Megvii computer vision facial recognition

Megvii Could Become China, or Even World’s First AI Company to Go Public

Aron Chen Chen Du

posted on August 28, 2019 5:56 am

Megvii Technology, founded in 2011 and widely known for its Face++ computer vision systems mainly focused on facial recognition, has filed for IPO on the Hong Kong stock exchange. Should it go smoothly, Megvii could become China’s, or maybe even the world’s first artificial intelligence-focused startup to go public on major stock exchanges. 

The Beijing-based artificial intelligence startup is backed by big names in the tech world, including Alibaba and state-owned Bank of China Group Investment, the private equity arm of Bank of China. Its latest funding was a $750 million Series D round, which brought the company’s valuation up to more than 4 billion U.S. dollars.

Its revenue surged 350% year-on-year to CNY 1.42 billion ($199.7 million) in 2018.

Although Megvii’s prospectus did not disclose pricing and IPO timeline, a few sources suggested that the IPO will likely happen in Q4 this year.

Founded in 2011 by Yin Qi, Yang Mu and Tang Wenbin, three Tsinghua University roommates, and formerly known as Face++, Megvii specializes in facial recognition technologies and other provide solutions to businesses and governments. The company is known as one of the “four AI dragons” of China, which are all startups focused on computer vision and established around the same period of time.

Chinese government is expanding the deployment of facial recognition technologies, which allows local authorities to find criminals faster. Although Megvii didn’t reveal the significance of its government-related business, in an interview with Quartz, SenseTime, one of Megvii’s major competitors estimated that at least 30% of its clients are government-related.

While surveillance and law enforcement-related applications are areas that has given Megvii the most attention, facial recognition can also be used in online payments to prevent fraud. 

The company has been branching out and collaborating with financial service providers and ride sharing companies to perform identity tracking and risk management. 

Alibaba’s subsidiary, Ant Financial, has invested in Megvii and incorporated Face++ technology in Alipay’s “Smile to Pay” service at KFC stores throughout China. Chinese ride-hailing giant Didi Chuxing is also a customer of Megvii and is using facial recognition to confirm identities and protecting the safety of both drivers and passengers.

Big names investors are pouring money into start-up firms that specialize in AI given Beijing’s emphasis on artificial intelligence applications. Investments in the sector surged to nearly USD6 billion this year via 80 deals, according to data compiled by iResearch.

In addition to facial recognition, Megvii expanded its reach into other artificial intelligence sector through investments and acquisitions. It acquired Ares, a Beijing-based robotics company and invested CNY 2 billion to promote the use of robotics in logistics, showing its ambitions to influence the artificial intelligence industry as a whole instead of being the leader in facial recognition only.

Among the many risks listed, investors are warned about the possibilities of continued loss-making years in the future due to high R&D costs, the U.S- China trade war, and more importantly, negative publicity over the implementation of the company’s facial recognition technology in China. Despite the company refuted an earlier negative report, the prospectus highlighted that the report “still caused significant damages to our reputation which are difficult to completely erase.”

From a macroeconomic perspective, Megvii warned its investment risks include the restrictions and tariffs placed by U.S. government on Chinese exports as part of the ongoing trade war. It said in its reports that Megvii is among the Chinese tech companies the U.S. government may add to entity list.

Although Megvii saw fast revenue growth in the past 18 months, the company is still losing money, registering a loss of CNY 3.35 billion in 2018, a massive increase from CNY 758.8 million in 2017. In the first six months of this year alone, the company lost CNY 5.2 billion.

More importantly, the prospectus indicated that going forward, Megvii is likely positioning itself as an IoT(internet of things), not a facial recognition company. “IoT” was mentioned more than 100 times in the prospectus, compared to less than 10 times for “facial recognition”.

“Facial recognition could pose high reputational risks, and it is easier for Megvii to gain more attention and secure fresh capital from investors if it propagate itself as an IoT company.” Sun Yan Biao, an analyst at iResearch told PingWest.