Behind the collective IPO of AI companies in Hong Kong: general losses, seize the industry's trendy period

Image credit: Generated by Unbounded AI tools

Source: Venture Capital Exchange

Author: Roman

Editor in charge: Yue Yanan

Although the IPO funds raised by the Hong Kong Stock Exchange in the first half of the year fell out of the top three in the world and ranked sixth in the world, judging from the number of companies that have passed the hearing, there are a total of 106 companies, and the Hong Kong Stock Exchange is still lively in the second half of the year.

Statistics from a reporter from the Securities Times found that among the 106 companies queuing up for listing, 28 companies involved AI artificial intelligence or digitization, accounting for 26%. Among these 28 companies, 18 have a net profit loss as of 2022, 8 have achieved a small profit, with a net profit of less than 100 million yuan, and 2 have a net profit of more than 1 billion yuan, showing a general loss.

"The current development of the AI industry has entered a deep water area. If these companies do not go public to raise funds to replenish ammunition, they are likely to face a situation of exhaustion of funds and limited development. In addition, the artificial intelligence track was hot before, and the valuation of capital pursuit has skyrocketed. The investment behind this Institutions are also under pressure to exit.” Xiong Gang, chairman of Australia Bank Capital, told reporters.

Artificial intelligence companies get together to go public in Hong Kong, and generally lose money

Artificial intelligence, the “synonym” of cutting-edge technology, has “fired” from the primary market to the secondary market in the first half of this year, and the flavor of “AI” is everywhere.

The Hong Kong Stock Exchange also ushered in a big party belonging to AI at this time. According to the statistics of the reporter, since this year, the AI smart driving chip company “Black Sesame Smart”, the AI voice company “Yunzhisheng”, and the generative AI company “go out”. As many as 28 AI companies, such as “Ask”, AI robot “UBTECH”, interactive AI “Shengtong Technology”, and AI recommendation function “Yishou Technology”, have submitted listing applications to the Hong Kong Stock Exchange intensively, and all of them have passed the hearing , queued up for listing.

According to Wind data, there are currently 106 companies waiting in line for listing through hearings, and 28 companies involved in AI or digitalization. In other words, the overall proportion of AI-related companies reached 26%. The reporter analyzed the data and found that 18 of the 28 companies planning to go public were loss-making, and 3 of them had a loss of more than 1 billion yuan, namely Heizhima Smart (-2.754 billion yuan) and Sagitar Juchuang (-2.089 billion yuan). Yuan), the fourth paradigm (-1.645 billion yuan), 8 companies achieved micro-profits, and only 2 companies made profits of more than 1 billion yuan.

(Note: Yisou Technology, Dida Travel, Ubituan’s operating income and net profit are all in the third quarter of 2022)

It can be seen that behind the collective listing of AI companies in Hong Kong, the profits are generally not good, and they have been in a state of loss for a long time.

In addition, these artificial intelligence companies involved in AI concepts generally have insufficient book cash flow. For an R&D-heavy industry, insufficient book cash flow is fatal, but it also shows why these companies are eager to go public on the Hong Kong stock market.

For example, the Black Sesame Smart prospectus shows that from 2020 to 2022, the company’s book cash is 244 million yuan, 1.555 billion yuan, and 982 million yuan. 255 million yuan in 2021 to 595 million yuan in 2021 and 764 million yuan in 2022. With the continuous investment in follow-up research and development, the company’s current book cash flow is very tight.

Xiong Gang, chairman of Aoyin Capital, said in an interview with a reporter from the Securities Times, "In the current situation where fundraising in the primary market is difficult, it is a normal business consideration for companies to have unsatisfactory cash flow and go public to raise funds, but this depends on the second. Whether the primary market pays the bill. However, Hong Kong’s secondary market is still relatively cautious towards technology innovation companies, and financing is more difficult. However, the logic of financing is that there are no products that cannot be sold, only prices that cannot be sold. This involves another issue , that is, the investment institutions behind may have disagreements, such as whether there will be an upside-down valuation of the institutions that enter later? These are issues that need to be considered.”

The game between inflated valuation and commercialization

Behind the general “bleeding” listing of these AI intelligence companies is the valuation touted by capital. Their valuation can soar hundreds of times in a few years. There are also star venture capital institutions behind them, including Sequoia China, Tencent, Northern Light Venture Capital, etc.

