Chinese startup Z.ai seeks $560M raise in Hong Kong IPO listing – News

One of China’s largest large language model developers, Z.ai, today filed plans for an initial public offering on the Hong Kong Stock Exchange.

It’s scheduled to list its shares on Jan. 8 under the ticker “2513,” and claims that by doing so it will become “the world’s first publicly listed foundation model company.”

The company, formerly known as Zhipu AI and officially known as Knowledge Atlas Technology Joint Stock Co. Ltd., is recognized as one of the leading artificial intelligence startups in China. It’s best known for its GLM series of pretrained LLMs that support conversational interactions in both Chinese and English languages, as well as its Ying video generation model that creates short clips based on natural language prompts.

Z.ai is also the developer of an agentic AI application called AutoGLM, which can be installed on smartphones and use third-party apps and tools to automate tasks on behalf of users. In the past, it has received significant funding from Chinese technology giants such as Tencent Corp. and Alibaba Group Holding Ltd.

The startup was among a number of Chinese firms that were blacklisted by the U.S. Commerce Department earlier this year due to national security concerns. The sanctions prohibit U.S. organizations from using its services and make it harder for it to procure advanced processors to run its LLMs. But they don’t appear to have hindered its progress all that much. The company recently released its most advanced model so far in GLM-4.7, and it currently ranks sixth overall on the LMArena WebDev arena, and has seen strong traction on OpenRouter too.

Admittedly, Z.ai is just one among dozens of AI startups vying for market share in a crowded industry, but its IPO filing is significant because it provides some unique insights into the precarious finances of AI model developers.

Tech journalist Alex Wilhelm, who delved into Z.ai’s finances in his Substack newsletter Cautious Optimism, said the one thing that jumps out is the “incredibly expensive” nature of building advanced AI models. Just like U.S. firms such as OpenAI Group PBC and Anthropic PBC, the company is burning through tons of cash. While its revenue is expanding fast, its costs are growing even faster.

In the first half of 2024, Z.ai generated revenue of just $6.4 million and an operating loss of $146.9 million, while in the first half of this year, its revenue rose to $27.2 million, while losses grew to $271.1 million. The company detailed research and development costs of $122.5 million in the first six months of 2024, rising to $227.5 million in the first half of this year.

The startup plans to issue 37,419,500 class H shares at an offer price of HK$116.20 (around $15.01), and is targeting a total raise of $560 million at a $6.5 billion valuation. If it achieves that goal, it could become Hong Kong’s largest stock listing.

Interestingly, while most of OpenAI’s revenue appears to come from consumer subscriptions, Z.ai said in its IPO filing that it expects the bulk of its sales to come from enterprise customers. The startup operates a model-as-a-service strategy and said its API platform currently services more than 2.7 million enterprise and application developers.

Once the listing is complete, Z.ai said, it will use 70% of the proceeds to fuel its ongoing R&D efforts, with 10% going towards improving its commercial offerings, 10% to expand its partner ecosystem and the final 10% set aside for working capital and other corporate expenses.

Though Z.ai’s IPO listing is slated for Jan. 8, it may not be the first foundation model developers to go live on the HKSE. Earlier today, Bloomberg reported that one of its chief rivals, a company called MiniMax, is also preparing for an IPO that’s expected to list next month. However, MiniMax has not yet officially submitted any documents regarding its listing.

Photo: Z.ai