Megvii, a unicorn artificial intelligence startup with the backing of Alibaba group holding ltd.(NYSE:BABA 165.9 0.83%) is reportedly planning on seeking to IPO on the Hong Kong Stock exchange. This is despite the ongoing tensions caused by the US-China trade war as also the anti-CCP protests in Hong Kong. whereas other such hopefuls have put their plans on hold given the uncertain outlook in the region, Megvii according to the anonymous source is undeterred and plans on filing documents soon with the exchange for an Initial Public Offering.
We’ve written on the site recently about the various global tech IPOs occurring this year and it does feel as though there is a rush to market to capitalize on global stock market highs in the wake of unprecedented low-interest rates and huge VC pools of money sloshing around. Additionally, concerns over yield curve inversions and other economic indicators which make us feel like the longest market bull run in history may be approaching its peak. The trade war is also obviously a major concern and any Chinese companies looking to raise capital from public markets will no doubt be attempting to do so before any major damage is done in the trade war which could put off global investors.
Megvii – First mover advantage?
The IPO is expected to raise over $1 Billion for the already very well endowed outfit, coming on the heels of a series D $750 Million funding round in early May for a $4 Billion valuation on top of nearly $500 million poured in by Chinese and Russian Sovereign wealth funds along with Alibaba’s financial arm in late 2017 . Alibaba participated again in the latest round led by China group investment along with Foxconn and ADIA (the Abu Dhabi Investment Authority sovereign wealth fund). Other participants included Macquarie Group (ASX:MQG) and ICBC asset management.
This is in contrast to the other heavyweight AI startup also backed by the Alibaba group – SenseTime. The AI Unicorn which put China on the map back in 2018, when it quickly raised funding (where Alibaba is said to have sought the largest stake) to become the largest AI startup in the world and gave credence to China’s ambitions to lead the high-technology sector and dominate global AI. SenseTime currently has a valuation of $7.6 Billion after the recent round of $600 Million led by Softbank’s (TYO:9984) Vision Fund. Ever since the 2017 Chinese state Council’s announcement of the intention to be the world leader in AI by 2030, Chinese state-backed venture capital units have been aggressive lenders to AI startups.
Both the companies are centered around the application of Artificial intelligence to facial and object recognition. The systems are being developed to be deployed at a massive scale and the Chinese government’s surveillance apparatus is a big client. Megvii reportedly has access to facial scans held in a ministry of public security database comprising of data on the identification on nearly 1.3 billion Chinese citizens – to provide its services. The company is also engaged in providing software for enabling hardware, like advanced robotics and the internet of things.
However, entering the Hong Kong capital markets at a time of radical uncertainty and volatility may prove to be more curse than a blessing. The company will have to navigate the choppy waters of a U.S. directly challenging Chinese state planning of industrial domination in targeted sectors as well as the tumultuous financial climate in Hong Kong and the poor outlook in the region. The company also is laden with the disadvantages and restrictions of heavy state funding.
However, on a more positive note, AI startups are a particularly hot commodity at the moment. Last year, according to data from Refinitiv, a record $2.1 Billion was raised in the sector, through Chinese and foreign investment, the lions share being captured by Sensetime and Megvii. if there is a company poised with the momentum and endowment necessary for investor confidence it would have to be the second-largest AI startup in China. A successful IPO in the region may also improve prospects for listing in the region more broadly, Alibaba Group Holding itself has reportedly been readying for tapping Hong Kong’s financial markets. Megvii will utilize the funds to support international expansion, invest in technological competencies and bring AI solutions to market said the company’s statement.