SoftBank pays big, SurveyMonkey goes public and JUUL’s next step

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines. This week on Equity, the gang was back together. We had the ever-excellent Connie Loizos on hand, along with TechCrunch’s Danny Crichton, and myself, on loan from Crunchbase News. Even better we had Iris Choi on the show. […]

Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast where we unpack the numbers behind the headlines.

This week on Equity, the gang was back together. We had the ever-excellent Connie Loizos on hand, along with TechCrunch’s Danny Crichton, and myself, on loan from Crunchbase News. Even better we had Iris Choi on the show. When she’s not hanging out with us for the pod, she’s a partner at Floodgate.

This week was another that offered a panoply of topics that we couldn’t get to in detail. Stripe’s huge new round, and attendant valuation bump, for example. Oh, and new Lyft financials too!

But we picked out the best, divvied them up, and here’s what we chose:

  • The SoftBank Payroll: SoftBank was super active in the past week, dropping capital into a number of companies. OYO was up first, a budget hotel startup based out of India. SoftBank has been a recurring investor in the firm, but most recently helped drop a billion dollars more into the company.
  • Also on the SoftBank front was a brace of real estate companies: Opendoor and Compass. Both raised $400 million this week, and SoftBank is backing each with checks. If the move was oddly internally competitive or not, is up for debate. Still, more huge checks from the Vision Fund.
  • SurveyMonkey’s IPO: After a long road to the public markets, the venerable SurveyMonkey managed to raise its IPO price above-range, and sold more shares than planned as well. Its stock then took off.
  • Bitmain’s IPO numbers, redux: After posting an incredible Q1, Bitmain had a pretty lacking Q2. Will this scuttle an IPO that was supposed to be a hot ticket? Can one of the most famous crypto-focused companies go public at all?

All that and we still had time to natter about JUUL, about which Connie had great notes on from her recent interview with the founders.

That is us, thanks for coming around, and stay cool!

Equity drops every Friday at 6:00 am PT, so subscribe to us on Apple PodcastsOvercast, Pocket Casts, Downcast and all the casts.

Bitmain IPO concerns: the crypto giant recorded a big loss in Q2 2018

Bitmain’s IPO is the big news in the crypto world this week. The company just filed its IPO prospectus and the numbers are impressive, particularly the year-on-year growth between the first six months of 2018 and a year prior, which saw a near-10x jump in revenue and 7x growth in profit. Nevertheless, that aggregated six-month number may be […]

Bitmain’s IPO is the big news in the crypto world this week. The company just filed its IPO prospectus and the numbers are impressive, particularly the year-on-year growth between the first six months of 2018 and a year prior, which saw a near-10x jump in revenue and 7x growth in profit. Nevertheless, that aggregated six-month number may be masking what was a poor quarter of business for Bitmain.

Bitmain didn’t break out its revenue for Q1 and Q2 2018 in its prospectus, instead it blended them together with a nice looking figure for the first six months of the year, H1 2018. But we can crunch some numbers to give an idea of what it might be.

TechCrunch previously reported through sources that the company’s Q1 2018 revenue hit approximately $2 billion. Additionally, Fortune previously reported that the company carded a $1.1 billion profit during the same quarter, a number that’s in line with these revenue figures given that the prospectus reports a net margin of around 50 percent. For comparison, popular cryptocurrency wallet Coinbase made $1 billion in revenue in 2017.

But if we combine the aforementioned data points with the figures that were just reported, the Q2 numbers don’t look pretty. Specificifically, if combined H1 revenue was $2.9 billion with a $1.1 billion profit, then Q2 saw revenue sink to around $800 million with a loss of $400 million. That would be Bitmain’s worse quarter yet and not the kind of momentum that you want going into a listing.

My colleague Jon Russell earlier observed a number of potential risk signs in stated numbers: margins overall have come down. Gross margin in the first six months was 36 percent, down from 48 percent in 2017 and 54 percent in 2016. Contributing to that, the cost of sale percentage in the first half of 2018 rose to 64 percent from 51 and 52 percent in 2017 and 2016, respectively. Additionally, he detailed how the company over-estimated demand in 2018, and, as a result, its inventory ballooned by $1 billion. That unsold product is another indicator that Q2 did not go as planned.

