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Megvii, the Chinese startup unicorn known for facial recognition tech, files to go public in Hong Kong

Published August 26, 2019

Megvii Technology, the Beijing-based artificial intelligence startup known in particular for its facial recognition brand Face++, has filed for a public listing on the Hong Kong stock exchange.

Its prospectus did not disclose share pricing or when the IPO will take place, but Reuters reports that the company plans to raise between $500 million and $1 billion and list in the fourth quarter of this year. Megvii’s investors include Alibaba, Ant Financial and the Bank of China. Its last funding round was a Series D of $750 million announced in May that reportedly brought its valuation to more than $4 billion.

Founded by three Tsinghua University graduates in 2011, Megvii is among China’s leading AI startups, with its peers (and rivals) including SenseTime and Yitu. Its clients include Alibaba, Ant Financial, Lenovo, China Mobile and Chinese government entities.

The company’s decision to list in Hong Kong comes against the backdrop of an economic recession and political unrest, including pro-democracy demonstrations, factors that have contributed to a slump in the value of the benchmark Hang Seng index. Last month, Alibaba reportedly decided to postpone its Hong Kong listing until the political and economic environment becomes more favorable.

Megvii’s prospectus discloses both rapid growth in revenue and widening losses, which the company attributes to changes in the fair value of its preferred shares and investment in research and development. Its revenue grew from 67.8 million RMB in 2016 to 1.42 billion RMB in 2018, representing a compound annual growth rate of about 359%. In the first six months of 2019, it made 948.9 million RMB. Between 2016 and 2018, however, its losses increased from 342.8 million RMB to 3.35 billion RMB, and in the first half of this year, Megvii has already lost 5.2 billion RMB.

Investment risks listed by Megvii include high R&D costs, the U.S.-China trade war and negative publicity over facial recognition technology. Earlier this year, Human Rights Watch published a report that linked Face++ to a mobile app used by Chinese police and officials for mass surveillance of Uighurs in Xinjiang, but it later added a correction that said Megvii’s technology had not been used in the app. Megvii’s prospectus alluded to the report, saying that in spite of the correction, the report “still caused significant damages to our reputation which are difficult to completely mitigate.”

The company also said that despite internal measures to prevent misuse of Megvii’s tech, it cannot assure investors that those measures “will always be effective,” and that AI technology’s risks and challenges include “misuse by third parties for inappropriate purposes, for purposes breaching public confidence or even violate applicable laws and regulations in China and other jurisdictions, bias applications or mass surveillance, that could affect user perception, public opinions and their adoption.”

From a macroeconomic perspective, Megvii’s investment risks include the restrictions and tariffs placed on Chinese exports to the U.S. as part of the ongoing trade war. It also cited reports that Megvii is among the Chinese tech companies the U.S. government may add to trade blacklists. “Although we are not aware of, nor have we received any notification, that we have been added as a target of any such restrictions as of the date this Document, the existence of such media reports itself has already damaged our reputation and diverted our management’s attention,” the prospectus said. “Whether or not we will be included as a target for economic and trade restrictions is beyond our control.”

Startups Weekly: Diamond-encrusted disruption

Published August 24, 2019

Hello and welcome back to Startups Weekly, a weekend newsletter that dives into the week’s noteworthy startups and venture capital news. Before I jump into today’s topic, let’s catch up a bit. Last week, I wrote about the flurry of IPO filings. Before that, I noted the differences between raising cash from angels vs. traditional venture capitalists.

Remember, you can send me tips, suggestions and feedback to kate.clark@techcrunch.com or on Twitter @KateClarkTweets. If you don’t subscribe to Startups Weekly yet, you can do that here.

What’s new

Venture capitalists look for companies poised to disrupt markets untouched by innovative technology. Believe it or not, a very small percentage of jewelry shopping is done online, which means there’s a big opportunity — for the right team — to bring jewelry buyers and sellers to the 21st century. CVC Stones 02

Enter Pietra, a new startup that’s just raised $4 million in a round led by Andreessen Horowitz’s Andrew Chen (Substack & Hipcamp investor). Robert Downey Jr.’s VC fund Downey Ventures and Will Smith’s fund Dreamers Fund also participated, as did Hollywood manager Scooter Braun, Michael Ovitz and supermodel Joan Smalls.

