The valuation of an AI company on acquisition cannot be approached with conventional methods. In 2026 Nvidia acquired Hugging Face for approximately USD 12.9 billion, some 80 times annualised revenue, and SpaceX acquired Cursor for USD 60 billion in stock — the logic of valuing AI assets is being reshaped.
Valuation methods for AI companies
Method by type of company
| Type of company | Applicable method |
|---|---|
| Mature SaaS business | EV/ARR, EV/Revenue, EV/EBITDA, DCF |
| Foundation model business | Cost of financing, inference margin and developer quality |
| Chips and computing power | Orders, capacity, utilisation and replacement cost |
| Embodied intelligence | Authenticity of orders, production yield and the BOM cost curve |
Framework for the valuation of intangible assets
| Capital type | Method |
|---|---|
| Technological capital (proprietary models, fine-tuned weights, prompt libraries) | Relief-from-royalty method, cost method |
| Data capital (training datasets, annotated corpora) | MPEEM (multi-period excess earnings method), replacement cost |
| Organisational capital (AI governance, model risk management) | With-and-without method, cost method |
| Human capital (AI and ML engineers, data scientists) | Replacement cost, differential income |
Key valuation factors
- The data flywheel — more data produces a better model, and a better model attracts more users
- Proprietary training data, and its uniqueness and non-replicability
- Patented model architecture as a technical barrier
- Exclusive partnerships providing access to data
Due diligence checklist for an AI company
Seven dimensions
| Dimension | Core checks |
|---|---|
| Data infrastructure | Lawfulness of provenance, ownership of data, compliance of use |
| Model autonomy | Training methodology and dependence on third-party technology |
| Auditability | Explainability of model decisions and records of training data |
| Regulatory readiness | Algorithm filing, large-model registration and data export assessment |
| Intellectual property | Status of title to patents, software copyrights and technical secrets |
| Data compliance | Personal information processing, cross-border transfer and privacy policy |
| Financial data | Revenue recognition by model — API calls, SaaS subscriptions, licensing |
Risk in the characterisation of revenue
Tax authorities apply substance over form:
- Does the customer obtain control over the model, the right to modify it, or the right to sub-licence it?
- If so, the arrangement is a technology transfer, exempt from VAT.
- If not, it is a technical service, generally subject to VAT at 6%.
Routes to exit
Four principal routes
| Route | Scenario | Tax treatment |
|---|---|---|
| Share transfer | Founder or investor sells | Individual income tax at 20% on income from transfer of property |
| Company repurchase | Where the statutory conditions are met | Capital reduction procedure required |
| IPO | Public offering and listing | 20% on transfer of restricted shares |
| Sale of the business | Acquisition by another company | Determined by the structure of the transaction |
Calculation of tax on a share transfer
Individual income tax:
Tax payable = (Proceeds of transfer − Original cost of the equity − Reasonable expenses) × 20%
- The withholding agent must file by the 15th day of the month following the transfer.
- Where no withholding is made, the taxpayer must pay by 30 June of the following year.
Transfer of restricted shares
Under Announcement No. 26 of 2026 of the Ministry of Finance, the State Taxation Administration and the China Securities Regulatory Commission:
- Transfer of listed-company restricted shares by an individual is taxed at 20% as income from the transfer of property.
- The full proceeds of the transfer constitute the taxable income.
Preparation before exit
Twelve to eighteen months before exit
| Item | Description |
|---|---|
| Equity structure review | Confirm shareholdings, vesting status and repurchase arrangements |
| Intellectual property clean-up | Verify clear title to patents, software copyrights and trade marks |
| Data compliance audit | Algorithm filing, data export assessment and an updated privacy policy |
| Financial regularisation | Revenue recognition, related-party pricing and R&D cost allocation |
| Compliance file | ICP licence, algorithm filing number and security assessment reports |
| Core team lock-in | Non-compete and equity repurchase arrangements for core technical personnel |
Steps to enhance valuation
- Complete algorithm filing and large-model registration, reducing the compliance discount.
- Establish an inventory of data assets and evidence of title, enhancing the value of data capital.
- Build a patent portfolio and carry out an FTO analysis, enhancing the value of technological capital.
- Regularise revenue recognition, improving financial transparency.
- Put non-compete arrangements in place for the core team, reducing the risk of losing human capital.
Representative transactions
International
| Transaction | Consideration | Valuation logic |
|---|---|---|
| Nvidia acquires Hugging Face | Approximately USD 12.9 billion | Approximately 80 times annualised revenue |
| SpaceX acquires Anysphere (Cursor) | USD 60 billion in stock | The AI coding assistant segment |
| IBM acquires Confluent | USD 31 per share in cash | Data stream processing |
Domestic
| Transaction | Method |
|---|---|
| Shanghai Newtouch Software acquires Hengdao Zhirong | Income approach |
| Shanghai Jianhui Information acquires Boke Guoxin | 13.54 times static price-to-earnings |
Protecting founder shareholding
Position after successive rounds of dilution
| Round | Dilution | Founder holding | Comment |
|---|---|---|---|
| Initial | — | 70% | Core founder retains control |
| Seed | 15% | 59.5% | — |
| Series A | 18% | 48.8% | — |
| Series B | 15% | 41.5% | — |
| Series C | 12% | 36.5% | — |
| IPO | 10%–15% | 28%–33% | A combined founder holding of not less than 25% is advisable |
Anti-dilution provisions
- Pre-emptive rights — on a new round, investors may participate pro rata.
- Anti-dilution adjustment — where a new round is priced below the previous round, a price adjustment is triggered.
- Liquidation preference — investors may recover their investment and a return in priority.
Frequently asked questions
Q: How should our AI company be valued? We have no revenue but we have a model and data. A: Intangible asset methods may be used. Technological capital, the model, may be valued by the relief-from-royalty method, and data capital by replacement cost. The essential point is to demonstrate the uniqueness and non-replicability of the model and the data.
Q: What matters most before exit? A: (1) Algorithm filing, which reduces compliance risk; (2) clean-up of data title, which enhances valuation; (3) non-compete arrangements for the core team, which protect human capital. Preparation should begin twelve to eighteen months before exit.
Q: If diligence on acquisition shows that we have not completed algorithm filing, how serious is that? A: It is significant. Failure to file may lead to removal of the product, a fine or even closure of the service, and an acquirer will apply a compliance discount, typically 10%–30%, or impose a condition precedent requiring filing to be completed before completion.
Q: How is individual income tax on a share transfer calculated? A: Tax payable = (proceeds of transfer − original cost of the equity − reasonable expenses) × 20%. The withholding agent must file by the 15th day of the month following the transfer; where no withholding is made, the tax must be paid by 30 June of the following year.
This article is prepared on the basis of the Company Law, the individual income tax policy on share transfers of the Ministry of Finance and the State Taxation Administration, and the transactions referred to above. For assistance with M&A, restructuring or exit for an AI company, please contact Geason Law Offices.