After three failed IPOs, Canaan started to tell the story of AI chips in the US stock market

Text | JX kin

Editor | Wen Dao

At 22:30 Beijing time on November 21, Zhang Nangeng was surrounded by his team and investors and pressed the button for the Nasdaq bell ringing ceremony. Golden ribbons sprayed towards them.

This founder, born in the 1980s, worked hard for an IPO for three years with Canaan Creative, which he had run for six years. After three failures, he finally realized his dream in the U.S. stock market.

Canaan Inc.'s stock code CAN has already been listed on the Nasdaq. The public offering price of 10 million shares and $9 means that its total fundraising scale is $90 million, which is 77.5% less than the $400 million planned to be raised in the prospectus.

This company, which started out by developing Bitcoin mining machines, became famous in the Chinese and foreign currency circles in 2013 for its Avalon mining machine. The experience of its founder Zhang Nangeng dropping out of school to develop integrated circuit ASIC mining chips is still a story that the blockchain industry talks about with relish.

After experiencing the Bitcoin bear market from 2014 to 2015, Canaan Creative, which focuses on the mining machine market, tried to escape the adverse effects of the cryptocurrency market fluctuations through traditional capital operations. In the following three years, from A-shares, New Third Board to Hong Kong stocks, Canaan Creative tried every year and failed every year.

The Chinese securities market has never given any mining machine company an entry ticket. Canaan has not gained anything, and the same is true for its peers Bitmain and Ebang International.

Today, Canaan Creative, which holds a Nasdaq ticket, has been crowned the "first blockchain stock" by Chinese blockchain colleagues, which also means that Zhang Nangeng and his team will bear the pressure from shareholders to be transparent and abide by the rules and create profits. This time, they are telling the story of AI chips facing the 5G trend, and the journey has just begun.

In a hotel on the East Third Ring Road in Beijing, 15,000 kilometers away from New York, nearly 200 Chinese media witnessed the stock price of CAN, the "world's first blockchain stock", begin to jump. At 23:46 Beijing time on November 21, Canaan Creative (stock code CAN) opened at $12.6.

One hour ago, this mining machine manufacturer was officially listed on the Nasdaq Stock Exchange in the United States. The public offering price was US$9. The opening price was 40% higher than this, which is a good start for its IPO journey.

Zhang Nangeng finally got the ticket to Nasdaq. The dark red tie and the dark suit made him look serious. Last time he came to Nasdaq, he was just a spectator. This time, he personally pressed the bell-ringing button for the company he founded.

Zhang Nangeng introduces Canaan Creative at Nasdaq

Before the market opened, the big screen showed that the total number of CAN issued this time was 10 million, which means that the initial fundraising scale of Canaan Creative is 90 million US dollars. Supporting this scale is Canaan Creative's revenue data in the past three years. The latest prospectus shows that its revenue in 2017, 2018 and as of June 30, 2019 was 1.2965 billion yuan, 2.6427 billion yuan and 279.5 million yuan respectively.

Canaan Creative's net income has been positive for the past three years

In the prospectus, Canaan Creative positioned itself as a company that "provides supercomputing solutions through proprietary high-performance computing ASIC chips." Judging from the past revenue structure, the sales of Bitcoin mining machines and other mining machine components are the company's main source of revenue, accounting for 99.6%, 99.7% and 98.3% in the above-mentioned disclosure years, respectively.

This time, the main company representing this brand to be listed on the US stock market is Canaan Inc., which is registered in the Cayman Islands. In China, the more familiar one is Hangzhou Canaan Creative Information Technology Co., Ltd., which appears in the prospectus as a wholly-owned subsidiary of Canaan Inc.

The word "Jia Nan" comes from the names of the two founders of the company. Zhang Nangeng put his own name in the second place, and "Jia" is the homophone of "Jia" in the name of his entrepreneurial partner Li Jiaxuan. Canaan's English name is the name of the heroine "Girl Canaan" in a Japanese animation. Everyone in the circle knows that Zhang Nangeng is a fan of the second dimension.

It can be seen that Zhang Nangeng likes the name Cannaan, and the stock code CAN has two meanings.