I spoke to the founding team, which includes Uber alum Ronak Trivedi and Ashley Bryan, who hails from fashion e-commerce site Moda Operandi. The pair bring a healthy mix of technology and fashion expertise to the mix. Trivedi tells TechCrunch he’s drawn on his Uber experience to recruit engineers from top tech companies and to advocate for fast growth. Meanwhile, Bryan has leveraged her fashion industry connections to establish relationships with luxury designers.

“Fashion is typically really under-resourced in terms of tech,” Bryan tells TechCrunch. “[The fashion industry] is great at the creativity part but it’s tough, especially with jewelry because you really have to put up a lot of capital.”

Pietra’s plan is to create a high-end marketplace for consumers to connect with jewelry designers. To do this, the team has adopted the standard marketplace approach, taking a 30% marketplace fee from sellers, as well as a 7% fee from buyers commissioning jewelry on the platform.

“Whether you do custom jewelry or engagement jewelry or you do jewelry for celebrities like Drake, you can come on Pietra and connect with a global marketplace,” says Trivedi.

The jewelry market is expected to be worth more than $250 billion by 2020, according to McKinsey research. And where there’s a billion-dollar market, there are VCs.

“Even though gemstones and jewelry have been at the center of art, commerce, and culture since the dawn of human civilization — going from stone jewelry created 40,000 years ago in Africa to the trade routes between East and West to Fifth Avenue in New York to the Instagram feed on your phone — the technology for discovering, designing, and purchasing jewelry online hasn’t evolved much at all,” writes a16z’s Chen, who overlapped with Trivedi during his Uber tenure.

Pietra completed its official launch this week. It has 100 designers on the platform and counting, along with what the founders say is a lengthy waitlist.

hands signing check 1

In other news

This week I published a long feature on the state of seed investing in the Bay Area. The TL;DR? Mega-funds are increasingly battling seed-stage investors for access to the hottest companies. As a result, seed investors are getting a little more creative about how they source deals. It’s a dog-eat-dog world out there and everyone wants a stake in The Next Big Thing. Read the story here.

Demo Day

Y Combinator graduated another batch of 200 companies this week. We were there both days, taking notes on each and every company. To make things easy on you, I’ve put together the ultimate YC reading list:

All 84 startups from Y Combinator’s Demo Day 1
All 82 startups from Y Combinator’s Demo Day 2
The 11 best startups from YC’s Demo Day 1 (Extra Crunch membership required.)
Our 12 favorite startups from Y Combinator’s S19 Demo Day 2 (Extra Crunch membership required.)
YC’s Michael Seibel on building startups and early-stage deal-making
YC is doubling down on these investment theses in its latest batch

Here’s a look at some of the profiles we’ve written on the S19 companies:

Listen

We recorded two great episodes of Equity, TechCrunch’s venture capital podcast, this week. The first was with YC CEO Michael Seibel, in which he speaks to trends at the seed stage of investing, changes at the accelerator program, including its move to San Francisco and more. You can listen to that one here. Plus, we had on Unusual Ventures co-founder and partner John Vrionis, who talked to us about direct listings versus IPOs and the future of DoorDash and Airbnb. You can listen to that one here.

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple Podcasts, Overcast and Spotify.

Tips for B2B startups

Contributors Tyler Elliston and Kevin Barry share advice for B2B companies: “Over the years, we’ve seen a lot of B2B companies apply ineffective demand generation strategies to their startup. If you’re a B2B founder trying to grow your business, this guide is for you. Rule #1: B2B is not B2C. We are often dealing with considered purchases, multiple stakeholders, long decision cycles, and massive LTVs. These unique attributes matter when developing a growth strategy. We’ll share B2B best practices we’ve employed while working with awesome B2B companies like Zenefits, Crunchbase, Segment, OnDeck, Yelp, Kabbage, Farmers Business Network, and many more.” Read the full story here. (Extra Crunch membership required.)

