Megvii Technology has been included in the "Entity List", will its IPO be postponed?

Artificial intelligence startup Megvii Technology is considering whether to postpone its IPO plans as its current $4 billion valuation faces uncertainty due to its inclusion on the U.S. “Entity List.”

News Body: Beijing Megvii Technology Co., Ltd. was founded in 2011 by Yin Qi, Tang Wenbin, and Yang Mu in Zhongguancun, Haidian District, Beijing. It is committed to building an AIoT operating system that serves various business fields and building an ecosystem capable of connecting IoT devices. It has R&D centers and operation organizations in Beijing, Shanghai, Shenzhen, Chengdu, Nanjing, Hangzhou, Wuhan, Ningbo, Qingdao, Xuzhou, Seattle, USA, etc.

Megvii's core technology is artificial intelligence algorithms related to computer vision and sensor technology, including but not limited to face recognition, body recognition, gesture recognition, text recognition, document recognition, image recognition, object recognition, license plate recognition, video analysis, 3D reconstruction, intelligent sensing and control, etc. Megvii commercializes its technology through the construction of the underlying AI algorithm engine and AIoT operating system. Its core customers include Alibaba, Foxconn, CITIC Bank, Lenovo, Huawei, OPPO, vivo, Xiaomi, China Resources Group, etc.

It is understood that on August 25 this year, Megvii Technology submitted its IPO prospectus to the Hong Kong Stock Exchange. Last month, Hikvision, Megvii Technology and 28 other domestic companies were included in the "Entity List" by the US Department of Commerce, restricting these institutions from purchasing parts from the United States.

In addition, people familiar with the matter said that no final decision has been made yet, and Megvii Technology still plans to hold a listing hearing in Hong Kong this month. The entire process is still in the preliminary stage and discussions on valuation are still ongoing. A representative of Megvii Technology declined to comment.

As investors hesitate to subscribe to Megvii's shares, Megvii may even find it difficult to obtain a valuation of US$3.5 billion. The "Entity List" will make it difficult for Megvii to obtain key US technology.

Megvii and its biggest rival, SenseTime, are among China’s fastest-growing tech startups, but their futures are in jeopardy after being added to the U.S. “Entity List,” a list both companies are trying to get off. Megvii, which has received investments from Alibaba Group and Sinovation Ventures, was valued at about $4 billion in its last funding round.

Megvii lost 3.4 billion RMB (480 million USD) in 2018, in part because of changes in the value of preferred shares. As of the end of June, Megvii held a total of 1.4 billion RMB in cash, cash equivalents and bank balances. In the first six months of this year, Megvii used nearly half of its cash reserves for operations. As of June, Megvii had 3.3 billion RMB in time deposits.