On May 30, Hong Kong Stock Exchange documents showed that the artificial intelligence company “Going out to ask” founded by former Google natural language scientist Li Zhifei submitted a prospectus. According to the prospectus documents, Chumenwenwen was established in 2012 and received millions of yuan in angel round financing from Zhen Fund in the year of its establishment. Since then, Sequoia China and Heiner Asia have stepped up their efforts, and the company has successively completed rounds A and B of financing. In 2015, Mobwang received capital injection from Google, which is one of the few investments made by Google.

After the completion of the C round of financing, Mobvoi’s valuation reached 300 million US dollars. Two years later, Mobvoi received USD 180 million in Series D financing from Volkswagen and established a joint venture company, each holding 50% of the shares. Since then, Mobwang has been valued at more than US$700 million.

It can be seen from the list of investment and financing that the post-investment valuation of Mobwenwenn has increased from US$5.1 million in February 2013 to US$757 million in September 2019. In just six years, the valuation has increased by 150 times.

This myth of wealth creation also appeared in another company “Black Sesame Smart”. A reporter from the Securities Times sorted out the financing history of Black Sesame Intelligence in detail. Since the company was established in July 2016, it quickly received investment from Northern Light Venture Capital in September of that year. In March 2019, it received investment from SAIC and China Merchants Group. In 2020 In September, it received investment from Seapine Capital. In April 2021, it received investment from Tencent, Bosch Group, and Dongfeng Motor Group. In September, it received investment from Xiaomi. In January 2022, it received investment from Weilai Capital and Geely Holdings.

The company has conducted a total of 10 rounds of financing, with a total financing amount equivalent to about 5.2 billion yuan. From the perspective of financing rounds, the valuation of Black Sesame Smart has increased by more than 122 times in 7 years, from the initial 127 million yuan to the last round of 15.5 billion yuan, which can be said to be on the rocket.

In fact, artificial intelligence has been questioned by the market for a period of time due to problems such as overvaluation and unclear landing scenarios. Xiong Gang told reporters, "Valuation and commercial value are an eternal game. The valuation of more than 10 billion yuan may be established in a certain period of time, but it will not be established after this time point. In fact, It is that investment institutions underestimate the difficulty of technological evolution and overestimate the future commercial value. This is the emergence of valuation bubbles. It takes 5 years to generate a project with a valuation of tens of billions. Is it technically achievable? Even if it is realized, come out The commercial value of products may be greatly reduced because of the large-scale emergence of substitutes and competing products.”

Xiong Gang believes that the future development of AI artificial intelligence has great prospects, but it faces the characteristics of “difficult implementation” of technology. Business model and liquidity are the main bottlenecks in the development of the AI industry. From the perspective of algorithms, the AI industry has not achieved a huge technological breakthrough; the actual combat landing scenarios are scattered, and the degree of product standardization is low; intellectual property rights and ethical issues are also important reasons for the bottleneck of the industry’s development. Finding a suitable scenario is the key to the commercialization of AI.

AI artificial intelligence capital feast, financing over 100 billion in half a year

In the first half of 2023, ChatGPT detonated a new wave of artificial intelligence, from the technical shock brought by the continuous iteration of OpenAI’s GPT model, to the “thousand-model war” that the technology giants at home and abroad are rapidly pouring into, to the king of AI computing power Nvidia pushed to the peak of trillions of market value, as if AIGC became the “absolute top stream” of the technology industry overnight.

At the same time, AIGC start-ups have entered a new round of “money-absorbing” upsurge. Many venture capitalists interviewed by the reporter said that they have made arrangements in related fields. According to data from Jingzhi, in the first half of this year alone, there were 51 corporate financings involving large-scale generative AI models and their applications, with an investment and financing amount of more than 100 billion yuan, including 18 single financings of 100 million yuan.

According to research by research institutions, in the whole year of 2022, there will be a total of 78 financings on the AIGC track, with a financing amount of 1.37 billion US dollars, or about 9.6 billion yuan. This means that in the first half of 2023 alone, the financing amount of the AIGC track has exceeded ten times that of last year.

Recently, Tianyancha released an analysis of the investment and financing situation of the artificial intelligence industry in the first half of 2023. From the perspective of industry distribution, the number of financing events of cutting-edge technology, robotics and integrated circuits ranks in the forefront. After these three, autonomous driving also has 20 related financing events.