Megvii Technology Files for Hong Kong IPO as AI Unicorn Backed by Alibaba, Ant Group, and Lenovo

Last night, the Hong Kong Stock Exchange disclosed Megvii Technology’s IPO prospectus, marking its imminent status as the first artificial intelligence company to go public. The first page of the prospectus features an open letter from Yin Qi, co-founder, chairman, and CEO of Megvii, addressed to investors.

Megvii was founded in 2011. The company’s mission is “to empower humanity with artificial intelligence,” and its vision is to build an AI infrastructure that connects and empowers tens of billions of IoT devices. These devices, including consumer electronics, sensors, and robots, are widely applied across various industries, comprehensively covering personal, public, and enterprise scenarios. Yin Qi stated that investing in Megvii means joining hands with technology believers to witness and drive this great AI technological revolution. Megvii firmly believes that artificial intelligence will make the world a better place.

The founders of Megvii are Yin Qi, Tang Wenbin, and Tang Mu, with plans to issue Class A and Class B shares. Yin Qi, Director and CEO of Megvii, is 31 years old. He graduated from the Yao Class at Tsinghua University in 2010, entered Columbia University on a full scholarship, and obtained a master’s degree in computer vision (computer sensing). In 2019, he was named one of the “Young Global Leaders” by the World Economic Forum; in 2018, he was selected as one of MIT Technology Review’s “Innovators Under 35”; and in 2016, he topped the Forbes Asia “30 Under 30” list for tech entrepreneurs.

Mr. Tang Wenbin, 32, serves as a Director and Chief Technology Officer at Megvii. He holds a master’s degree in Computational Science from Tsinghua University and completed his undergraduate studies in the Yao Class at Tsinghua University. In July 2013, he obtained a master’s degree in Computer Science (Knowledge Engineering Group) from Tsinghua University. Mr. Tang is a gold medalist of the National Olympiad in Informatics (NOI) and served as the head coach of the NOI national training team for seven years. From March 2010 to November 2010, he worked as an intern researcher at Microsoft Research Asia. From July 2008 to September 2009, he served as an intern engineer at Google China.

Dr. Sun Jian, Chief Scientist at Megvii, is a former Principal Researcher at Microsoft Research Asia/Microsoft Research. In 2010, he was named one of the “35 Innovators Under 35” by MIT Technology Review. He joined Megvii as Chief Scientist in July 2016.

Yang Mu, a director at Megvii, is a gold medalist of the International Olympiad in Informatics. As of June 30, 2019, approximately 95.3% of R&D personnel held a bachelor’s degree or higher, among whom about 37.7% held a master’s degree or higher.

Prior to the IPO, founding team members Yin Qi and Tang Wenbin held 8.21% and 5.9% of the shares, respectively. Legend Stars invested in Megvii Technology at an early stage, while Sinovation Ventures participated in its Series A financing. Alibaba and Ant Group are also significant shareholders of Megvii Technology. Through Taobao China, Alibaba indirectly holds a total of 14.33% of the outstanding shares, while Ant Group, through its wholly-owned subsidiary, indirectly holds a total of 15.1% of the outstanding shares. Other major shareholders include Foxconn, Qiming Venture Partners, and Bank of China.

Alibaba, as a major shareholder, is a close strategic partner of Megvii, with tight collaboration in business scenarios. By leveraging Megvii’s cloud-based Face ID solution, Zhima Credit, a third-party credit scoring service provider under Ant Financial, offers identity verification solutions to its corporate clients.

At the opening ceremony of CeBIT 2015 in Germany, Alibaba Group Executive Chairman Jack Ma demonstrated Ant Financial’s “Smile to Pay” facial recognition payment technology to German Chancellor Angela Merkel, a technology co-developed in partnership with Megvii.

Megvii CEO Yin Qi stated that Megvii has maintained a strong, multi-year partnership with Ant Financial. With an extensive client base in the internet finance sector, Megvii seeks to deepen its collaboration with Ant Financial, making Ant Financial’s investment a natural progression.

As of the Latest Practicable Date, Lenovo indirectly held a total of 1.2% of the outstanding shares of Megvii through two wholly-owned subsidiaries. Megvii has established a partnership with Lenovo to collaborate in multiple fields, including smart personal devices, smart city management, and smart logistics.

Personal Internet of Things.Megvii offers personal IoT solutions that empower cameras with artificial intelligence to enhance the user experience of personal devices. Megvii’s personal IoT solutions include algorithms and software.

Megvii’s device unlocking solutions leverage facial recognition technology to enable users to conveniently unlock their personal devices or authorize online payments; Megvii’s computational photography and video processing solutions empower consumers to capture photos and videos with their personal smart devices that rival the quality of professional cameras. The number of customers for Megvii’s Face ID solutions increased from 127 in 2016 to 1,044 in 2018, representing a compound annual growth rate (CAGR) of 186.7%. This customer base grew by 54.3%, from 714 in the six months ended June 30, 2018, to 1,102 in the six months ended June 30, 2019.

Urban IoT.Megvii provides urban IoT solutions that digitize urban spaces, making cities and communities safer and more efficient. Megvii’s urban IoT solutions include algorithms, software, and AI-enabled sensors.

Megvii’s smart city management solutions empower government agencies to enhance public safety, optimize traffic management, and improve urban resource planning. Megvii’s smart community management solutions help enterprises strengthen property security while enhancing the experience of residents and visitors.

Supply Chain IoT.Megvii provides supply chain IoT solutions, empowering robots and sensors with artificial intelligence to enhance supply chain efficiency. Megvii’s supply chain IoT solutions encompass algorithms, software, and AI-enabled robots.

Megvii’s smart logistics solutions help logistics companies and manufacturers effectively deploy and manage large-scale robot networks to support complex warehousing tasks. Megvii’s smart retail solutions enable offline retailers to enhance service quality and optimize sales strategies by analyzing customer behavior.

The prospectus shows that Megvii’s revenues in 2016, 2017, 2018, and the first half of 2019 were RMB 67.78 million, RMB 313 million, RMB 1.427 billion, and RMB 949 million, respectively. Megvii’s R&D expenditure exceeded RMB 600 million in 2018, while those in 2016 and 2017 were RMB 78.2 million and RMB 204 million, respectively. Over the past three years, R&D spending as a percentage of total annual revenue stood at 115.3%, 65.6%, and 43.0%, respectively. The company incurred losses of RMB 343 million, RMB 759 million, RMB 3.351 billion, and RMB 5.2 billion in the aforementioned years/periods, respectively.

However, the loss was primarily attributable to changes in the fair value of preferred shares, rather than operating losses from the company’s core business. This is mainly because new-economy companies frequently use convertible redeemable preferred shares for financing. Rapid growth in company valuations leads to gains or losses arising from changes in the fair value of these contractual liabilities, a phenomenon also observed during the IPOs of Xiaomi and Meituan.

As stated in Yin Qi’s open letter,Artificial Intelligence Will Inevitably Benefit All. This Technological Revolution Is Irresistible and Aligns with Public Aspirations.

With the submission of Megvii’s prospectus, one of the four unicorns in the field of visual AI—SenseTime, Yitu Technology, Megvii, and CloudWalk—has finally taken a substantive step forward, positioning itself to potentially become the first publicly listed AI company. However, Megvii’s current business portfolio does not yet include the healthcare sector. The other AI firms are also expected to approach their initial public offerings (IPOs) in the near future. At this stage, securing the title of the first listed AI company will provide a certain boost to subsequent business development and brand building.