Text | Tsingshan Capital
Over the past few years, the VC/PE market has experienced a period of explosive growth, and the two years have begun to fully recover. The market environment is becoming more and more complex, the supervision is becoming more and more stringent, the new regulations on asset management, financial deleveraging have also begun to play an effective role, coupled with the impact of the epidemic this year, the uncertainty has been greatly enhanced, and angel investment has become more difficult in this market environment due to the characteristics of long exit time and greater risk.
The number of events involving angel investing has continued to decline over the past 5 years, from more than 7,000 investment cases in 2016 to just over 1,000 this year. The overall performance of angel investment in terms of transaction amount is also not optimistic, and this year has ushered in a low. On the other hand, the number of new angel investment institutions has also continued to decline, with 16 new angel investment institutions established throughout 2016, and this year, so far, this number is 0.
From the perspective of the investment stage, on the whole, the proportion of early investment is decreasing, the investment stage has moved back significantly, and in the period from 2015 to 2020, the total number of seed and angel round investment events in all rounds has declined year by year, compared with the proportion of investment in the A round to the C round has increased in recent years.
In this environment, many voices began to say that the angel investment industry is going to die, and even some people have begun to say from the root, saying that angel investment institutions are a false proposition, saying that the United States are angel investors, individual angels, there is no angel investment institutions, angel investment is not done by institutions, it should be individuals have spare money, invest in friends and acquaintances around them, the form of this angel investment institution in China is not established, and so on. Some people say that large VCs/PE have begun to set up their own early investment funds, angel investment institutions have no room for survival, and large institutional investment is obviously more competitive in the early stage.
Everyone said that there is no big problem, indeed, the angel investment industry in China to the current stage, or the form, is still not easy, can not do without the deep cultivation of many predecessors, and the entire industry of exploration and trial and error, from some of the individual angel predecessors more than a decade ago, to some of them did the fund, institutionalized operation of this thing, to angel investment should be decentralized wide cast to do a large base or should be deep ploughing, focus, to the investment track or investment, and then to a big outlet, P2P , O2O, ARVR, sharing economy, unmanned shelves, blockchain, angel investment institutions should chase the wind or create wind, on these issues, the entire industry is feeling the stones to cross the river.
In just a few years, up to now, the active angel investment institutions have gone from thousands of 15 to 16 years, and only a few dozen are left. So today I want to discuss these issues with you, will angel investment die?
Let's first look at what is the basis for the existence of angel investment, or the basis for the existence of angel investment, what is the underlying basis for the existence of angel investment.
It's class mobility.
In an economy with a solid class, there will be no angel investment by and large. Angel investment is to invest in people, more specifically, angel investment is to enjoy the dividends brought by the process of an entrepreneur growing into an entrepreneur, that is to say, in an economy, there is a large-scale entrepreneur space and opportunity to become an entrepreneur, there is a basis for angel investment, and vice versa. In our country, in the past forty years, there are countless entrepreneurs born from generation to generation, from Vanke Wantong, to BAT to TMD, generation after generation of young entrepreneurs have stepped to the center of the stage and become decisive entrepreneurs, and we have the best entrepreneurial soil and class mobility in the world.
As a counter-example, Japan. Japan's class mobility is much less than ours, the social structure is very solidified, young people are nine to five, and even use social animals to describe themselves, there are few opportunities to change their destiny through entrepreneurship, and naturally there is not much room for angel investment.
Let's take a look at the question of whether big funds can do a good job of angel investment.
Or from the root point of view, first look at the current cost of entrepreneurship, or the cost of entrepreneurs to create the smallest business model - MVP, it can be roughly equivalent to the initial capital needs of startups, this number was 500,000-1 million 10 years ago, so there were many personal angels at that time, because the amount of funds of individual angels can meet the needs of entrepreneurs, many people have the conditions to invest in ten eight angel projects. Now that number is 5 million to 10 million, mainly from the increase in the cost of starting a business. Under this number, individual angels are difficult to bear, of course, individual people can, but it is difficult to appear in batches of individual angels. So for large funds, such as 10 billion yuan scale of funds, investment in this stage of the project to invest in one or two thousand, one or two thousand projects need several years to be able to complete the investment, and the existence of the fund does not support the use of many years to invest, too late to exit. Not to mention the difficulty of post-investment management.
Another problem is that if a fund wants to create excess returns, it must invest enough funds in a small number of projects to achieve it, rather than evenly dispersing. Moreover, from the perspective of organizational construction, even if an investor can find ten good projects, it is very difficult to manage one or two hundred investors, and it is very difficult to cultivate and manage one or two hundred excellent investors.
So what if you split up a small piece of the big fund to be an angel? First of all, the flexibility of angel funds is higher, so it is necessary to set up a decision-making system and organizational system separately, and secondly, investors know that the income that can be brought by investing in a large amount is more cost-effective, so the internal interests and rights and responsibilities distribution mechanism of the institution will also have no small challenges. Over time, unless managers have a strong will, the angel investment part will become more and more marginal, and it is a pity that it is tasteless and abandoned.
So what should angel funds themselves do, how to increase their competitiveness in the market? First of all, angel investment institutions must target the ultra-high return of the fund, and secondly, they must strive to find a systematic way to achieve it.