Wu Jihan, co-founder of Bitmain Technologies Ltd., speaks during the Coingeek Conference in Hong Kong, China, on Friday, May 18, 2018. The conference runs through today. Photographer: Anthony Kwan/Bloomberg via Getty Images

We can also examine the financials from a holistic perspective. Adjusted return-on-asset (ROA) and return-on-equity (ROE) are indicators of how profitable a company is relative to its total assets and equity, respectively. Both numbers almost halved in 2018 vs 2017. So even though Bitmain was able to grow its top and bottom line, its overall operating efficiency has declined significantly, from 60.9 percent to 31.4 percent in adjusted ROA and 112.3 percent to 58.9 percent in adjusted ROE.

Where that operating efficiency level could stabilize will likely be a focus for public equity investors. With 94 percent of 2018 revenue coming from mining rigs, up from 80 percent from 2017, Bitmain is increasingly looking like a pure chips company, subject to cryptocurrency market conditions. As a reference, hardware company Nvidia, a company based out of California that also makes computer chips, generated revenues of $9.7 billion in its 2018 fiscal year (2017 calendar year). It’s been operating for 19 years as a public company and its ROA was around 27 percent and adjusted ROE was around 40 percent in calendar year 2017. Nvidia told investors last month that revenue from crypto-related sales had substantially declined, another factor that indicates Bitmain’s Q2 was a tough one.

More generally, Bitmain currently has 11 mining farms in China, including Sichuan and Inner Mongolia. It’s looking to build out 3 new mining farms in the U.S. in Washington, Texas and Tennessee, while it is also contemplating a mining farm in Quebec. This indicates that the team is cognizant of their concentration in revenue from mining rigs and is attempting to diversify into other businesses.

TechCrunch looked at the top equity holders closely and it appears a total of ~60 percent is owned by the top 5 founding individuals. We know of co-CEOs Wu Jihan and Micree Zhang that own majority of the portion, but there is also Zhao Zhaofeng, Ge Yuesheng, and Song Wenbao. The next largest shareholder is Sequoia, which owned the investment through another entity called SCC Venture VI. Sequoia owns over 2 percent of Bitmain shares through its various funds. Coatue also owns 0.14 percent. The employee’s pool in aggregate was about 18.5 percent.

Aside from Q2 numbers and potentially a hit in Q3 from the ongoing market downtrend, there are few other investor concerns that may surface. For one, Taiwan Semiconductor Manufacturing Company (TSMC) is Bitmain’s single largest supplier, accounting for 59.2 percent of total supply in the first half of 2018, and generally hovering over 58 percent in the last 2.5 years, leading to concentrated supplier risk.

Another issue is that for the cryptocurrencies that Bitmain owns — that is, Bitcoin, Bitcoin Cash, Ether, Litecoin and Dash. Bitmain accounted for these cryptocurrencies at cost, which means that the value of these cryptocurrencies is priced at the time of acquisition, not at the current market value. A decent portion could have been acquired during the bull market last year, this may be perceived as overly bullish or unrealistic by public investors, especially by those who have yet to be bought into the value of cryptocurrency, or already find it extremely risky as an asset class.

The questions and doubts from public investors around the unpredictability of the crypto market will be one of the many challenges that crypto companies face if they choose public markets. As we mentioned previously, there are many reasons to stay private as a crypto company, including keeping quarterly financials private as well as dealing with market fluctuations and the ongoing volatility and uncertainty in the cryptocurrency world. However, the con is that early employees may not get liquidity in their stock options.

Wu has said that a Bitmain IPO would be a “landmark” for both the company and the cryptocurrency space. In such a bear market, Bitmain may be taking a risk by going public, but it’s certainly a large step on behalf of the crypto market. When the filings came out, the value of Bitcoin Cash rose by 23.7 percent from the start of the day, reaching a nearly three-week high, and at around 6pm PST it was still up 20 percent.

Several of Bitmain’s competitors have filed for IPO since the beginning of 2018, but most of them are significantly smaller. For example, Hong Kong-based Canaan Creative filed in May, and its latest target is $1 billion to $2 billion in fundraising with 2017 revenue of $204 million. If Bitmain’s Q2 was as poor as the numbers suggest, it may need to revise the target raise for its Hong Kong listing.

Crypto mining giant Bitmain reveals heady growth as it files for IPO

After months of speculation, Bitmain — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane. The document doesn’t specify how much five-year-old Bitmain is aiming to raise from […]

After months of speculation, Bitmain — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane.