"Ability and confidence." After reviewing the six-year iteration history of the Avalon chip at a media gathering in Beijing, Canaan Creative's marketing director shouted to the audience, "Yes, We can!" He said that in 2019, the company's second-generation AI chip will be developed for 5G, and the third-generation chip in 2020 will be suitable for edge computing and cloud computing.

Starting with bitcoin mining chips, the revenue data before listing was mainly contributed by mining machine sales. Obviously, Zhang Nangeng at this time gave Canaan Creative greater expectations. He used the ability to "improve social operation efficiency and improve human lifestyle" as the standard for evaluating whether a company is successful. Six years later, when chips and 5G became the standard for measuring a country's independent intellectual property rights, Canaan Creative also gave itself the mission of "China's first AI chip stock with independent intellectual property rights."

At least before 2015, Canaan Creative was still unable to tell the story of AI chips, and how to keep the mining machine business, which required huge investments, alive was a problem that Zhang Nangeng had to consider.

Six years ago, everything was still uncertain. Despite the market demand, the company was in dire straits. It almost went out of business. Before that, selling mining machines could not be called an industry. To some extent, the establishment of Canaan Creative and the mass production of Avalon mining machines officially opened up the Bitcoin mining industry and created a mining machine market worth billions of yuan.

When Zhang Nangeng, who was still a doctoral student at Beijing University of Aeronautics and Astronautics, first came across Bitcoin, he thought that the possibility of this string of code changing the world was only 1%. At that time, he majored in computer system structure, and he specialized in his field. He started to study the mining machine that mines BTC by computer calculations, and made an FPGA mining machine six months later.

In the words of Wu Guanggeng, an early player in the cryptocurrency circle, FPGA is the first product in the third stage of Bitcoin mining. "The emergence of FPGA mining machines is a dimensionality reduction attack that almost destroys GPU Bitcoin mining." Prior to this, Bitcoin was mainly mined by computer calculations, and went through two stages: early CPU mining and GPU mining.

The industry's move toward the fourth stage is full of dramatic tension, and Zhang Nangeng adds a touch of personal heroism to this story.

It was June 2012, when the American company Butterfly Labs announced that it would launch an ASIC mining machine. The Bitcoin community was worried that the computing power of this mining machine would allow Butterfly Labs to launch a 51% attack on the Bitcoin network.

In the community forum, Zhang Nangeng, whose ID is "ngzhang", claimed that he would also build an ASIC mining machine and name it "Avalon", just like the holy island Avalon guarded by nine fairy queens in King Arthur's legend, to become a pure land against computing power attacks.

At the end of November, Zhang Nangeng dropped out of school after his request for leave of absence was rejected by his supervisor. In January 2013, the first Avalon was unveiled at Garage Coffee in Beijing; two months later, the first batch of 300 Avalon mining machines were mass-produced. What does it mean? In his article, Wu Guanggeng quoted a friend's description: At that time, the total computing power of the Bitcoin network was 31.28T, and the network produced 3,600 BTC every day; the computing power of each Avalon was 60G, so each Avalon mining machine could produce 5 to 7 BTC every day.

According to this calculation, the daily output of 300 Avalon machines is at least 1,500 BTC, accounting for 42.8% of the total daily output of BTC, and up to 58.3%. At that time, 1 BTC was worth about $260, and the gross income of BTC mined by 300 mining machines could reach $390,000 a day.

Zhang Nangeng chose not to keep any of them and shipped them all around the world. The price of Avalon mining machines also rose sharply under the influence of Bitcoin prices, from 9,000 yuan to 250,000 yuan. Yang Linke, the founder of Bitcoin China, recalled that at that time, one Avalon mining machine could be exchanged for a Toyota Camry.

On April 9, 2013, Zhang Nangeng and his partner Li Jiaxuan each contributed 50,000 yuan to register Canaan Creative Information Technology Co., Ltd. in Beijing. After the birth of Avalon, Zhang Nangeng felt that the possibility of Bitcoin changing the world increased to 5%.

The mass production of ASIC chips by Avalon not only created Canaan Creative, but also an industry that makes a living by developing and producing mining machines. While providing powerful tools for the growth of the Bitcoin network, it also led miners who pursue faster computing and lower energy consumption to leap from the era of geek hobbies who used CPUs and GPUs to get Bitcoin rewards to the era of making money by mining with integrated circuit chips.

