Thursday, December 8 2022

Xu Li is a fan of Yang Guo, the protagonist of the best-selling Chinese novel The return of the Condor heroes, famous for throwing a stone at a Mongol Khan, killing the chief and stopping an enemy invasion from the north of the country.

But the 40-year-old co-founder and chief executive of Chinese artificial intelligence group SenseTime says he is inspired by Yang’s more subtle powers of persuasion over supporters and foes alike.

Even as Xu seeks to emulate these diplomatic skills, he has failed to convince the US government to have a favorable view of his company. Days before SenseTime went public in Hong Kong, Washington placed it on an investment blacklist, accusing it of enabling human rights abuses against Muslim Uyghurs in the western province of Xinjiang. The company denied the allegations.

SenseTime nonetheless managed to pull off a successful but delayed IPO last month, in part because it only put a small slice — 3.4% — of the company to go free-traded. “The IPO was controlled to some extent,” said Andy Maynard, head of equities at investment bank China Renaissance.

The company’s share price has risen 86% since its inception. Xu’s stake in the company is now worth $784 million and the company’s market capitalization is $30.6 billion.

SenseTime’s management, mostly made up of PhDs in computer science, has at times struggled to convince investors it has a clear business plan © CNS/AFP/Getty Images

Not much is publicly known about Xu’s background, beyond that he grew up in a middle-class family in Shanghai and studied computer science at Shanghai Jiao Tong University before surrendering. at the Chinese University of Hong Kong to complete his doctorate in computer vision.

Yasuyuki Matsushita, Xu’s mentor at Microsoft Research Asia when he was an intern in 2009, remembers the young researcher as talented and efficient. “Compared to other interns, our meetings were rather shorter,” he told the Financial Times. “Maybe he wasn’t too talkative, or maybe he just got to the point.”

The young CEO, who declined to comment for this story, has given a handful of interviews to the national press, and his humorous side has occasionally emerged during otherwise controlled interactions. When asked by an interviewer if AI would put people out of work, he jokingly replied, “It depends on whether they have a good relationship with us.”

Like the heroes of the historical tales he admires, Xu is himself the protagonist of an unlikely story: the rise of SenseTime.

When the company was founded in 2014, with a cash injection from IDG Capital – a Boston-based venture capital firm with a presence in China – which valued it at $200 million, it was more of a a motley team of computer scientists led by the Chinese University of Hong Kong Professor Tang Xiao’ou publishes cutting-edge research on computer vision than a cohesive enterprise.

SenseTime’s management, mostly made up of PhDs in computer science, has at times struggled to convince investors that it has a clear business plan. A former senior manager of the group described it as an “academic enterprise” that had “always been more research-oriented than commercialization”.

Like many of its AI peers, SenseTime has yet to turn a profit. This is partly due to the exorbitant costs of the research and development department, where more than 70% of its 5,000 employees work. Other foreign backers include SoftBank, Tiger Global and Silver Lake.

After landing the investment from IDG, “Xu Li launched a wave of hiring, attracting data scientists and computer science professors with big salaries and stock options,” said an employee, who n didn’t want to share his name. SenseTime has also invested money in building a supercomputing platform.

The logic was that if SenseTime had a monopoly on talent and computing power, no other company would be able to compete in this burgeoning field.

But in 2015 he was in a precarious position, having spent the money and without major clients. The young CEO found a savior in the form of retired actor Ren Quan, whose Star VC fund gave the company much-needed cash when others dismissed SenseTime as a expensive academic undertaking with little hope of commercial success.

Around the same time, SenseTime transformed its deep learning algorithm into commercially viable facial recognition software. China Mobile, HNA Group, Huawei and, most importantly, the Chinese government now use SenseTime’s facial recognition software in everything from smartphones to security cameras.

About 40% of SenseTime’s revenue in 2020 came from government contracts for smart cities, including facial recognition and predictive policing. But as the former leader said, depending on government contracts brings its own challenges: “Doing business with the government is difficult. They do not want standardized products or solutions that are tailored to their specific needs. This is not how companies want to do business.

Analysts have questioned Xu’s promise that SenseTime has a “clear path to profitability” by reducing the cost of R&D and finding new customers for its AI, such as businesses, hospitals and schools. Ke Yan, Head of Research at Singapore-based DZT Research, said, “I don’t see how SenseTime will be profitable this year. Its services are highly personalized, which means it has low margins.

But for tech investors burned by Beijing’s regulatory assault on the country’s major internet companies, SenseTime’s path to profitability matters less than its government backing.

As famous internet entrepreneurs such as Alibaba’s Jack Ma recede into the shadows, a new generation of technology leaders – such as Xu – is emerging, a class whose goals closely align with Beijing’s goal of become a self-sufficient technological superpower.

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