The document doesn’t specify how much five-year-old Bitmain is aiming to raise from its listing — that’ll come later — but it does lift the lid on the incredible business growth that the company saw as the crypto market grew massively in 2017. Although that also comes with a question: can that growth continue in this current bear market?

The company grossed more than $2.5 billion in revenue last year, a near-10X leap on the $278 million it claims for 2016. Already, it said revenue for the first six months of this year surpassed $2.8 billion.

Bitmain is best known for its ‘Antminer’ devices — which allow the owner to mine for Bitcoin and other cryptocurrencies — and that accounts for most of its revenue: 77 percent in 2016, 90 percent in 2017, and 94 percent in the first half of 2018. Other income is generated by its mining farms, shared mining pools, AI chips and blockchain services.

The company is fabless, which means it develops its own chip design and works with manufacturing partners who bring them to life as physical chips. Those chips are then used to power mining hardware which lets the owner earn a reward by mining Bitcoin and other cryptocurrencies. Bitmain claims over 80,000 customers with just under half of sales in China and the rest overseas.

The company said it posted $701 million in net profit in 2017, up from $104 million in 2016. For the first half of this year, it is claiming a gross profit of $743 billion. (Operational profit touched $1 billion for that period.)

That’s quite staggering growth, but there are some signs that 2018 comes with more challenges.

Margins are down. Gross margin in the first six months was 36 percent, down from 48 percent in 2017 and 54 percent in 2016. Contributing to that, the cost of sale percentage in the first half of 2018 rose to 64 percent from 51 and 52 percent in 2017 and 2016, respectively.

Interestingly, Bitmain accepts Bitcoin and other cryptocurrencies as payment for its miners, with some 27 percent of purchases last year paid for using crypto. As a result, those payments aren’t included in revenue but do show up as “investing cash inflow” when they are converted to fiat and used in the business. That’s a 2018 accounting problem right there.

As a result, Bitmain has a negative net cash used in operating activities position but those become positive when factoring in the crypto. The company said it received $887 million in crypto in the first half of 2018, $872 million in 2017, $56 million in 2016 and $12 million in 2015 — that’s based on rate at cost. Data appears to show that Bitmain cashed $484 million in crypto in 2017, and in the first half of 2018 that figure was $382 million.

The wild ride of 2017, however, led the company to over-estimated demand and, as a result, its inventory ballooned by $1 billion.

Here’s Bitmain explanation of how it managed to get it so wrong:

In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price in the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018. Going forward, we will actively balance our business growth strategy, inventories and cryptocurrency asset levels to ensure a sustainable business growth and a healthy cash flow position, and we will adjust our procurement and prediction plan to maintain an appropriate liquidity level.

Despite an extra $1 billion in inventory, Bitmain estimates it has the working capital — including crypto pile and the result of its IPO — to sustain operations for at least another 12 months. That, according to its figures, is around $343 million in cash and cash equivalents but clearly it needs another megahit product or for the market demand to rise again.

Indeed, Bitmain just last week announced its newest mining chip — shrunk down to 7nm — which it believes will offer more power and greater efficiency for miners. That progress coupled with the rising value of crypto — i.e. what owners of Bitmain miners can earn — has helped the company steadily raise the price of its hardware.

Average selling price for its Bitcoin mining machines in 2015 was just $463, but that jumped to $767 in 2016, $1,231 in 2017 and $1,012 in the first half of 2018.

Bitmain co-founder Jihan Wu is the face of the company and one of its largest shareholders with a 20 percent stake

Beyond mining, the company is also developing AI chips, the first of which launched last year. They are used for developing cloud systems, as well as object, image and facial recognition purposes.

Citing third party figures, Bitmain claims to have a dominant 75 percent of the ASIC mining hardware market. It is investing heavily in R&D, which reached $73 million last year and $86 million during the first half of 2018. In addition, around one-third of its 2,594 employees are listed as working in research and development.

It’s likely that Bitmain sees more revenue in crypto than any other company on the planet

Bitmain’s document confirms the company raised some $784 million across Series A, Series B and Series B rounds.

Its investor roster is fairly public thanks to leaks and it includes the likes of IDG, Sequoia China, and Kaifu Lee’s Sinovation fund. However, the prospectus does confirm that shareholders include retailer NewEgg, EDBI — the corporate investment arm of Singapore’s Economic Development Board — and Uber investor Coatue. Founders Ketuan Zhan and Jihan Wu are the largest shareholders and they control 36 and 20 percent, respectively.

