Nano Labs Ltd Files U.S. IPO Plan

A Quick Take On Nano Labs Ltd.

Nano Labs Ltd. (NA) has filed to raise an undisclosed amount in an IPO of its American Depositary Shares representing underlying Class A shares, according to an F-1 registration statement.

The firm is a fabless developer of chips optimized for high performance and high throughput computing.

NA is operating in a volatile market and is still a very small company.

I’ll provide a final opinion when we learn more IPO details from management.

Nano Overview

Hangzhou, China-based Nano was founded to develop logic-memory integrated circuits for the ‘metaverse’ computing industry.

Management is headed by Chairman and CEO Jianping Kong, who has been with the firm since January 2021 and was previously co-chairman of the board of Bitcoin mining machine manufacturer Canaan (CAN).

The company’s primary offerings include:

• Cuckoo – near-memory HTC chips

• Darkbird – PC chips for Bitcoin mining

• iPollo – Bitcoin (and other cryptos) mining machine

• Darksteel – chips for distributed computing and data storage applications

Nano has booked fair market value investment of $31.6 million as of December 31, 2021 from investors including Nanometa Ltd and others.

Nano – Customer Acquisition

The company sells its chips and mining machines directly to both enterprises and individual buyers, with almost all of its revenue from buyers in China.

Nano seeks to expand operations outside of China so that its revenue will be produced primarily from overseas sources.

Selling & Marketing expenses as a percentage of total revenue have risen as revenues have increased, as the figures below indicate:

Selling & Marketing	Expenses vs. Revenue
Period	Percentage
2021	13.0%
2020	5.4%

(Source)

The Selling & Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Selling & Marketing spend, was 7.3x in the most recent reporting period. (Source)

Nano Labs’ Market & Competition

According to a 2022 market research report by Brand Essence Research, the global market for cryptocurrency mining equipment was an estimated $2.3 billion in 2021 and is forecast to reach nearly $5.3 billion by 2028.

This represents a forecast CAGR of 28.5% from 2022 to 2028.

The main drivers for this expected growth are the strong expected demand growth for cryptocurrency adoption and resulting demand for network security through mining functions.

Also, the expected transition by the Ethereum blockchain from Proof of Work to Proof of Stake may negatively affect the growth of the industry for a period.

Major competitive or other industry participants include:

• Canaan

• Ebang

• Bitmain

• BitFury

• Halong

• Other non-public companies

Nano Labs Ltd. Financial Performance

The company’s recent financial results can be summarized as follows:

• Sharply growing topline revenue from a tiny base

• Gross loss and negative gross margin

• High operating loss

• Significant cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
2021	$ 6,186,128	1957.9%
2020	$ 300,611
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
2021	$ (641,469)	-599.5%
2020	$ 128,420
Gross Margin
Period	Gross Margin
2021	-10.37%
2020	42.72%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
2021	$ (28,041,767)	-453.3%
2020	$ 5,537,393	1842.0%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
2021	$ (27,439,260)	-443.6%
2020	$ (5,655,612)	-91.4%
Cash Flow From Operations
Period	Cash Flow From Operations
2021	$ 11,250,980
2020	$ (454,185)
(Glossary Of Terms)

(Source)

As of December 31, 2021, Nano had $36.7 million in cash and $146.6 million in total liabilities.

Free cash flow during the twelve months ended December 31, 2021, was $9.9 million.

Nano Labs Ltd. IPO Details

Nano intends to raise an undisclosed amount in gross proceeds from an IPO of its American Depositary Shares representing underlying Class A shares.

The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

for research and development initiatives for more advanced ASIC chips, smart-NICs, vision computing chips and our Metaverse computing network platform, Ipolloverse;

for the establishment of our manufacturing plant for product assembling and supply chain optimization;

for establishment of dual-headquarters in the United States and Singapore for our iPollo brand and our global sales network to promote our international sales; and

the remaining balance for working capital and other general corporate purposes.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management says the company is ‘currently not a party to any material legal or administrative proceedings.’

The listed bookrunners of the IPO are AMTD, Maxim Group and Tiger Brokers.

Commentary About Nano’s IPO

NA is seeking U.S. public market investment to fund its R&D and commercialization efforts for its ASIC chip-powered crypto mining machines and related products.

The firm’s financials have generated growing topline revenue from a tiny base, gross loss and negative gross margin, large operating loss and high cash flow from operations.

Free cash flow for the twelve months ended December 31, 2021, was $9.9 million.

Selling & Marketing expenses as a percentage of total revenue have risen as revenue has jumped; its Selling & Marketing efficiency multiple was 7.3x for 2021.

The firm currently plans to pay no dividends on its shares and anticipates that it will use any future earnings to reinvest back into the business.

The market opportunity for its various semiconductor products is variable, with crypto mining ASICs alternating between strong demand during crypto market upswings to a sharp drop in demand and lower pricing during crypto market downdrafts.

AMTD is the lead underwriter and there is no data on IPOs led by the firm over the last 12-month period.

The primary risk to the company’s outlook is the highly volatile nature of cryptocurrency prices which can have a significant impact on demand for mining machines over the near term.

NA is operating in a volatile marketplace with a relatively low revenue base.

When we learn more details about the IPO, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.