Of course, there are also criticisms of hype bubbles and energy waste. In the Bitcoin community, mining machines have gradually become a game for the rich to compete with capital, and ordinary people can no longer mine Bitcoin with computers.

This time, they are telling the story of AI chips facing the 5G trend, and the journey has just begun.

Since then, Avalon has been on a roll in the mining machine market, and the "Baked Cat Mining Machine" that posed a threat to it was just a flash in the pan in history.

The disappearance of computer genius Kaomao has become a mystery in the cryptocurrency circle, and has objectively led to the emergence of Bitmain, Canaan Creative's strongest rival.

Wu Jihan, known as China's "Bitcoin evangelist", was still working in an investment institution at that time. The company he invested in in 2012, Baked Cat, disappeared. Wu Jihan, a heavy Bitcoin enthusiast, met chip designer Zhan Ketuan. In November 2013, ASIC Antminer S1 was launched and Bitmain officially opened.

At that time, all companies that could produce ASIC mining machines had caught up with the good times. The price of BTC reached $1,200 in November 2013, and mining machine chips also entered the era of nano-level technology competition. The second-generation Avalon mining machine was equipped with a 55nm chip, and the computing power of a mining machine was 150G per second. The starting price in the futures market was 8,000 yuan; the same nano-level Antminer 1st generation "dual-blade mining machine" claimed to provide 180G computing power per second, and the price was tens of thousands.

The two mining machine manufacturers began to compete in chip performance, but no one expected that in February 2014, the largest Bitcoin exchange, Mt.Gox, was hacked. After that, its bankruptcy became the fuse of the Bitcoin market bear market, and the price of the currency fell all the way to $200. The cold winter lasted for a whole year.

However, the competition among mining machine manufacturers has not stagnated. From 40nm to 28nm, the size of chips is getting smaller and smaller, the performance of mining machines is getting higher and higher, the computing power unit is gradually upgraded from G to T, and the market share is also quietly changing.

From September to October 2015, BTC began to rebound from the bottom of more than 200 US dollars. Although Avalon was updated to the fourth generation at the end of 2014, with an output of 1000G computing power per second, the Ant S5 of the same period reached a speed of 1150GH/S.

Wu Jihan once said that S5 brought Bitmain back to life. ASIC chips produced by Bitmain once occupied 80% of the mining machine market share. Canaan Creative was in decline. "The second half of 2015 was the most difficult time for Avalon." Wu Guanggeng quoted the memories of early players in the cryptocurrency circle at that time in his article. He described that Guo Yifu, who was responsible for the sales of mining machines at Canaan Creative, had left the team. Zhang Nangeng distributed the remaining shares to his partners Li Jiaxuan and Liu Xiangfu. He persisted hard and needed to find a new sales team to digest the remaining mining machine inventory. "Zhang Nangeng even agreed to the proposal of large customers to buy mining machines and give them shares."

It was also at that time that Zhang Nangeng, who had made great contributions to the decentralized computing power of the Bitcoin network, began to obtain assistance from external capital, and the list of directors and shareholders continued to grow.

Qichacha shows that Canaan Creative has 19 historical shareholders.

Kong Jianping, the current director of Canaan Creative, invested 7.6 million yuan through Hangzhou Shuxin Investment Partnership in April 2015. During the same period, Shuimu Zehua invested 2.5 million yuan and Peter Thiel invested 1.4 million yuan. Later, Yinglan Investment, Zhilan Investment, Huading Tunlan and Yao Yongjie and other institutional and individual investors joined. This year, the amount of financing that Canaan Creative has obtained from external sources reached 28.5 million yuan. Zhang Nangeng and other founding shareholders established a holding company, Canaan SuperCore, and subscribed to 14% of the company's shares for 300,000 yuan.

Most of these external financing supports came from the capital circle in Hangzhou, which also prompted Zhang Nangeng to relocate the company from Beijing to Hangzhou in September 2015. This money and these connections not only helped Canaan Creative to overcome difficulties, but also provided strong support for its transition to the research and development of AI chips.