Graphcore founder Nigel Toon to talk about AI chips at Disrupt Berlin

Published August 24, 2019

It’s easy to forget that Silicon Valley starts with ‘silicon’, and that there would be no technology innovation without innovation at the silicon level. And Graphcore is well aware of that as the Bristol-based company is designing its own dedicated AI chipset. That’s why I’m glad to announce that Graphcore co-founder and CEO Nigel Toon is joining us at TechCrunch Disrupt Berlin.

Graphcore has managed to attract a ton of attention from day one. Originally founded in 2016, the startup has raised more than $300 million from top investors, such as Sequoia Capital, BMW, Microsoft, Samsung and a ton of others.

The company last raised a $200 million Series D round led by Atomico and Sofina. It values the company at $1.7 billion.

So what is the magic product behind Graphcore? The startup’s flagship product is an Intelligence Processor Unit (IPU) PCIe processor card combined with a software framework. Essentially, it lets you build your own AI applications more efficiently. Those dedidacted AI chips should perform better than repurposed GPUs.

Tobias Jahn, principal at BMW i Ventures, summed it up pretty well in a statement for the Series D round: “The versatility of Graphcore’s IPU – which supports multiple machine learning techniques with high efficiency – is well-suited for a wide variety of applications from intelligent voice assistants to self-driving vehicles. With the flexibility to use the same processor in both a data centre and a vehicle, Graphcore’s IPU also presents the possibility of reduction in development times and complexity.”

It seems crazy that a tiny startup is competing directly with giant chip companies, such as Nvidia, AMD, Intel, Qualcomm, etc. But this isn’t Nigel Toon’s first company. He has been the CEO of Picochip and Icera, two companies that have been sold to Intel and Nvidia.

Graphcore believes that there’s an underserved niche with a lot of potential. And it feels like there’s a race to create the most efficient AI chip. So I can’t wait to hear Nigel Toon’s take on that race.

Buy your ticket to Disrupt Berlin to listen to this discussion and many others. The conference will take place on December 11-12.

In addition to panels and fireside chats, like this one, new startups will participate in the Startup Battlefield to compete for the highly coveted Battlefield Cup.

Graphcore (graphcore.ai) is a new silicon and systems company based in Bristol, UK and Palo Alto, USA that has developed a new type of processor, the Intelligence Processing Unit (IPU), to accelerate machine learning and AI applications. Since its founding in 2016, Nigel has secured over $300m in funding and support for the company from some of the world’s leading venture capital firms including Sequoia Capital, Foundation Capital and Atomico, from major corporations including BMW, Bosch, Dell, Microsoft and Samsung and from eminent Artificial Intelligence innovators.

Nigel has a background as a technology business leader, entrepreneur and engineer having been CEO at two successful VC-backed processor companies XMOS and Picochip (sold to Nasdaq:MSPD, now Intel), a founder at Icera (sold to Nasdaq: NVDA) and VP/GM at Altera (Nasdaq: ALTR, sold to Intel for $17Bn) where he spent over 13 years and was responsible for establishing and building the European business unit that he grew to over $400m in annual revenues. Nigel was a non-executive director at Imagination Technologies PLC until itsacquisition in 2017 and is the author on 3 patents.

Walmart and Tesla are going to try and work things out

Published August 23, 2019

Walmart came out swinging earlier this week in a lawsuit that accused Tesla of breach of contract and gross negligence over problems with rooftop solar panel systems installed at the retail giant’s stores.

Now, just days later, the lawsuit has been placed on hold while the two companies try to reach an agreement that would keep the solar installations in place and put them back in service, according to a joint statement issued late Thursday night.

“Walmart and Tesla look forward to addressing all issues and re-energizing Tesla solar installations at Walmart stores, once all parties are certain that all concerns have been addressed,” the statement read. “Together, we look forward to pursuing our mutual goal of a sustainable energy future. Above all else, both companies want each and every system to operate reliably, efficiently, and safely.”

Walmart hasn’t dropped the lawsuit. The complaint is still on file with New York state court. But the two parties are going to try to reach an agreement that would avoid a lawsuit.

The lawsuit, which is aimed at Tesla’s energy unit that was formerly known as SolarCity, alleges that seven fires on Walmart rooftops were caused by the solar panel systems. Walmart asked Tesla to remove the solar panel systems on all 244 stores where they are currently installed and to pay for damages related to fires that the retailer alleges stem from the panels.

