Focus on technology, but also focus on industry.
Author | Fan Wenjing
On December 4, 2021, the science and technology think tank "Koshi Lightyear" successfully held the 2021 "Koshi Gravity" conference.
In the "Technology Investment" session in the afternoon, Zhou Zhixiong, founding partner of Kaixuan Venture Capital, Chen Hongwu, managing partner of Guokejia and Fund, Fang Yuan, managing partner of Datai Capital, Zhang Jiacheng, managing director of Haier Capital, Zhao Penglan, managing director of BAI Capital, and Zhu Sixing, partner of Shanhang Capital, discussed the investment hotspots and trends in the technology industry. Pan Yangfa, chief technical expert of Chengmei Jiadao, and Wang Zhenxiang, director of Innovation Factory Investment and general manager of semiconductors, discussed how to do a good job in hard technology investment in this era.
In recent years, the hot spot of investment has rapidly shifted from large consumption to technology. In the technology industry, the hot direction has shifted from model innovation to technological innovation. In the face of a large influx of hot money, almost everyone in the investment circle agrees that the bubble in the technology track is huge. Although for a single field, "it is better to have money than no money", for practitioners, investors and even the industry radiated by the track, it is more important to open the bubble to see the entity.
So for hard technology investors, what are the specific areas of concern in recent years, how to view and deal with bubbles, and what strategies and standards are there in the specific investment process? There may be a glimpse of this or two in these two round-table discussions.
In recent years, the tech industry has received a lot of attention from capital, which seems indisputable. In terms of macro policies, due to the attention to the new infrastructure at the bottom brought about by the Sino-US trade war, capital and the industry have ushered in opportunities in the field of hard technology.
Zhu Sixing, a partner at Shanhang Capital, shared an observation: In an open market environment, it is difficult for the hard technology industry to have a regional leader, because the regional leader will be suppressed by the global leader. But in the current environment, China's start-ups do not need to compete directly with the global leader, and there is a large enough market, which is a huge opportunity. Zhou Zhixiong, founding partner of Triumph Venture Capital, mentioned that "the state has been advocating scientific and technological innovation, independent control, and strategic scientific and technological strength, so that investors are focused on this direction."
At the same time, the exit policy is also more investor-friendly. The establishment of the Science and Technology Innovation Board, the ChiNext Board and the Beijing Stock Exchange has enabled technology-driven technology companies to enter the secondary market faster, focus on technological development, and do not have to face profitability problems too early.
From the industrial level, Fang Yuan, managing partner of Datacity Capital, believes that the demand side and the supply side have promoted industrial development in recent years. "The so-called investment in hard technology is now the right time, the entire 14th Five-Year Plan, driven by the great power game, and the development of new infrastructure under the epidemic have all driven the demand side of digital transformation." The supply side has also improved greatly, "China's overall scientific research strength has been greatly improved, the number of patents and citations has increased, and a large number of high-quality scientific research results have appeared and transformed." Further, "there are a large number of technological innovations that have actually entered the industrialization stage, including artificial intelligence, 5G, the Internet of Things, gene technology, etc."
The development of the industry has also allowed more investors to enter the track of hard technology investment.
Some investors who once focused primarily on the consumer sector are turning to technology. Shanxing Capital was once considered a capital focus on big consumption, and partner Zhu Sixing said that in fact, they have seen a lot of technology-oriented projects in the past few years. In particular, it pays attention to some industries in which China already has comparative advantages, such as consumer electronics and textile and garment industries. Through the blessing of technology, we can become a leading enterprise in the world."
There are also some industrial capitals that have become investors in the technology industry. In the view of Zhang Jiacheng, managing director of Haier Capital, as an industrial investor, "in addition to financial investment, it is more to do some ecological empowerment for the industry." Therefore, based on Haier's layout in the field of manufacturing and technology, Haier Capital's investment in the past seven or eight years has focused on the fields of consumption and intelligent manufacturing, and will focus on medical technology-related fields in the future. Pan Yangfa, chief technical expert of Chengmei Jiadao, also agrees that the fund's "partners have been working in the industry for many years and have some knowledge and resources." We will only look at the project on the familiar track and ecology, and pay attention to some more specific and subdivided tracks in the industry."
Some institutions that insist on investing in the field of science and technology have new thinking in the new environment. BAI Capital entered the field of TMT investment in China at an early stage, and is an investment institution that has experienced the PC Internet and mobile Internet so far, "in the future, there will be a greater proportion of investment in the hard technology field." Managing Director Zhao Penglan feels that the current venture capital has changed from the model innovation of the past few years to the technological innovation of the underlying hard technology. In the process, BAI hopes to invest in some "companies that are working to change the underlying technology of the entire industry", especially those that are large enough in the field of radiation.
Investing in technology seems to Huang He, a partner at Northern Lights Venture Capital, to be a direction of "responding to changes with no change". But Huang He still feels that "science and technology investment should be combined with industry, not only technology, because technology also needs carriers, need to land and find large-scale commercial application scenarios."
It can be seen that all institutions that enter technology investment, whether they have changed the track, changed their business models, or changed with the times, are based on their past advantages. This is because more attention and hot money bring not only opportunities, but also challenges. A month after the opening of the Beijing Stock Exchange, there are far more stocks that have broken than have risen; the AI track that was once very popular is still not profitable, and even the AI Four Dragons have not been successfully listed in the past so many years.
On the one hand, the track is hot, and on the other hand, the market seems to be becoming cautious again. In the face of such a bubble, how do investors see it?
