SenseTime China New Infrastructure

Blacklisted by US, SenseTime Eyes State's Money in Latest Funding

Rebbeca Ren

posted on July 13, 2020 1:42 pm

Recently, SenseTime, a Chinese AI company blacklisted by the US government, is raising $1 billion to $1.5 billion, boosting its valuation to $10 billion.

The investment will be used to promote the infrastructure construction of AI platforms, accelerate in-house chip research and development, upgrade and expand current its supercomputing centers, and reduce product development costs, etc.

SenseTime, which counts Qualcomm, Tiger Global, Fidelity and SoftBank Vision Fund among its backers, had previously postponed its plan for IPO of up to $750 million in Hong Kong this year due to the COVID-19 pandemic, and instead turned to the private equity market, where investors often give higher valuation to Chinese AI unicorn startups. SenseTime has accumulated a total of $2.6 billion in at least 9 financing rounds.

The company's cash flow is negative, Nikkei Asian Review reported back in March, citing sources familiar with the matter. The ambitious startup has invested in 11 companies within six years and acquired three smaller AI companies that are fit into its plans, making it one of the biggest companies that have built a core business around computer vision, a form of machine learning-based technology that is often used in surveillance, manufacture, among other fields. 

According to a report by the Chinese Institute of Electronics, China is leading in computer vision and language recognition, which is expected to boost the industry to more than $8 billion by 2022. Xu Bing, co-founder of SenseTime, said that the acquisitions and investments are mainly for strategic purposes, aiming to facilitate business collaboration and enhance its commercial value.

Business news outlet LatePost reported that unlike the previous rounds, which were dominated by dollar funds, SenseTime is leaning towards state-owned capital and industrial investment, which may help the company build its government client base and strengthen its political ties.

Along with two other Chinese AI powerhouse, Hikvision and Megvii, SenseTime has been put on the US Commerce Department's entity list, banning them from procuring technology and components from US companies. The company claimed last year that its revenue in 2019 was expected to grow by 200%, reaching $750 million.

The Chinese government has vowed to turn artificial intelligence into a $150 billion industry by 2030. Authorities across the country purchase surveillance solutions from system integrators and AI startups that can identify faces, monitor crowd movement, read license plate, and even control prison cells. The country recently announced during its annual legislative meetings known as the Two Sessions that it's launching a 100 billion RMB "New Infrastructure" campaign, focusing on AI, 5G communications, internet of things, data center, etc., to create jobs and offset the economic impact of the coronavirus pandemic and promote sustainable growth.

Even signing government customers does not guarantee success for AI unicorn companies in China. "Security projects often proceed slowly. Capital turnover will take longer to happen, which increases the cash flow pressure," a source familiar with these companies who wished to omit his name told PingWest, "this government-facing business model cannot be replicated on larger scales."

Allen Zhu, Managing Director of GSR Ventures, told business outlet Yicai that after the bubble period, investors are becoming more rational towards AI unicorns and focusing on their commercialization capabilities. SenseTime also began cutting costs and tightening job hiring. According to LatePost. The AI startup aims to achieve a larger business scale, higher revenue, and valuation in 2020.