Now, a Walmart spokesperson said it is “actively working towards a resolution” with Tesla.

Neither Tesla or Walmart would explain the details of the negotiations.

The stakes are high for Tesla. Earlier this month, Tesla CEO Elon Musk announced a new rental offering for solar power in a bid to reboot the flagging renewable energy business.

Tesla’s share of the solar market has declined since its merger with SolarCity in 2016. In the second quarter Tesla deployed only 29 megawatts of new solar installations, while the number one and two providers of consumer solar, SunRun and Vivint Solar, installed 103 megawatts and 56 megawatts, respectively.

Tesla’s renewable energy business includes residential and commercial solar and energy storage products. The company also has a utility-scale energy product called Megapack. While Tesla still produces solar panels for residential use, much of its focus has been on developing its solar roof, which is comprised of tiles. It still operates a commercial business, which targets municipalities, schools, affordable housing, enterprise and agriculture and water districts as customers.

The company doesn’t provide a breakdown of its solar installations, making it difficult to determine if the commercial business is flat, falling or on the rise. Language in its latest 10-Q suggests Tesla is putting a renewed effort into its solar business.

Tesla said it’s working on revamping the customer service experience for solar products, according to the 10-Q. The company said while its retrofit solar system deployments have decreased it expects they “will stabilize and grow in the second half of the year.”

How Pivotal got bailed out by fellow Dell family member, VMware

Published August 23, 2019

When Dell acquired EMC in 2016 for $67 billion, it created a complicated consortium of interconnected organizations. Some, like VMware and Pivotal, operate as completely separate companies. They have their own boards of directors, can acquire companies and are publicly traded on the stock market. Yet they work closely within Dell, partnering where it makes sense. When Pivotal’s stock price plunged recently, VMware saved the day when it bought the faltering company for $2.7 billion yesterday.

Pivotal went public last year, and sometimes struggled, but in June the wheels started to come off after a poor quarterly earnings report. The company had what MarketWatch aptly called “a train wreck of a quarter.”

How bad was it? So bad that its stock price was down 42% the day after it reported its earnings. While the quarter itself wasn’t so bad, with revenue up year over year, the guidance was another story. The company cut its 2020 revenue guidance by $40-$50 million and the guidance it gave for the upcoming 2Q 19 was also considerably lower than consensus Wall Street estimates.

The stock price plunged from a high of $21.44 on May 30th to a low of $8.30 on August 14th. The company’s market cap plunged in that same time period falling from $5.828 billion on May 30th to $2.257 billion on August 14th. That’s when VMware admitted it was thinking about buying the struggling company.

Is Knotel poised to turn WeWork from a Unicorn into an Icarus?

Published August 23, 2019

The day of reckoning for the “flexible office space as a startup” is coming, and it’s coming up fast. WeWork’s IPO filing has fired the starting gun on the race to become the game-changer both in the future of property and real estate but also the future of how we live and work. As Churchill once said, “we shape our buildings and afterwards our buildings shape us.”

Until recently, WeWork was the ruler by which other flexible-space startups were measured, but questions are now being asked if it deserves its valuation. The profitable IWG plc, formerly Regus, has been a business providing serviced offices, virtual offices, meeting rooms and the rest, for years, and yet WeWork is valued by 10 times more.

That’s not to mention how it exposes landlords to $40 billion in rent commitments, something which a few of them are starting to feel rather nervous about.

Some analysts even say WeWork’s IPO is a “masterpiece of obfuscation.”

Samsung’s Note 10 is available today, starting at $949

Published August 23, 2019

Samsung’s settled into a nice little twice-yearly schedule for releasing flagships. That’s allowed the company double the opportunity to introduce some nice upgrades to their high-end Android handsets. Nearly six months after the release of the S10, the company just dropped the new Note line. Here’s a whole bunch of words I wrote about the 10+, the larger of the devices, which is helping distinguish the two lines with an utterly gigantic 6.8-inch screen.

