Megvii CEO Yin Qi. image: Megvii

Sales at Megvii, a Chinese company that develops facial and image recognition software, has been weakened after a last year blacklist from the U.S. government. As reported by Bloomberg, Megvii fell short of its 2019 sales projection by almost 28% and grew revenue in 2019’s second half by a mere 2.7% after tripling sales in the first half.

Megvii was among 28 firms blacklisted by the U.S. government last year for “acting contrary to the foreign policy interests of the United States”. The company’s blacklist originates from alleged involvement in human rights violations against Muslim minorities in China by selling facial recognition software used to identify concerned minorities to the Chinese government. Megvii had already filed to go public in Hong Kong but later had to abandon its plan, having allowed its filing to expire, after the blacklist. American investment bank Goldman Sachs was meant to play a significant role in taking Megvii public but had to take a step back after the blacklist. Even if Megvii had decided to go ahead with a public offering, lackluster revenue growth wouldn’t encourage investors looking to make a bet on a high-growth company.

To ward off slowed growth, Megvii has flocked to other revenue streams including selling temperature detection solutions that have been instrumental in helping China contain the coronavirus outbreak. The company has also suspended certain operations while it ascertains which parts of its business may violate U.S. rules. The blacklist makes it hard for Megvii to do business with American companies, which may constitute a significant part of its business.

Megvii was blacklisted last year alongside two other Chinese facial recognition startups, SenseTime and Yitu. The three companies are well-known in China and valued in the billions by investors. Megvii itself was valued at about $4 billion from its last financing round.

After a canceled public offering, Megvii may have to resort to more funding or cut costs to maintain sustainable cash flow. According to its IPO prospectus, Megvii had 1.4 billion yuan ($197 million) in cash and cash equivalents as of June 2019 end. The company had sought to raise $500 million from its public offering.