We can expect Bitmain to flesh out the prospectus with more juicy information, including a target raise which will also generate its valuation. But for now there are over 400 pages of information to process, you can find them all right here.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

Crypto mining giant Bitmain reveals heady growth as it files for IPO

After months of speculation, Bitmain — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane. The document doesn’t specify how much five-year-old Bitmain is aiming to raise from […]

After months of speculation, Bitmain — the world’s largest provider of crypto miners — has opened the inner details of its business after it submitted its IPO prospectus with the Stock Exchange of Hong Kong. And some of the growth numbers are insane.

The document doesn’t specify how much five-year-old Bitmain is aiming to raise from its listing — that’ll come later — but it does lift the lid on the incredible business growth that the company saw as the crypto market grew massively in 2017. Although that also comes with a question: can that growth continue in this current bear market?

The company grossed more than $2.5 billion in revenue last year, a near-10X leap on the $278 million it claims for 2016. Already, it said revenue for the first six months of this year surpassed $2.8 billion.

Bitmain is best known for its ‘Antminer’ devices — which allow the owner to mine for Bitcoin and other cryptocurrencies — and that accounts for most of its revenue: 77 percent in 2016, 90 percent in 2017, and 94 percent in the first half of 2018. Other income is generated by its mining farms, shared mining pools, AI chips and blockchain services.

The company is fabless, which means it develops its own chip design and works with manufacturing partners who bring them to life as physical chips. Those chips are then used to power mining hardware which lets the owner earn a reward by mining Bitcoin and other cryptocurrencies. Bitmain claims over 80,000 customers with just under half of sales in China and the rest overseas.

The company said it posted $701 million in net profit in 2017, up from $104 million in 2016. For the first half of this year, it is claiming a gross profit of $743 billion. (Operational profit touched $1 billion for that period.)

That’s quite staggering growth, but there are some signs that 2018 comes with more challenges.

Margins are down. Gross margin in the first six months was 36 percent, down from 48 percent in 2017 and 54 percent in 2016. Contributing to that, the cost of sale percentage in the first half of 2018 rose to 64 percent from 51 and 52 percent in 2017 and 2016, respectively.

Interestingly, Bitmain accepts Bitcoin and other cryptocurrencies as payment for its miners, with some 27 percent of purchases last year paid for using crypto. As a result, those payments aren’t included in revenue but do show up as “investing cash inflow” when they are converted to fiat and used in the business. That’s a 2018 accounting problem right there.

As a result, Bitmain has a negative net cash used in operating activities position but those become positive when factoring in the crypto. The company said it received $887 million in crypto in the first half of 2018, $872 million in 2017, $56 million in 2016 and $12 million in 2015 — that’s based on rate at cost. Data appears to show that Bitmain cashed $484 million in crypto in 2017, and in the first half of 2018 that figure was $382 million.

The wild ride of 2017, however, led the company to over-estimated demand and, as a result, its inventory ballooned by $1 billion.

Here’s Bitmain explanation of how it managed to get it so wrong:

In early 2018, we anticipated strong market growth for cryptocurrency mining hardware in 2018 due to the upward trend of cryptocurrencies price in the fourth quarter of 2017, and we placed a large amount of orders with our production partners in response to the anticipated significant sales growth. However, there had been significant market volatility in the market price of cryptocurrencies in the first half of 2018. As a result of such volatility, the expected economic return from cryptocurrency mining had been adversely affected and the sales of our mining hardware slowed down, which in turn caused an increase in our inventories level and a decrease in advances received from our customers in the first half of 2018. Going forward, we will actively balance our business growth strategy, inventories and cryptocurrency asset levels to ensure a sustainable business growth and a healthy cash flow position, and we will adjust our procurement and prediction plan to maintain an appropriate liquidity level.

Despite an extra $1 billion in inventory, Bitmain estimates it has the working capital — including crypto pile and the result of its IPO — to sustain operations for at least another 12 months. That, according to its figures, is around $343 million in cash and cash equivalents but clearly it needs another megahit product or for the market demand to rise again.

Indeed, Bitmain just last week announced its newest mining chip — shrunk down to 7nm — which it believes will offer more power and greater efficiency for miners. That progress coupled with the rising value of crypto — i.e. what owners of Bitmain miners can earn — has helped the company steadily raise the price of its hardware.