Samsung Galaxy Note 10+ review

Interestingly the Note 10 marks a rare (albeit very slight) step down in screen size over the last generation, to a still-large 6.3-inches. The company says it’s hoping that the smaller device will appeal to first-time Note users and maybe even convince Galaxy S buyers to transfer over to S-Pen Station.

The smaller size also helps keep the device just under $1,000, at $949. Which is becoming shockingly rarer amongst flagships these days. Even as fewer people are buying phones, they keep getting more expensive. That certainly applies to the $1,100 Note 10+ and the $1,299 Note 10+ 5G (also available now, as a Verizon exclusive).

The TL;DR of last week’s review is that this is a very good phone that gets even better. Nothing particularly revolutionary, but it’s a nice design, great camera and just generally good stuff all the way around. If big and flashy is your thing, Samsung’s got you covered with the new Note.

India exempts startups from long-standing ‘angel tax’

Published August 23, 2019

India today addressed a long-standing challenge that has been affecting the country’s booming startup ecosystem. As part of a raft of measures to boost overall economic growth from a five-year low, Finance Minister Nirmala Sitharaman said New Delhi is exempting startups from Section 56(2) — a provision more popularly known as an “angel tax” in the local income tax laws — that required startups to pay a certain tax if they received an investment at a rate higher than their “fair market valuation.”

Local tax authority in India does not recognize the discounted cash flow method that many investors use to value early-stage startups, and instead value the company for what it is worth currently, which as you can imagine, is very little. Investors assess a startup’s value based on what it could eventually become in the future.

Prior to today’s announcement, the government levied a 30% tax on affected startups. Sitharaman said any startup that is registered with the Department of Industrial Policy & Promotion, a government body, will be exempted from the angel tax. Those not registered will remain subjected to it, she said in a press conference Friday.

More than 24,000 startups are currently registered with the Department of Industrial Policy & Promotion. The law was originally introduced amid concerns that wealthy people could invest in bogus startups as a way to launder money.

“Angel tax was there to stop shell companies from creating capital from nowhere,” Piyush Goyal, a minister for commerce and industry as well as railways, said in a statement Friday.

The angel tax, which was introduced in 2012, became a roadblock for many investors who wanted to fund early-stage startups. The announcement today comes weeks after the Narendra Modi government said it would address this issue.

Many prominent investors, startup founders, analysts and other industry executives have long publicly criticized the angel tax, telling the government that it is severely hurting the health of the local ecosystem.

Anand Mahindra, chairman of Mahindra Group, said last year that the angel tax needs “immediate attention or else all chances of building a rival to Silicon Valley in India will be lost.”

Sreejith Moolayil, a founder of health food startup True Elements, said the existence of an angel tax would leave many entrepreneurs like him with no choice but to shut down their companies.

Late last year, India’s tax department sent a flurry of notices to startups demanding them to pay the angel tax on funds they received from individual investors. The notices sparked an uproar, with many calling it “harassment.”

“Hope this will address the concerns of DPIIT registered startups. The proposed cell should look into concerns of all startups including those who are already under notice,” said Ashish Aggarwal, who oversees Public Policy at industry body Nasscom, of today’s announcement.

The government will also set up a dedicated cell to address other tax problems that startups face, Sitharaman said. “A startup having any income-tax issue can approach the cell for quick resolution,” the ministry said in a statement.

Jayanth Kolla, founder and chief analyst at research firm Convergence Catalyst, told TechCrunch earlier that the angel tax was the primary reason early-stage startups in the nation were struggling to raise money from investors.

Even as Indian tech startups raised a record $10.5 billion in 2018, early-stage startups saw a decline in the number of deals they participated in and the amount of capital they received. Early-stage startups participated in 304 deals in 2018 and raised $916 million in funds last year, down from $988 million they raised from 380 rounds in 2017 and $1.096 billion they raised from 430 deals the year before, research firm Venture Intelligence told TechCrunch.

I’ve said before, a willingness to relook at policies is a display of strength, not https://t.co/8y4tPp8Iva’s press conference by @nsitharaman will, I hope, mark the start of a new, interactive & interdependent relationship between Govt&business. @narendramodi @AmitShah (1/4)

— anand mahindra (@anandmahindra) August 23, 2019

Sitharaman also announced the country was scrapping a recently introduced additional levy on foreign funds. The government would revoke the surcharge, which increased tax on foreign companies investing in India to over 40%, she said. She also promised to pay out all pending tax refunds owed to small and medium enterprises within 30 days. Companies have long complained that the tax authority takes too much time to refund the money owed to them.

