China AI player Fourth Paradigm files for Hong Kong IPO
Fourth Paradigm, a China-based software provider that helps enterprise customers develop in-house artificial intelligence (AI) decision-making applications, has filed for a Hong Kong IPO.
This company's third attempt to list in the territory, following earlier filings in February and August.
Sequoia Capital China is the largest external investor, holding a 7.37% stake through its US dollar-denominated funds and 4.33% through its renminbi funds. Other backers include Boyu Capital, YSC Investment - a joint venture between Tencent Holdings and Genesis Capital - China-UAE Joint Investment Fund, and Sinovation Ventures, according to a prospectus.
Fourth Paradigm - also known as 4Paradigm - has raised around USD 1bn in private funding. Its USD 700m Series D closed last year with Boyu, Primavera Capital Group, and Hopu Investments taking the lead. The company has also received funding from the likes of Goldman Sachs, CPE, FounatainVest Partners, and Mubadala Investment.
Fourth Paradigm was the largest platform-centric decision-making AI company in China in 2021, according to China Insights Industry
Consultancy (CIC). Decision-making AI is one of four main AI industry categories, alongside visual AI, speech and semantics AI, and AI robotics. Bringing together applications and underlying infrastructure, it recognises patterns hidden in data and turns that into actionable intelligence.
The decision-making AI market was worth CNY 47.1bn (USD 6.8bn) in 2021, with the platform-centric segment contributing CNY 9.1bn. It will reach CNY 284.1m by 2026, of which CNY 84.5bn will be platform-centric, CIC estimates.
Fourth Paradigm's key asset is its Sage Platform which allows enterprises to build their customised AI systems. It is powered by the AutoML algorithm. Sage is responsible for about half of overall revenue. The other half comes from application development. At present, it is not a subscription-based model; software sales and licensing make up the bulk of the business.
The company generates 70% of revenue from third-party system integrators, with direct customers contributing 30%. In the first half of 2022, there were 74 lighthouse customers - defined as global Fortune 500 enterprises and publicly listed companies.
Usage scenarios include helping banks with anti-fraud solutions, formulating sales forecasting and precision marketing strategies for retailers, and working with manufacturers to optimise quality control and with energy companies to detect equipment defects.
Revenue reached CNY 2.02bn in 2021, up from CNY 942m the previous year, while the net loss widened from CNY 749m to CNY 1.78bn. In the first six months of 2022, revenue rose 34% year-on-year to CNY 1.06bn and the net loss came to CNY 566m, compared to CNY 1.18bn in the first half of 2021.
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