Liu Yuan, managing director of Zhen Fund, observed that the variance in valuation of technology companies at different stages in different industries is becoming larger and larger. For early investment, the "verification cycle" of a project needs to be judged comprehensively by factors such as product landing, follow-up rounds of financing, and customer feedback, rather than just looking at the performance of the capital side. The development cycle of scientific and technological projects is longer, and it takes longer to test the quality of the project.
Bai Yunfan, managing director of Wen's Investment, also lamented that "this is the best era and also the worst era." It is best to refer to the best for technology entrepreneurs and practitioners, "more than ten years after graduation, my college alumni group has never been so active as in the past two years, everyone discusses entrepreneurship and discusses digging people in the group"; it also refers to the best era for investment institutions that have been precipitated for many years, because "there are a large number of projects to choose from, and there are more exit channels than three or five years ago." The worst era refers to "more than 80% of institutions can not make money, many VC projects in the eyes of the capital market and the eyes of the industry is completely different, some chip companies do not even have a stream, the team valuation can continue to flip."
Zhou Zhixiong of Triumph Venture Capital feels that the current market is more friendly to technology investment, but one day everyone will have to "turn in their homework".
In the face of hot money pouring into the technology field, different investors have different attitudes. Zhu Sixing is more optimistic about this, believing that "the bubble is also one of the driving forces of the industry", because there will only be a bubble when the attention of the track is high, and what is more frightening is that no one pays attention to a track.
Wang Zhenxiang, director of innovation factory investment and general manager of semiconductors, also feels that the bubble is just a process, from the Internet, mobile Internet to the current technology, hard technology field, only in the field that everyone recognizes will there be a bubble. "Today, we have found that the Internet and mobile Internet have also developed very soundly, and the AI with the heavier bubble in the previous two years is also in a big wave", and eventually there will be a normal valuation.
Pan Yangfa of Chengmei Jiadao feels that "the hard technology bubble is actually the result of the industry's thinking on industrial upgrading and transformation." It is precisely because the industry needs a certain field, a certain technology, that there will be a bubble. He believes that "China's economy has now reached an important crossroads, and the core is whether it can change from a demographic dividend to a scientific and technological innovation dividend." In this process, it is precisely because it can attract many entrepreneurs and investors that the market has more choices and breakthroughs at the entire industry level.
There are also investors who are not so optimistic, and Huang He, a partner at Northern Lights Venture Capital, lamented that "in the industry for more than ten years, I have never seen such a big bubble."
Huang He believes that the bubble is not only formed because of the concentrated influx of capital, but also caused by various factors such as policy orientation and macro environment. In the subdivision field, not all industries are "better than not to enter the money", if the capital and products are completely separated, "the good companies on the industrial side can't get money on the capital side, and those who get money on the capital side are not good companies on the industrial side." "It must not be a good thing.
But as Guokejia and the fund's managing partner Chen Hongwu said, "Even if there are some bubbles in the industry, there has been no significant change in the way investment is done over a longer period of time." The industry will move forward in accordance with its own development laws, and will not change the cycle of technology iteration because of the amount of funds", as an investor, perhaps the more important compulsory course is "respect the rhythm of the industry and help technology entrepreneurs adapt to the market".
Science and technology investment should respect the pace of technological development, and pay more attention to the dynamics of industrial development.
Improving the ability of the team is the most important, and Wang Zhenxiang of the Innovation Workshop mentioned that the team attaches great importance to investment research. Because only by grasping the entire market situation, technological development, industrial landing situation, and time point can we invest. "Sometimes it may take half a year to look at a track, do hundreds of pages of research, and not a single company has invested." Spending time doesn't have to be productive, but research time does have to be spent. Northern Lights Yellow River also feels that the team members must have an engineering background and must have worked in the industry for a period of time.
Liu Yuan of Zhen Fund feels that as an early investor in the technology industry, you should go to entrepreneurs who understand the track and have a forward-looking perspective as soon as possible. For example, before the arrival of industry trends, they invested in companies in the fields of semiconductors, industrial vision, AI pharmaceuticals and agricultural materials, precisely because they were always looking for entrepreneurs with forward-looking vision and chose to believe.
Bai Yunfan, managing director of Wen's Investment, felt that "it is necessary to select certain tracks to invest and pay attention to the investment stage of these tracks". For example, the team began to pay attention to artificial intelligence in 2015, and basically suspended investment in this direction in 2019, because the companies in this track are no longer in the stage of the team's attention. In recent years, the team has paid more attention to industries such as robotics, semiconductors, and enterprise services.
Wang Zhenxiang, who also pays attention to the semiconductor industry, pays more attention to the changes brought about by technology and underlying architecture, such as the server and terminal CPU changes brought about by ARM's replacement of x86, which are the focus of the innovation workshop in the next few years.
In addition to technology, "people" are also the focus of investors. Bai Yunfan mentioned that Wen's investment will prefer some CEOs and CTO teams with good backgrounds. The industrial capital where Pan Yangfa is located emphasizes that while paying attention to the track he is familiar with, he must also pay attention to whether his investment and assistance can empower the original team. An investment institution "only by forming a good interaction with the industry and the scientific and technological community, creating its own industrial ecological resources, using the industrial perspective to see technology, to see the development cycle, to see the industrial pain points, will there be hope to break the situation." ”
Perhaps in general, investment in the technology industry does have more technical thresholds and longer falsification times, but as more institutions understand the technological development and change cycle of the technology industry, and with more media like "Koshi Lightyear" bringing more transparent reports to the industry, the bubble will eventually dissipate, and technology will eventually prove its true value in the industry and market test.