Briefing: Megvii is reconsidering its IPO timing as trade war extends

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Chinese AI start-up Megvii rethinks IPO plan this year – The Financial Times 

What happened: Alibaba-backed Chinese AI facial recognition startup Megvii is rethinking its plans for an initial public offering in Hong Kong later this year, the FT reported citing anonymous bankers and investors. It had been targeting raising as much as $1 billion. As the US-China trade war escalates and the tech industry finds itself increasingly in the eye of the cyclone, Megvii’s future relationship with the US are uncertain. The company’s main business is surveillance and security, and it is a key supplier of China’s surveillance systems. Amid a backlash against the country’s use of such technologies, Megvii is reportedly being considered for the US’s entity list, which would block business from the world’s largest economy. The company sees this as “unhelpful speculation,” but tech sector bankers told the FT that as a result, the company will at least have a hard time convincing the Hong Kong stock exchange to accept their listing.

Why it’s important: The report points to two concerning trends in China’s tech scene, the impact of the souring US-China relations and tech firms’ underwhelming financial results. Founded in 2011, Megvii has been called “China’s AI rising star” and its last funding round announced on May 8 saw its value skyrocket to more than $4 billion. However, its role in supplying surveillance in China and worldwide, along with other key Chinese surveillance manufacturers, has been criticized heavily abroad. Subsequently, some analysts expect that these types of companies could soon follow Huawei onto the American entity list. Another risk for Megvii is the disappointing performance of Chinese tech companies going public in the past year: Xiaomi shares have nearly halved in value since listing in July while Meituan Dianping shares have fallen 14% from its IPO price.