MEGVII Planning IPO under WVR Structures: HKEx or STAR?
Face recognition tech company MEGVII is considering IPO under weighted voting rights (WVR) structures. Under this strucuture, both HKEx and STAR could receive MEGVII's prospectus.
Chinese AI company MEGVII, which specializes in computer vision technology, is very close to an IPO, several Chinese media outlets reported on July2, citing people familiar with the matter.
MEGVII has a total financing amount of about USD 1.4 billion after seven rounds of funding, which pushed up its valuation to around USD 4 billion. Since 2019, Hong Kong media repeatedly reported about MEGVII's IPO plan. Last month, the computer vision specialist was reportedly considering to postpone the plan due to the US-China trade tension and unfavorable capital market conditions.
The AI company is seeking to adopt weighted voting rights structure (WVR Structures, also known as Dual-Class Capital Structures), sources close to the matter were quoted as saying.
WVR Structures allows companies to issue classes of shares carrying disproportionate voting rights. Opinions about WVR Structures vary wildly as people have different stances regarding some regulatory and legal issue.
According to Havard Business Review, in the long run, the valuation premium of dual-class companies declines compared with single-class companies, while it allows startup founders to pursue risky and lucrative initiatives with less pressure from short-term investors, especially during the period when companies are not mature enough to stick to their business model. Therefore, the WVR Structures are most suited to Internet companies which rely enormously on innovations.
Many tech companies have managed to be listed under the WVR arrangement, including Facebook, Alphabet (Google), Alibaba, Xiaomi, Meituan Dianping and so on. In 2014, Alibaba, a major investor of MEGVII, was listed on NYSE with the WVR Structures as this approach was not allowed by HKEx at that time. This event triggered the HKEx's to reconsider the possibility of dual-class structure.
April 30 2018, HKEx finally embraced this structure. A company filing for an IPO with HKEx under the WVR Structures has to achieve a market capitalization of at least HKD 40 billion (USD 5 billion) or a market capitalization of HKD 10 billion (USD 1.28 billion) plus annual revenue of HKD 1 billion (USD 130 million) for the most recent audited financial year, according to the listing rule.
Besides, China's fledgling SEE STAR market also adopts this structure to give a boost to the tech sector. STAR require the candidates hoping to qualify for the tech board boast a market value of at least CNY 10 billion (USD 1.45 billion) or at least a market capitalization of CNY 5 billion (USD 730 million) with revenue of no less than CNY 500 million (USD 73 million) for the most recent audited financial year.
According to the current activities with Hongkong, it's more likely for MEGVII to file listing there, but STAR market would always be an option.