Chinese state-backed AI unicorn CloudWalk files for $573m STAR Market IPO

A surveillance camera delivered by Chinese facial recognition major CloudWalk Technology

CloudWalk Technology, a Chinese state-backed AI unicorn that develops facial recognition solutions, has filed a prospectus with the Shanghai stock exchange, seeking to raise 3.75 billion yuan ($573.5 million) in an initial public offering (IPO) on its Nasdaq-style STAR Market.

The firm plans to sell no more than 112,43 million shares in the IPO offering, given that it does not exercise the over-allotment option, according to the prospectus filed on December 3.

This makes Guangzhou-based CloudWalk the latest in a slew of domestic AI players pursuing a public debut on the country’s tech-heavy STAR Market to ride on its bullish IPO market.

Tightening US listing rules and the prolonged Sino-US trade tensions have further accelerated this trend of Chinese companies preferring to tap domestic investors.

Joining the AI dragons

CloudWalk, which is counted among ‘China’s four AI dragons’, is following the footprint of its counterparts. The other three in the category include Yitu, Megvii and SenseTime.

Shanghai-based facial recognition giant Yitu had submitted an IPO application in mid-November with an aim to raise over 7.5 billion yuan ($1.1 billion) on the STAR Market.

Chinese AI specialists 4Paradigm told Chinese media outlet Caixin in August that it would be ready to file a prospectus for a STAR Market IPO by early 2021. Cambricon Technologies, an AI chipmaker in China, had raised 2.6 billion yuan ($398.1 million) on July 20, also on the STAR Market.

Megvii was also reportedly considering the option of a STAR Market IPO after its failed attempts to go public in Hong Kong, according to a South China Morning Post report in April; while a Reuters report this July indicated Hong Kong-based AI firm SenseTime’s preliminary consideration of selling shares on the same board.

CloudWalk, Yitu, Cambricon, Megvii, and SenseTime are all blacklisted by the US government over allegations that they violated human rights and posed a threat to US national security. Blacklisted companies are effectively barred from purchasing productions and services from US companies without government approval.

In its prospectus, CloudWalk said that the US Department of Commerce’s decision of including CloudWalk in its economic blacklist since May “is not imposing any direct, major impacts on the company’s current management and operations.”

“However, it will bring certain adverse effects on the company’s overseas business expansion in the future, as well as an academic exchange of AI-related theoretical research [in the US],” said the firm.

China’s national AI team

Recently valued at 20 billion yuan ($3.1 billion) by the Hurun Global Unicorn List 2020 (released in August 2020), CloudWalk was founded in March 2015 as an incubation project of the Chinese Academy of Sciences (CAS). The founder, Zhou Xi, was previously a computer vision scientist at the national science research academy before he started the venture with some fellow researchers.

CloudWalk was bound to a domestic listing route with its background as a national AI venture, backed by a wide range of all China-based investment institutions. In its latest funding round this May, CloudWalk had raised 1.8 billion yuan ($275.6 million) from domestic investors with close ties to the government.

The firm had closed a Series B+ round in October 2018 from a group of predominantly government-linked investment institutions including the China Reform Fund, SF International Holdings Limited, Bohai Industrial Investment Fund, and Yuexiu Financial Holdings Limited.

In November 2017, it had secured 500 million yuan ($70 million) in a Series B round, along with an additional 2-billion-yuan ($282 million) financial support from the Guangzhou government. The Series B round was jointly led by Shunwei Capital, Hangzhou-based venture capital firm Puhua Capital, and SIP Oriza Seed Fund Management, an early-stage equity investment platform of China’s Oriza Holdings.

CloudWalk’s AI solutions are mainly adopted in four areas, namely smart finance, intelligent urban & school management, smart mobility, and the empowerment of businesses. As the core source of its revenue, the firm serves over 400 financial institutions in China, including six of the country’s main commercial banks, such as Bank of China, Industrial and Commercial Bank of China (ICBC), and China Construction Bank (CCB).

The company had a revenue of almost 221.0 million yuan ($33.8 million) in the first half of 2020. Its revenues stood at 807.3 million yuan ($123.5 million), 484.1 million yuan ($74.1 million), and 64.5 million yuan ($9.9 million) in 2019, 2018, and 2017, respectively, according to its prospectus.

Despite the wide adoption of its solutions, the company has been loss-making largely due to its rising R&D investments.

It generated a net loss of 298.3 million yuan ($45.6 million) in H1 2020. Between 2017 and 2019, its net losses were 123.8 million yuan ($18.9 million), 200.1 million yuan ($30.6 million), and a staggering number of nearly 1.8 billion yuan ($275.4 million), respectively. The firm said that the implementation of its equity-based incentives caused the spike in its net loss in 2019.

Chinese investment bank and brokerage firm CSC Financial serves as the lead underwriter of the deal.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.