Average selling price for its Bitcoin mining machines in 2015 was just $463, but that jumped to $767 in 2016, $1,231 in 2017 and $1,012 in the first half of 2018.

Bitmain co-founder Jihan Wu is the face of the company and one of its largest shareholders with a 20 percent stake

Beyond mining, the company is also developing AI chips, the first of which launched last year. They are used for developing cloud systems, as well as object, image and facial recognition purposes.

Citing third party figures, Bitmain claims to have a dominant 75 percent of the ASIC mining hardware market. It is investing heavily in R&D, which reached $73 million last year and $86 million during the first half of 2018. In addition, around one-third of its 2,594 employees are listed as working in research and development.

It’s likely that Bitmain sees more revenue in crypto than any other company on the planet

Bitmain’s document confirms the company raised some $784 million across Series A, Series B and Series B rounds.

Its investor roster is fairly public thanks to leaks and it includes the likes of IDG, Sequoia China, and Kaifu Lee’s Sinovation fund. However, the prospectus does confirm that shareholders include retailer NewEgg, EDBI — the corporate investment arm of Singapore’s Economic Development Board — and Uber investor Coatue. Founders Ketuan Zhan and Jihan Wu are the largest shareholders and they control 36 and 20 percent, respectively.

We can expect Bitmain to flesh out the prospectus with more juicy information, including a target raise which will also generate its valuation. But for now there are over 400 pages of information to process, you can find them all right here.

Note: The author owns a small amount of cryptocurrency. Enough to gain an understanding, not enough to change a life.

China is beating the US on AI, says noted investor Kaifu Lee

America may have created AI, but China is taking the ball and running when it comes to one of the world’s most pivotal technology innovations. That’s according to Kaifu Lee, a world-renowned AI expert who founded Sinovation, a China-U.S. fund that raised its fourth fund worth $1 billion earlier this year. Speaking at TechCrunch Disrupt […]

America may have created AI, but China is taking the ball and running when it comes to one of the world’s most pivotal technology innovations.

That’s according to Kaifu Lee, a world-renowned AI expert who founded Sinovation, a China-U.S. fund that raised its fourth fund worth $1 billion earlier this year.

Speaking at TechCrunch Disrupt San Francisco, Lee — who led Google in China before it left the country — said any lead America’s tech industry may have enjoyed is rapidly being eroded by hungry Chinese entrepreneurs who have oodles more data at their disposal to build, train and deploy AI systems.

“People assume that because the U.S. is so strong in AI research, that the U.S. should dominate,” Lee said. “But actually, China is catching up really first.”

Sinovation already has five AI companies in its portfolio that are valued at over $1 billion — that might be a record for any VC firm worldwide — and he explained China’s “magical ascent” in AI has taken just two years.

“Coming from way behind, now [China] is actually ahead of the U.S. in AI implementation,” Lee said. “AI we should think of it as electricity. Thomas Edison [the inventor of electricity] — and also the AI deep learning inventors who were American — they invented this stuff and then they generously shared it.

“Now, China, as the largest marketplace with the largest amount of data, is really using AI to find every way to add value to traditional businesses, to internet, to all kinds of spaces. The Chinese entrepreneurial ecosystem is huge so today the most valuable AI companies in computer vision, speech recognition, drones are all Chinese companies,” Lee added.

But it isn’t just progress in the eyes of investors — who create valuations through their investment — Lee said that Chinese AI firms generate more sales, too, while China accounts for nearly half of all VC investments and 43 percent of all AI startups.

“These are companies that were founded between two and four years ago,” Lee explained. “This is really how fast it’s been, you have to be there to see the excitement and the pace.”

In the case of Sinovation, their billion-dollar AI companies include crypto firm Bitmain, image recognition company Megvii (known as Face++), fintech-focused 4th Paradigm, autonomous driving AI company Momenta, and chip outfit Horizon Robotics.

Much of the reporting around how China is using artificial intelligence centers around ways that the government is using facial recognition for surveillance purposes. While that has included crime fighting, with facial recognition successfully used to identify and capture suspects, there are also concerns around more sinister applications, such as the surveillance of Chinese minority Uighur Muslims. China is reported to have detained as many as one million Uighur in camps, and facial recognition technology is believed to be one key part of surveillance strategy.