The life and death of cryptocurrency companies is subject to the bull and bear cycles of the cryptocurrency market, which is almost a curse that most cryptocurrency entrepreneurs cannot escape. From 2013 to 2015, Canaan Creative was almost one of the earliest verifiers of this curse.

After that, the mining machine manufacturer began to seek a more stable way of expansion. In 2016, Canaan Creative's external financing progress accelerated, and the amount began to be calculated in tens of millions. According to public statistics available in March and April, it has obtained a total of 128.7 million yuan in financing; with the development and mass production of Avalon's 16nm ASIC chip, the company's valuation has also risen.

Canaan Creative's ASIC chip iteration process

In June of that year, Canaan Creative encountered the opportunity to enter the traditional capital market for the first time. However, its popularity in the primary market and its setbacks in the secondary market formed a sharp contrast.

At that time, A-share listed company Luyitong planned to acquire Canaan Creative by paying 1.061 billion yuan in cash and 1.999 billion yuan by issuing shares. As a result, the performance bet between the two parties attracted the attention of the Shenzhen Stock Exchange. Luyitong received two inquiry letters, and Canaan Creative's road to "backdoor listing" was ultimately unsuccessful.

In April 2017, Yijia Investment acquired 20% of the equity transferred by Canaan Supercore, a shareholder of Canaan Creative, with 61.2 million yuan. During the same period, Ningbo Zhuoxian subscribed for 4.4712% of Canaan Creative's new capital expansion shares with about 150 million yuan. The following month, another financing of nearly 300 million yuan from Bopu Investment, Jinjiang Group, Tunlan Capital and others pushed Canaan Creative's valuation to 3.3 billion yuan.

In August 2017, Canaan Creative appeared on the application list for listing on the New Third Board. Financial report data showed that its operating income in 2015, 2016 and January to April 2017 was RMB 55.3173 million, RMB 316 million and RMB 255 million respectively; its net profit was RMB 2.4553 million, RMB 58.0661 million and RMB 32.6937 million respectively.

Unfortunately, one month later on September 4, China ushered in the strongest regulation on digital currency. Canaan Creative and the brokerage company received four inquiries from the Stock Transfer Company, and finally had to voluntarily withdraw from the application list in March of the following year.

Canaan Creative, which has been facing more setbacks, still did not give up and rushed to the Hong Kong stock market in May 2018. At that time, its old rival Bitmain also had such a plan. However, the cryptocurrency market at that time entered a bear market cycle, and the policy was still unclear, so the prospectus submitted to the Hong Kong Stock Exchange was eventually abandoned.

For three years, Canaan Creative has been on the road to IPO every year, but has returned empty-handed every year.

This entity enterprise, which has never issued coins, is purely engaged in chip mining machines, and only calculates its income in legal currency, is almost the most traditional company in the entire blockchain industry. The founder Zhang Nangeng is well-known in the Bitcoin community for his "Pumpkin Zhang Miner", but he rarely appears in public. Compared with various bigwigs in the cryptocurrency circle, his personal Weibo has only more than 2,000 followers. Since registering in 2016, he has posted 7 blog posts, which is too low-key to be a cryptocurrency person.

Such a company still cannot gain recognition from traditional capital, and the industry has almost no hope for blockchain companies’ IPOs.

At the end of October 2019, news broke that Canaan Creative had applied to be listed on the Nasdaq. Compared to the internal strife of Bitmain at the time, this news was like the story of "The Boy Who Cried Wolf", with nothing new in it.

It was not until this week that the news that the company would be listed on the U.S. stock market was confirmed after people in the industry continued to post invitations to witness Canaan Creative's bell ringing.

Three years ago, Zhang Nangeng's first Weibo post read "The weather is nice today, and it's another good start." On the evening of November 21, in the live broadcast of the venue in Beijing, he was surrounded by his team and investors standing in front of the bell button. A lady at the scene reminded him to "wipe his tears," and the round face behind the glasses lowered and raised again, revealing a smile.

In addition to "the world's first blockchain stock", the other words on the big screen are "China's first AI chip stock with independent intellectual property rights". From now on, the outside world will look for the answer to whether a mining machine manufacturer can become a chip expert from Canaan Creative's regular financial reports.