First, focus, rough play, wide net investment, luck by feeling, can not achieve systematization
I remember when I first started to do angel investment, there is a popular saying in the market, "angel investment is not in what is wrong, but in what is right", do angel investment, the income of investing in a project can cover the loss of investing in a hundred projects, under the guidance of such a concept, the angel investment funds at that time were basically wide-net type, to make the number bigger, each period of the fund is eager to invest in hundreds of projects. There is also a concept, angel investment is to invest in people, so angel funds are not particularly interested in focusing on the industry, basically what industry is invested. In those years, the industry even talked about heroes based on who invested more and who invested quickly. At that time, we were embarrassed to put it out when we invested in more than a dozen or twenty projects a year. Is there a problem with such investment, it is difficult to say that the investment is not good, it is difficult to say that the return of the fund must be bad, but it is more difficult to establish a systematization of such investment.
Angel investment from the individual to the institutional, the advantages of institutional angels should be systematic, whether from talent construction, investment strategy, method, or institutional brand building, we must explore a new road, efficient, sustainable system, in this process, focus must be necessary, in the investment stage focus, in the investment field focus, but also deep ploughing, in their own focus, such as track, stage, even region, crowd to do deep ploughing, establish advantages, no advantage of investment is gambling.
Second, we must not rely too much on the individual founders, and we must operate in a team way
Relying on the founder's personal project exploration ability and judgment ability has not worked, when we just started to do the fund, light loading, the founder spent most of the time looking for projects to see the project, and a few years later, the fund has invested in hundreds or hundreds of projects, the management of the fund has been several periods, the fund's investors have also accumulated dozens of hundreds, the founder's time is post-investment management, withdrawal, communication with fund investors, institutional internal construction occupies a lot, these are unavoidable and reduced, At this time, if the institution still relies only on the founder's ability to explore projects and judge, it will inevitably be stretched. Talent building, team training, and team combat are not options, but must be done.
Third, we must not rely on feelings, we must pay attention to data and the use of tools
Now is the digital era, even the downstairs stalls are using data to guide the operation, investment institutions must also be good at using efficient tools, team building, but also to the team with more advanced weapons.
Fourth, we must use research to achieve forward-looking, not to follow suit
We often say that when a direction, even the media began to report in large numbers, then the probability is no longer an opportunity for angel investment. Angel investment needs to be a certain forward-looking, to find changes in the market step by step, to find projects, to find people, to invest in the market step by step, and then, those who have the ability, to promote the market outbreak, or wait for the market to break out.
Foresight is best achieved through systematic research, so that stability and sustainability are guaranteed. We at Tsingshan Capital regularly share our research with the industry, including the information collection, data collation, and some changes and trends we have found, etc. In the middle of this year, we released the "Tsingshan Capital 2020 Mid-Year Consumption Report", which pointed out several characteristics of the new generation of consumers in a very interesting way. Next month, we will release the 2020 annual consumption report, share our long-term data collation work to everyone, welcome to pay attention to our public account.
Speaking of research I give an example, when investing in daily black coincidence, the chocolate track is not much attention, the main reason is that the market growth rate of chocolate is very slow, and we found through research that although the market growth rate of this category of chocolate is very slow, but the pattern between the sub-categories of this category changes very dramatically, the growth rate of dark chocolate is very fast, is rapidly seizing the main position of the market share of chocolate, in addition, our research also found that the world's top ten food companies such as Mars Nestlé, etc. Seven of them are based on chocolate to start, this point we are very curious, dig deeper and find that chocolate is the most spiritual attribute of all snack categories, it can represent love, represent blessings, represent commemoration, its spiritual attributes are the best barrier to the brand. Moreover, its process is relatively complex, and the supply chain threshold is relatively high. In general, there are variables that can grasp the opportunities of variables; there are spiritual attributes, then the brand value is high; there are barriers, and a moat can be established.
Fifth, investment institutions should also build aesthetics and correctly establish value orientation
Angel investment as the forefront of the capital market, the establishment of a basic value orientation is equally important, here to borrow a passage from Mr. Zhu Xiaohu's circle of friends a few days ago, "I personally always think that some money can not be earned, high-margin infant milk powder for the sinking market is one of them, as well as the previous e-cigarettes for middle school students, rent loans, campus loans... "Angel investing is at the forefront of dealing with young entrepreneurs, and it's very likely that you don't give him that money and the market is missing one such product."
These are the challenges that angel investment institutions need to deal with in the new era, in addition to which we are also facing some objective difficulties, which make the situation of the industry worse.
As we all know, angel investment funds are small in scale, management fee income is small, and even many institutions have no way to afford special risk control compliance, as well as full-time personnel who can communicate with regulators. Now the supervision of private equity funds is the same, and the compliance things that institutions that manage 100 million yuan and those who manage 10 billion yuan are not much worse, which makes it inevitable that many small funds will have flaws or form irregular behavior. In addition, there are endless troubles in terms of banks and places of registration, for example, in the period of private lending, some custodian banks will be one-size-fits-all to withdraw the fund custody business, so that small funds are very passive, the same is true for the place of registration, the policy of the fund registration place is fickle, but also make the small fund miserable.
Angel investment is the capillary of entrepreneurial innovation, is to match social capital to the vanguard of innovators, whether in the supervision and policy can be based on the special situation of angel funds, and PE slightly different treatment, in order to reduce the burden of angel investment institutions, is a question that needs to be considered.
Finally, I would like to say that angel investment and institutions themselves should also pay more attention to social responsibility.
Many times we follow the entrepreneur to create new products, new models, accompanied by entrepreneurs through the process from 0 to 1, in this process, to create the products that consumers need, to make life better is the most valuable, rather than every investment is treated with an arbitrage mentality of buying low and selling high. We bear the great responsibility of social capital allocation, to make capital smarter, to go to more places, to increase the utility of social capital, to invest in the most deserving people.
All in all, we have a tool like investing, and we want to use this tool to vote for the world we want.