Lee, however, brushed off concern around the darker applications of AI in China, pointing out that the technology has the capacity to be abused anywhere in the world. He said China is also using the technology to develop new kinds of retail, manage busy urban traffic, build new kinds of educational services, and more.

Indeed, Sinovation’s takes an unusual route to develop technologies and startups. As well as investing, it also develops technology in-house using a team of 200 people in its ‘institute.’ Not only does that team work with portfolio companies and on a consultancy basis, but it develops its own services where it sees gaps in the market.

Indeed, the firm recently span out its first venture from that tech team, which helps traditional retailers develop online-to-offline capabilities, which essentially marry the benefits of online commerce with more traditional brick and mortar retail. That’s a strategy that Chinese e-commerce giants Alibaba and JD.com have invested heavily in.

Crypto mining giant Bitmain on target for $10B revenue this year

During a gold rush, Silicon Valley’s line is to always invest in picks and shovels instead of mining. Sometimes it pays just to do both. TechCrunch has learned through a company fundraise overview that Beijing-based mining equipment seller Bitmain hit a quarterly revenue of approximately $2 billion in Q1 of this year. Despite a slump […]

During a gold rush, Silicon Valley’s line is to always invest in picks and shovels instead of mining. Sometimes it pays just to do both.

TechCrunch has learned through a company fundraise overview that Beijing-based mining equipment seller Bitmain hit a quarterly revenue of approximately $2 billion in Q1 of this year. Despite a slump in bitcoin prices since the beginning of the year, the company is on track to become the first blockchain-focused company to achieve $10 billion in annual revenue, assuming that the cryptocurrency market doesn’t drop further.

Fortune previously reported that the company had $1.1 billion in profits in the same quarter, a number in line with these revenue numbers, given a net margin of around 50 percent.

That growth is extraordinary. From the same source seen by TechCrunch, Bitmain’s revenues last year were $2.5 billion, and around $300 million just the year before that. The company reportedly raised a major venture round of $300-400 million from investors, including Sequoia China, at a valuation of $12 billion.

For comparison, popular cryptocurrency wallet Coinbase made $1 billion in revenue in 2017. In addition, Nvidia, a company based out of California that also makes computer chips, generated revenues of $9.7 billion in its 2018 fiscal year (2017 calendar year). Nvidia’s revenues were $3.21 billion in Q1 fiscal year 2019 (February-April 2018), and historical revenue figures show a general seasonal uptrend in revenue from Q1 through Q4.

The same overview also shows that Bitmain is exploring an IPO with a valuation between $40-50 billion. That would represent a significant uptick from its most recent valuation, and is almost certainly dependent on the vitality of the broader blockchain ecosystem.

Several of Bitmain’s competitors have filed for IPO since the beginning of 2018, but most of them are significantly smaller in size. For example, Hong Kong-based Canaan Creative filed for an IPO in May, and the latest was that it was aiming for $1 billion to $2 billion in fundraising with 2017 revenue of US$204 million.

When contacted for this story, Bitmain declined to comment on the specific numbers TechCrunch has acquired.

A brief overview of Bitmain

Bitmain is the world’s dominant producer of cryptocurrency mining chips known as ASICs, or Application-Specific Integrated Circuit. It was founded by Jihan Wu and Micree Zhang in 2013, and the company is currently headquartered in Beijing.

As the story goes, back in 2011, when Wu read Satoshi Nakamoto’s whitepaper on Bitcoin, he emptied his bank account to buy them. Back then, one bitcoin could be purchased for less than a dollar. And by 2013, Wu and Zhang decided to build an ASIC chip specifically for bitcoin mining and founded Bitmain. Wu was just 28 at the time.

Cryptocurrency mining is the process of checking and adding new transactions to bitcoin’s immutable ledger, called the blockchain. The blockchain is formed by digital blocks, where transactions are recorded. The act of mining is essentially using math to solve for a cryptographic hash, or a unique signature if you will, to identify new blocks.

The general mining process requires massive processing power and incurs hefty energy costs. In exchange for those expenses, miners are rewarded with a number of bitcoins for each block they add onto the blockchain. Currently, in the case of Bitcoin, the reward for every block discovered is 12.5 bitcoins. At the current average trailing bitcoin price of approximately $6,500, that’s $81,250 up for grabs every 10 minutes, or $11.7 million dollars a day.

Bitmain has several business segments. The first and primary one is selling mining machines outfitted with Bitmain’s chips that are usually a few hundred to a few thousand dollars each. For example, the latest Antminer S9 model is listed as $3,319. Secondly, you can rent Bitmain’s mining machines to mine cryptocurrencies.

