China AI start-up Megvii considers delaying IPO on US trade blacklist concerns

China’s Megvii Technology is considering a delay of its initial public offering given uncertainty over whether the company can secure its existing US$4 billion valuation while on the US trade blacklist, according to people familiar with the matter. The artificial intelligence (AI) start-up is discussing with advisers whether to proceed with the planned Hong Kong share sale this month or hold off as they try to get off the Washington’s Entity List, which cuts off access to key American technology, the people said, requesting not to be named because the matter is private. Investors are hesitant to buy shares and Megvii may have trouble securing even a US$3.5 billion valuation, one of the people said. Megvii and its biggest competitor, SenseTime Group, are among China’s fastest-growing technology start-ups, but their future have been thrown into jeopardy after the Trump administration blacklisted them over alleged involvement in human rights violations against Muslim minorities in China. Both companies are trying to get off the blacklist, indicating that they have done nothing wrong. Megvii, backed by Alibaba Group Holding and Sinovation Ventures, was valued at about US$4 billion in its last fundraising round, people familiar with the matter have said. New York-listed Alibaba is the parent company of the South China Morning Post. “The US is feeling increasingly threatened by the rise of Chinese AI as this is the next frontier in tech leadership, and also has widespread military, security and political implications,” said Mark Tanner, founder and managing director of Shanghai-based consultancy China Skinny. “The disparities in ideologies between the US and China is also going to play out in AI algorithms, so it is unlikely that Washington will be delivering policies that support, fund and purchase Chinese AI services.” The US is feeling increasingly threatened by the rise of Chinese AI as this is the next frontier in tech leadership, and also has widespread military, security and political implications Mark Tanner, founder of Shanghai-based consultancy China Skinny No final decision has been made and Megvii is still planning to hold a listing hearing this month in Hong Kong, the people said. It is still early in the process and discussions around valuations remain fluid. A representative for Megvii declined to comment. Megvii filed its IPO documents in August and may need the cash. It lost 3.4 billion yuan (US$480 million) last year, partly because of changes in the value of preferred shares. Megvii CEO says US ban will hit its supply of servers and could disturb IPO but it is ‘ready for the fight’ It listed 1.4 billion yuan in cash, equivalents and bank balances at the end of June, while it used nearly half of that for operations in the first six months of this year. Its term deposits, which refers to short-term bank deposits with maturities of three to 12 months, stood at 3.3 billion yuan as of June. Both Megvii and SenseTime have been trying to reduce their reliance on American software and circuitry by developing their own chips. The blacklisting could further decouple the two Chinese companies from the US in terms of technology and funding. Megvii has said it “strongly objects” to the US blacklisting and that the company complies with all regulations in the markets in which it operates. “We believe our inclusion on the list reflects a misunderstanding of our company and our technology, and we will be engaging with the US government on this basis,” the company said when the blacklist was announced. Megvii’s IPO was supposed to have been the unofficial debut of China’s AI industry on the global stage. Uncertainty is mounting amid months-long anti-government protests in Hong Kong and increasing scrutiny from the US government. Goldman Sachs, JPMorgan Chase and Citigroup are the underwriters for Megvii’s IPO. Chinese AI has raised hackles in Washington like no other segment of the country’s vast corporate machine, in part because of the welter of daily headlines proclaiming how it may surpass the US. US ‘blockades’ won’t hurt the fundamentals of China’s science and technology development, says MIIT Broadly defined as anything from autonomous driving and robot waiters to facial recognition systems, the AI industry in China has start-ups like Megvii and SenseTime join established players, including Huawei Technologies and Tencent Holdings, in an effort that is intended to seal the country’s place at the nexus of the modern global economy. SenseTime said at the time of its blacklisting that “the decision by the US government is unwarranted”, and that it is working to address any questions or concerns the US might have regarding its technology or products. For more insights into China tech, sign up for our tech newsletters, subscribe to our Inside China Tech podcast, and download the comprehensive 2019 China Internet Report. Also roam China Tech City, an award-winning interactive digital map at our sister site Abacus.

China AI start-up Megvii considers delaying IPO on US trade blacklist concerns

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;} Megvii is trying to get off Washington’s Entity List amid plans to go public in Hong Kong this month

Megvii is trying to get off Washington’s Entity List amid plans to go public in Hong Kong this month