operating system.
But with a $1.5 billion war chest Xiaomi could continue its push into new markets across Asia and Latin America, and add new devices to its portfolio of smartphones, tablets, routers and television equipment. It is also investing in its own TV content.
"They see themselves as more than Apple", said the person with knowledge of Xiaomi. "They want to 'out-Apple' Apple in the sense that they're integrating hardware, software, content and services into a broad ecosystem."
Xiaomi's "rock star" launch events and sell-out products, coupled with online distribution and minimal advertising spending, have produced unprecedented growth in both revenue and profits, according to people familiar with the company.
However, prospective backers may have to wait years for a return on their investment. Xiaomi's founders have maintained that they do not plan to go public for five years.
The company has also found little trouble in accessing cash. Xiaomi recently agreed a $1 billion loan with 29 banks, with the funds likely to be used to finance its push into new markets, such as Brazil and Indonesia.