Author: Thomas Crown

Xiaomi’s much-speculated IPO process has kicked off officially after the Chinese smartphone giant filed to go public on the Hong Kong Stock Exchange.

The first draft of its filing does not include proposed financial details of its listing, but the South China Morning Post reports that the company is shooting to raise $10 billion at a valuation of $100 billion. Beyond the year’s largest IPO, it would make Xiaomi China’s third largest technology company based on market cap.

Xiaomi operates differently to most companies in that beyond selling smartphones and smart devices, it operates its own retail business and internet services such as payments and streaming. That strategy — which CEO Lei Jun calls a “triathlon” — is focused on services for growth since Xiaomi has capped its maximum net profit for hardware at five percent.

The financials are impressive on paper.

The company booked sales of 114.6 billion RMB ($18 billion) in 2017, up from 68.4 billion RMB in 2016 and 66.8 billion in 2015.

Xiaomi posted a 43.9 billion RMB ($6.9 billion) loss in 2017 on account of issuing preferred shares to investors (54 billion RMB) but the growth story is healthy. Operating profit jumped to 12.2 billion RMB ($1.92 billion), up more than three-fold on the previous year.

Smartphones continue to represent the bulk of sales at 70 percent, with smart devices pulling in 20 percent more and services responsible for the remainder.

China is, as you’d expect, the primary revenue market but Xiaomi is increasingly less dependent on its homeland. For 2017 sales, China represented 72 percent, but it had been 94 percent and 87 percent, respectively, in 2015 and 2016. India is Xiaomi’s most successful overseas venture, having built the business to the number one smartphone firm based on market share, and Xiaomi is pledging to double down on other global areas.

Interestingly there’s no mention of expanding phone sales to the U.S., but Xiaomi has pledged to put 30 percent of its IPO towards growing its presence in Southeast Asia, Europe, Russia “other regions.” Currently, it said it sells products in 74 countries, that does include the U.S. where Xiaomi sells accessories and non-phone items.

Another 30 percent is earmarked for R&D and product development, while a further 30 percent will be invested in Xiaomi’s internet of things and smart product ecosystem. The remaining 10 percent is down for working capital.

Xiaomi isn’t disclosing the exact percentage stakes that its major investors hold, but CEO Lei Jun is believed to be one of the most significant shareholders. The IPO could make him China’s richest man, according to reports which suggest he controls a stake of over 75 percent.

from TechCrunch

While the mid 2010s were filled with massive financing rounds for companies looking to shift business models like Instacart, Uber, and others along those lines, today’s hottest sector is a more technical one: artificial intelligence.

That’s required a different approach to building companies. As tools become more and more powerful, and frameworks like TensorFlow become more robust, building a company centered around AI — and the big technical problems that either feed it or stem from it — are powering the next wave of potentially massive startups. That’s why Lu Zhang and Homan Yuen, two Stanford technical graduates, are raising a big fund based on their extensive technical experience to find companies that have that strong technology backbone that will become the next big startup.

The pair are raising $85 million for a new fund called Fusion Fund. Fusion Fund’s companies are going to be focused on connected industries, networking technology like communications protocols, data-rich AI products and some health and medical devices. That third bit — investing in AI — is what pretty much every fund is doing, though Yuen made it clear the company isn’t investing in just algorithms, which are eventually going to be a race to the bottom.

“We noticed there weren’t many venture capitalists focusing on technology companies and actually have technical backgrounds,” Yuen said. “We thought, that’s a good opportunity to help early stage companies that need different help, and advice, and connections.”

Zhang and Yuen are two technical founders that sold their companies and were looking to figure out what to do after that. In Zhang’s case, with a masters in material science, she was approached by investors to do a fund, while Yuen had known her at Stanford and ended up syncing up to work on the fund, he said. The fund will be focused on seed-stage companies, looking to write checks between $500,000 and $1 million for companies with technical founders and a pretty difficult problem to solve that requires that expertise.

“We’re not funding science products, or expedition missions, we want clear vision in building a business on the technical advantages,” Yuen said. “Part of our thesis is, over the last five to ten years, we saw a lot of investment into business model innovation. We decided it was time to flip back to tech and infrastructure investing.”

On that front, a lot of these areas are going to get a lot more interesting as time goes on. The tech industry is in the early stages of 5G development and rollout, and once there are more rigorous standards, there will likely be a lot of activity in that space, such as new connection protocols. There’s also a strong security element to that, and all of this requires heavy technical expertise to build something pretty defensible, Yuen said.

But if you want just one example — and this is one where Yuen is sitting on the sidelines for now — on how technical these problems are getting, you can look at the rapid emergence of the custom AI chip space. That problem requires an expertise in rethinking the actual silicon where operations happen to more efficiently tackle machine learning problems, whether that’s focusing on speed, lowering the power consumption, reducing the overall space the processors take up, or getting the cost down to something more reasonable than a bleeding-edge GPU. Right now the space has a ton of VC money flowing into it, and given the size of the checks Yuen is looking to write, it’s an area where the firm has to be more thoughtful about the companies it picks.

This is actually Fusion Fund’s second fund, as it previously went under a different name. First called NewGen Capital, Zhang and Yuen raised $17 million in its first fund and backed 36 seed-stage companies in companies like TVision Insights, Stratifyd, Paperspace, MissionBio, and Paradromics.

from TechCrunch