Third, you can participate to mine bitcoin as part of Bitmain’s mining pool. A mining pool is a joint group of cryptocurrency miners who combine their computational resources over a network. Bitmain’s two mining pools, Bitmain’s AntPool and BTC.com, collectively control more than 38 percent of the world’s Bitcoin mining power per BTC.com at the moment.

The future of Bitmain is closely tied with the crypto market

Bitcoin mining is a massive business with influence over energy prices across the world. (LARS HAGBERG/AFP/Getty Images)

Despite its rapid rise to success, Bitmain is ultimately dependent on the price of cryptocurrencies and overall crypto market fluctuations. When there is a bull crypto market, investors would be willing to give a different valuation multiple to the company than if it were in a bear market. In a bear market, the margins are reduced for both the company as well as for its customers, as the economics of mining cryptocurrencies are no longer as compelling. For example, at the end of 2014, Mt. Gox, a famous Bitcoin exchange at the time, was hacked, spurring a crash in cryptocurrency prices.

Subsequently, Bitmain went through a bitcoin drought as Bitcoin prices hit low points, and its ASIC chips did not see much demand. It was not appealing to miners to pay for expensive electricity bills to mine a digital currency that was falling in value. But fast-forward to now; we have gone through several bull and bear crypto market cycles. According to Frost & Sullivan, in 2017, Bitmain is estimated to have ~67 percent of the market share in bitcoin mining hardware, and generated 60 percent of computing power.

Canaan Creative IPO filing. Company A is Bitmain.

One of the fundamental challenges facing any cryptocurrency mining manufacturer such as Bitmain is that the valuation of the company is largely based off the price of cryptocurrencies. The market in the first half of 2018 has shown that no one really knows when bitcoin prices and the cryptocurrency market will start picking up again. Additionally, according to Frost & Sullivan, the ASIC-based blockchain hardware market, which is the market segment that includes Bitmain and Canaan, will see its compound annual growth rate (CAGR) slow to around 57.7 percent annually between 2017 to 2020, down from 247.6 percent between 2013 and 2017.

Nonetheless, it seems that Bitmain has planned well ahead to prepare for these macro risks and exposures. The company has raised significant private funding and has been expanding its business into mining new coins and creating new chips outside of cryptocurrency applications.

First, with it’s existing mining rigs, Bitmain can essentially broaden into all SHA256-related coins. So coins such as Bitcoin, Bitcoin Cash and Litecoin can all be mined on Bitmain’s equipment. The limitation here is largely how fast they can build up more mining equipment and mining centers. The company has broadened its geographic reach by developing new mining centers. Most recently, Bitmain revealed that it will build a $500 million blockchain data center and mining facility in Texas as part of its expansion into the U.S. market, aiming for operations to begin by early 2019.

Secondly, Bitmain is also looking to launch their own AI chips by the end of 2018. Interestingly, the AI chips are called Sophons, originated from the key alien technology in the famous trilogy, the Three-Body Problem, by Liu Cixin. If things go as planned, Bitmain’s Sophon units could be training neural networks in data centers around the world. Bitmain’s CEO Wu once said that in five years, 40 percent of revenues could come from AI chips.

Lastly, Bitmain has been equipping itself with cash. Lots of it, from a number of the top and largest investors in Asia. Two months ago, China Money Network reported that Bitmain raised a Series B round, led by Sequoia Capital China, DST, GIC and Coatue in a $400 million raise, putting the company at a value of $12 billion. Just last week, Chinese tech conglomerate Tencent and Japan’s SoftBank, another tech giant whose 15 percent stake in Uber makes it the drive-hailing app’s largest shareholder, also joined the investor base.

For Bitmain, there are many reasons to stay private as a company, including keeping its quarterly financials private as well as dealing with market fluctuations and the ongoing volatility and uncertainty in the cryptocurrency world. However, the con is that early employees may not get liquidity in their stock options until much later.

Wu has said that a Bitmain IPO would be a “landmark” for both the company and the cryptocurrency space. However, with the current rich crypto private market financing, it’s not so bad of an idea to continue to raise private money and stay out of the public eye. Once Bitmain’s financials become more diversified and cryptocurrency becomes more widely adopted worldwide, the world may then be ready for this $10 billion revenue blockchain company.