In this guest post from PANews, journalist Carol Lee interviews one of the earliest investors in Bitcoin mining giant Bitmain (translation by Kevin Yang).
While Bitmain’s IPO prospectus submission to the Hong Kong exchange was exposed in a high profile case, some of the company’s institutional investors remain relatively behind the scenes. One of these figures is Sinovation Ventures Investment Director Jiaping Wang.
Sinovation Ventures took part in the Series A financing of Bitmain in August 2017, making it one of the company’s first-round institutional investors. Wang, who both the Executive Director of Sinovation Ventures and VP of its subsidiary AI Institute, was the “talent scout” behind Bitmain’s discovery. Wang himself also facilitated the financing process.
Sinovation Ventures was founded by Dr. Kai-Fu Lee who previously served as the President of Google Greater China and the Corporate Vice President of Natural Interactive Services Division (NISD) of Microsoft. A prominent Chinese investment firm, they compleed a successful fourth-round VC in April.
Unlike most other investors, Wang has a strong technological background. Both he and Micree Zhan, the Co-founder of Bitmain, graduated from Chinese Academy of Sciences. During Wang’s time as a Senior Researcher in Microsoft Research, he worked closely with under Harry Shum, the Executive Vice President of Microsoft.
A technologically minded investor, Wang shared his vision about the technological dimension in the blockchain business with PANews.
Those Who Own the Computing Power Will Lead the Market
“There is only one focus in the investment thesis in Sinovation Ventures: to find a good team in a good business,” Wang told PANews.
According to Bitmain’s prospectus, as an ASIC designer and developer as well as a mining machines producer, Bitmain has experienced extremely rapid development since it was founded five years ago. The company experienced nearly 4x of yearly growth rate in net assets; its gross margin has at times even neared that of NVIDIA.
CEO of Sinovation Ventures Kai-Fu Lee stated that as a tech VC, his company knows how to grasp the trends of tech development, so as to “join the fight” in the middle or early stages of the industry’s tailwind. Sinovation Ventures discovered Bitmain years ago while Bitmain was still laying out its investment strategy for AI chips.
Wang believes that the current rapid development of AI has raised the demand for computing power and is a golden opportunity for the semi-conductor industry where ASIC is the foundation of AI.
For Wang, “Bitmain is leading in a high-growth ASIC chip industry, which makes it an attractive investment target.” He is convinced the Bitmain’s valuation is mainly the result of the design and selling power of bitcoins mining machines. Thanks to the SHA256 computing chips, Bitmain now accounts for nearly 70% of the sales in the global bitcoin mining market.
However, the prices of bitcoin plunged with the cumulative decline of 60% from its peak a year ago. In response to this bitcoin market uncertainty, Bitmain is now delving into the market for AI chips, in the hopes of finding other business opportunities for the firm.
“Apart from bitcoin mining, AI chip are of significant importance to Bitmain. Bitmain will be able to provide key infrastructure for AI computation.” According to Wang’s conversation with PANews, Bitmain has already come up with the solution to develop AI infrastructure.
To assist Bitmain further develop its AI capacity, Sinovation Ventures has connected Bitmain with its subsidiary AI Institute as well as AI companies that are currently under Sinovation Ventures’ investment portfolio.
In addition to mining chip market dominance, the potential of AI application is another key aspect that impressed Wang in Bitmain’s ability to overcome risks. “The blockchain business, especially the market side of cryptocurrency, often face a lot of volatility. Nevertheless, Bitmain has managed to grow amidst this uncertainty.”
Focus on Blockchain Infrastructure
While AI has always been the main battlefield for Sinovation Ventures, Wang said that he has been paying attention to blockchain-related companies as well.
Facing the current bear market environment in blockchain, Wang said frankly that “Bear market or not, it will not pose a great impact to our investing thesis. Some impacts will only be in company valuation.”
So far, Bitmain is the only blockchain company that is a part of Sinovation Ventures’ portfolio. The reason behind the lack of further investment is that currently, the speed of underlying technology development cannot catch up with s blockchain industry’s ambitions. “Without a firm foundation, skyscrapers are nothing but a mirage.”
Wang also indicated that the focus of their investemnt in the blockchain business will be on underlying technology development. Furthermore, Sinovation Ventures’ successful investment in Bitmain can serve as the stepping stone for future investment in blockchain-related enterprises.
Bitmain will Capitalize on AI Development and Provide Hedging Against the Equity Market
It is far from clear whether Bitmain’s IPO will be successful; when looking to the future, Wang argued that “Bitmain will be the first and the only stock relating to the digital currency market. Bitmain will be a great option for people that want to long the digital currency, or considering doing asset allocation and hedging.”
“It is true that in the short run, the sales of Bitmain’s mining machines are affected by digital currency price. However, in the long run, Bitmain’s market value will not only reflect the sales of cryptocurrency digital mining machines, but also AI chips. We are very optimistic about Bitmain’s future.” Wang concluded.