Geling Shentong, which was boosted to market by star capital, has now been collectively abandoned by capital.
When the visual AI story constructed by the actual controller during its early days quickly received attention from capital, organizations such as ZhenFund, Cherubic Ventures, and Sequoia Capital were among the early entrants. However, eleven years later, Geling Shentong is still struggling in the mud of losses, and institutions are scrambling to reduce their holdings and exit the company as the IPO lock-up period expires.
On June 18, Sequoia Capital reduced its holdings by more than 5%, and a rough estimate suggests that the ten-year investment ROI is approximately 336%. Geling Shentong's AI story has also encountered the investor's “voting with their feet” as the company's stock price has fallen more than 40% since 2024.
Sequoia Capital's ten-year investment ROI is over three times.
After graduating from the computer engineering department of Brown University in the United States, Zhao Yong worked as a senior researcher at the Google headquarters research institute and was one of the earliest core R&D members of Google Glass. After leaving Google, Zhao Yong began to establish Geling Shentong. In April 2013, Zhao Yong established the overseas red chip structure, and in August of the same year, Hong Kong Geling, which was wholly owned by Zhao Yong, invested USD 650K to establish Geling Shentong.
At its inception, Geling Shentong mainly integrated advanced computer vision technology and big data analysis technology with application scenarios to provide artificial intelligence products and solutions for urban management, sports and health, rail transit operation and other fields. The story of putting eyes on the computer quickly attracted the investment of capital in the era of big data.
ZhenFund LP's relationship with Sequoia Capital China Fund often sees the two funds appearing in the same company's financing process, and on the investment in Geling Shentong, Sequoia Capital and ZhenFund once again continued their consistent style of cooperation.
In August 2013, ZhenFund took the lead and participated in Geling Shentong's A-round financing with Cherubic Ventures. A year later, in June 2014, Geling Shentong again completed a B-round financing of tens of millions of dollars. While Cherubic Ventures continued to increase its position, Sequoia Capital also took down 17.2% of Geling Shentong's shares at this time, becoming the company's second-largest shareholder.
It is worth mentioning that Geling Shentong mentioned in its prospectus that the company's B-round financing completed in January 2017 was valued at about 500 million yuan, and 17.2% equity corresponds to a cost of approximately 86 million yuan, while Sequoia Capital, which completed the acquisition in 2014, invested cost should be lower than 86 million yuan.
In March 2022, Geling Shentong was listed on the STAR Market, with an IPO price of 39.49 yuan/share. At this time, Shen Tong Zhi Shu, controlled by Zhao Yong, is the largest shareholder of Geling Shentong, holding 16.9% of the shares. Sequoia Capital and ZhenFund are the second and fourth largest shareholders of the company, holding 10.49% and 5.99% of the shares, respectively. Cherubic Ventures, which participated in the A-round financing, holds 7.49% and is ranked third.
Although not yet profitable at its initial listing, Geling Shentong was highly anticipated due to the support of many capital parties. However, Geling Shentong fell below its opening price at its IPO, and even though the company turned a profit through financial returns brought by capital fundraising in its first year and gave a fair answer, shareholders still continued their retreat. After the one-year lock-up period expired, many shareholders quickly withdrew.
On the first day of the lifting of the restriction, ZhenFund reduced its holdings by 1.15 million shares at a price of 32.27 yuan/share, realizing a total of 37.1105 million yuan. In addition, Cherubic Ventures, Hyundai Motor, and Hyundai Mibis, subsidiaries of Hyundai Group, have also conducted high-level reductions since then.
However, the “reduction tide” has not ended, and Sequoia Capital, as the second-largest shareholder, released its intention to reduce its holdings for the first time on March 27, 2023, joining the reduction queue. On April 19, Sequoia Capital made its first reduction, realizing about 148 million yuan when the first round of reduction period expired on October 18, 2023.
After eight months, Sequoia Capital's reduction wave rose again, and it realized about 30.6441 million yuan by reducing its holdings from June 11 to June 18. So far, Sequoia Capital’s reduction ratio has reached 5%, with a total of approximately 179 million yuan in realized gains.
After ten years of investment, a rough calculation shows that Sequoia Capital's investment ROI is approximately 336%. According to Sequoia Capital's plan, there will still be a 1% reduction quota in the next three months.
The AI story is not sexy, and it is difficult for listed companies to make a profit.
By 2023, Geling Shentong's main product income comes from the two main sectors of urban management and smart finance. The downstream customers mainly cover government agencies or enterprises and institutions in many provinces and cities across the country, as well as tens of thousands of outlets of Agricultural Bank of China.
As a company that leans towards B2B sales, Grayin Deep Pupil has a very high reliance on its major clients. In 2020, approximately 57.57% of its revenue came from its top five clients, and this proportion is expected to increase to 91.56% by 2023, where Agricultural Bank of China is the company's largest client. In 2017 and 2020, the controlling shareholder, Zhao Yong, awarded two stock-based incentives to Huang Huidong, the head of sales. Huang Huidong's equity holding platform, Australian Lincoln Spring, acquired 3.61% and 4.59% of the contributed capital respectively, at a price of 1 yuan.
When Grayin Deep Pupil went public in 2022, Australian Lincoln Spring, with a 5.59% stake, became the fifth-largest shareholder.
On the same day when the restricted stocks were released, Australian Lincoln Spring, the equity holding platform of Huang Huidong, the head of sales, simultaneously entered the list of shareholding reduction. Australian Lincoln Spring first reduced its holdings by 1.065 million shares of Grayin Deep Pupil's stock, and cashed out 32.5251 million yuan. In the following six months, Australian Lincoln Spring has reduced its holdings and cashed out at least 131 million yuan. Currently, it is no longer one of the top ten shareholders of Grayin Deep Pupil. Based on the current market price of the remaining equity, the value of this stock-based incentive is worth at least 180 million yuan.
After delivering its first good result by relying on financial investment profits, Grayin Deep Pupil turned a loss in 2023. Due to the recent adoption of behavioral analytics on a large scale, and new business investment in rail transit operation and sports and health still being in their initial stage, the company has lost over 90 million yuan in net income attributable to shareholders in 2023.
Since 2024, secondary market investors have 'voted with their feet,' causing Grayin Deep Pupil to decline by more than 40%. As of the close on June 19, Grayin Deep Pupil's market capitalization was only 3.2 billion yuan, with a stock price of 12.38 yuan/share, less than a third of its issue price.
Regarding the share reduction by shareholders, Grayin Deep Pupil mentioned in a media interview that the shareholders who issued the reduction announcement mainly invested in the company during the early stages of its establishment, which has been around for about 10 years. As shareholders of the fund, they need to address the expiration of their fund and the redemption needs of their limited partners. This is a normal operation in the capital market and can be understood.
Grayin Deep Pupil briefly gained attention for helping the wealthy find their relatives through AI. Recently, the concept of 'Car-road Cloud' stocks has caused a surge in trading limits. Grayin Deep Pupil responded on its investor platform that the relevant products had been delivered, and that being associated with a popular concept had little impact on the company's stock price. On June 18, the company's stock price rose by 4.73%, but it turned green the next day. More or less, executives and investors made money, while Grayin Deep Pupil is still struggling in the quagmire of losses.