The 2020 Chevy Bolt EV now has a 259-mile range thanks to some cell chemistry tinkering

Published August 23, 2019

The 2020 Chevy Bolt EV now has 259 miles of range, a 9% increase from previous year models of the electric hatchback, according to the EPA.

To get there, the company focused on cell chemistry, not the battery pack. The GM brand did not add more battery cells or change the battery pack or the way it is integrated into the vehicle structure, a spokesperson confirmed.

Instead, Chevrolet’s battery engineering team made what the company described as “impactful changes to the cell chemistry.” The changes to the cell chemistry allowed the team to improve the energy of the cell electrodes, and ultimately enabled them to squeeze more range out of the battery.

The increase pushes the 2020 Chevy Bolt ahead of the Kia Niro and the standard range plus variant of the Tesla Model 3, with 239 and 240 miles of range, respectively. Other versions of the Model 3, the long-range and performance, have a much longer 310-mile range. It’s also just one mile better than the 258-mile range Hyundai Kona EV. Nissan Leaf Plus, the laggard in the group, can travel 226 miles on a single charge.

That might not seem like much. But in this small, yet growing pool of electric vehicle models, jumping from 238 to 259 miles could help Chevrolet sell more Bolt EVs next year. It could also cannibalize sales this year.

The electric vehicle has never been a top seller for the GM brand, particularly compared to its top-selling SUVs and trucks. It has beat out some of its other Chevy models and sales are high enough for the company to stick with the compact hatchback for now.

GM delivered 23,297 Chevy Bolt EVs in 2017, the first model year of the electric vehicle. But the following year, deliveries fell 22%, to 18,019. Sales have rebounded in the first half of the year.

The 2020 model year, which will be offered in two new exterior colors, is expected to arrive in dealerships later this year. The base price of the electric vehicle is $37,495, which includes destination and freight charges. Tax, title, license and dealer fees are excluded.

Verified Expert Growth Marketing Agency: Torch

Published August 23, 2019

CEO Jeremy OBriant never intended to create Torch, an agile growth marketing agency based in San Francisco. He started his career as a CPA, but after leading a growth team at Sidecar and running growth projects on his own, forming Torch was the most obvious thing to do. He now leads a team that implements “agile growth,” an iterative approach that involves setting clear goals and running smaller experiments over the course of monthly sprints. Learn more about their approach to growth, their ideal client, and more.

“Torch offers custom solutions to whatever you need. They are fast and deliver on what they promise. They are also scrappy and willing to try stuff to solve unique needs.” Head of Product in SF

Torch’s approach to growth

“We aim to be the thought leaders of Agile Growth. We didn’t invent the term, but we are certainly becoming the leading voice of the process in the growth marketing world. Agile simply means being able to move quickly and with ease. We start with clearly defined business goals and prioritize growth tactics based on the impact, cost, and efficiency. Then collaborate with growth teams to execute a handful of items in recurring growth sprints, typically on a monthly cadence.”

On their ideal client

“Our ideal partner has product-market fit, is redefining their category, and is ready to scale in a sustainable way. We are very strategic in the types of businesses we work with and steer clear of doing narrow prescriptive tactics. We love to collaborate with partners that are open to taking a fresh strategic look at their entire growth stack and embrace the agile approach to discover the right strategy for their unique situation.”

designer fast facts 37

Below, you’ll find the rest of the founder reviews, the full interview, and more details like pricing and fee structures. This profile is part of our ongoing series covering startup growth marketing agencies with whom founders love to work, based on this survey and our own research. The survey is open indefinitely, so please fill it out if you haven’t already.

Interview with Torch CEO Jeremy OBriant

Jeremy OBriant

Yvonne Leow: Tell me about your background and how you became a growth marketer.

Jeremy OBriant: People are often surprised when I tell them I started my career as a CPA. I ended up working in the trenches on several M&A deals and heard lots of founding stories from entrepreneurs.