Fourth Paradigm forms the newest startup in China to hit a valuation exceeding $1 billion.
The startup was founded three years ago, by Huawei Technologies veterans.
Currently, the company is increasingly becoming a favorite among state-backed banking entities that are set to venture into AI.
The company, also known as 4Paradigm, claimed in a statement that it scored over $150 million of financing at an estimated valuation of $1.2 billion.
Thanks to that financing, the startup’s investors and paying clients currently consist of the five largest banks in China.
The investors and customers serve as a significant boost for the little-known company that is looking forward to competing with bigger entities such as Ant Financial and Alibaba Group Holding Ltd., especially in the massive process of moving the state-controlled $37 trillion banking sector into the digital era.
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While other AI players in China are creating facial recognition or consumer apps, Fourth Paradigm operates in a more mundane area.
In essence, the startup provides its clients with a selection of software tools that allow them to run sophisticated algorithms, specifically on their data without the need for employing highly trained and qualified engineers.
Fourth Paradigm’s primary service offers tools for banking institutions to spot fraud, identify clients and conduct other analysis tasks.
“What we are doing is to set up a platform for the data they collect, from all the different data sources, to generate their own models,” said co-founder and CEO Dai Wenyuan.
Before landing a job in Huawei’s AI division, Dai helped in building Baidu’s advertising systems.
Fourth Paradigm has received many benefits from the increased drive to modernize the banking sector in China.
It has also benefited greatly thanks to the success of Tencent Holdings, its affiliate Ant Financial and Alibaba, which have posed threats to established lending institutions by rolling out their online financial and mobile payment services.
Winning over the Chinese banking sector, which has lagged behind in adopting new technology, was not an easy task.
“Chinese banks are less willing to pay for software,” said Kai-fu Lee, founder of Sinovation Ventures and an early investor alongside Sequoia.
“So Fourth Paradigm had a very tough first two years getting anywhere. They basically had to prove themselves through trials.”
With its newest funding round, Fourth Paradigm included the Bank of Communications Co. as its latest investor.
According to Dai, Fourth Paradigm has “several hundred million yuan” in terms of revenue and has customers in the media, healthcare and retail industry.
The company, which boasts more than 600 employees, is fundraising for additional funds, in part, to finance a risky move.
In 2019, the startup began creating hardware, a chip tailored for processing algorithms.
Dai said that the company would provide its clients with the component, specifically as a package featuring software, even though he did not specify the release date.
Fourth Paradigm’s recent endeavor reflects a common trend among companies working on artificial intelligence(AI), as the technology calls for chips and tremendous computing tools that can handle the output.
The ongoing trade war between China and the US has caused Chinese companies to pay more for such processing components, which are mostly imported from the US.
“In China, the customer is willing to pay for hardware much more than software,” Dai said.