Image source @ Visual China
Text | Angela Channel, author | Tian Zhen
Internet companies that do not want to be venture capital bosses are not good technology companies, and now, "rich and powerful" Internet manufacturers are riding the wind and waves in the investment trend.
According to the global CVC report released by CBInsights in the first half of 2021, the number of CVC-backed transactions (238) in the first half of this year in the Chinese market increased by 54% compared with the same period last year, and the size of financing transactions ($9.2 billion) doubled. Internet companies breaking into the VC circle has become the trend of the times, and China's venture capital territory is quite a hundred flowers blooming.
When Internet companies "rob" investors of their business, what can they bring to the market? The traffic waves of the Internet industry have gradually been thin and long, and in the period of steady transformation and development, value will always be the core meaning of investment.
01 The main business is not enough, investment to make up?
The traffic business is getting harder and harder.
Not long ago, the domestic Internet giants collectively handed over a report card that caused investors a headache, Alibaba entered the slowest growth season, contributing the majority of revenue to customer management (including advertising and commissions) revenue increased by only 3% year-on-year; Baidu's advertising revenue growth rate was only 6% year-on-year; Tencent's revenue growth rate in the third quarter fell to the lowest adjusted net profit since 2004 for the first time in 10 years.
The sluggish economic environment, the tightening of regulatory policies, and the approaching traffic ceiling are all reasons for the growth of the Internet industry to stall, and only the financial reports continue to invest strongly in the "side business" to support the "fig leaf" of the slow growth of the Internet industry.
According to the financial report data, Tencent has made 244 investments this year, an increase of 50% over the whole of last year, and investment income has become the main backbone supporting revenue growth. After the release of the mediocre performance of the main business revenue, Ma Huateng publicly stated that Tencent has a large number of capabilities to develop and explore meta-universe technology. In fact, Boss Ma's confidence is justified, before the meta-universe outlet exploded, Tencent had already invested in games such as roblox and Fortnite in advance in 2019, laying the groundwork for entering the meta-universe ecology.
Coincidentally, in 2016, Ali invested in Magic Leap, the player who first entered the AR glasses, and at the end of August this year, Byte spent 9 billion yuan to acquire Pico, a domestic head VR equipment manufacturer. It can be seen that the Internet factory has not only become the pillar business of many enterprises, but also successfully "predicted" the explosion of the meta-universe and made a strategic layout in advance for the future development of the enterprise.
In fact, in recent years, Internet companies have become more and more "addicted" to investment business, they have long been not satisfied with only investment to build their own business empire, investment business itself has gradually separated from the enterprise independent walk, began to "grab the job bowl" with investors.
According to the "2021 China CVC Investment and Mergers and Acquisitions Report" data, the proportion of domestic CVC companies, Internet companies have reached 21%, and among the Internet companies founded after 2011, the average number of Internet companies has begun to invest after 2 years of establishment. As the most active CVC institution in China and the most active Internet enterprise in foreign investment, Tencent Investment currently has 1175 outbound investments, and even left a number of professional PE/VC institutions behind. Alibaba has also acquired 48 companies in the past decade, including Ele.me, AutoNavi Map, and Pea Pod, with an estimated cumulative spending of more than 160 billion yuan.
In addition, more and more CVC have begun to move towards VC, began to raise funds and independent investment projects, and walked alone without the protection of the Internet company itself. For example, in 2021, sensetime technology launched the venture capital fund Tang Guoxiang Capital, in 2021 Xingyun Group as the cornerstone LP launched Skywalker Capital, in 2018 born out of New Oriental, etc., have begun more investment exploration in addition to the company's main business.
02 The speed of light "throws coins", who gives the courage of the Internet?
The Internet companies with the most aura of the times in the commercial society have begun to invest in money and investment, and it is not "rich and willful".
On the one hand, under the bright and bright rapid growth in the past ten years, Internet companies have also ushered in their own "mid-life crisis" and urgently need to break out in a larger market; on the other hand, "big business" Internet companies, standing at the cusp of the times, do have a lot of "throwing money" undertone.
Tencent, which now has a ubiquitous sphere of influence, has planted several heels in the hot e-commerce field. Therefore, in line with the idea of "joining if you can't fight", in 2016, Tencent had a unique eye on Pinduoduo, and participated in the B round of financing with Gaorong Capital and New Sky Domain Capital. With huge traffic support from Tencent, Pinduoduo has now become a member of the Tencent camp against Alibaba. Tencent's "local tycoon strategy" allows the market to see that in the current environment where traffic dividends are becoming more and more scarce, in order to maintain their own advantages, Internet companies must continue to expand their tentacles and tap more traffic acquisition scenarios, and investment is the fastest and most effective way. The rapid growth of money after reaching the monopoly scale and the winner-take-all play have been repeated repeated in the Chinese market. After experiencing the ups and downs of e-commerce online shopping, online car-hailing, sharing economy and takeaway platforms, the market has repeatedly confirmed the strength of "traffic tactics".
Xiaomi, which is also active in the investment market for the sake of the "dead" ecology, has been active in the top 5 of the Internet investment list since 2014, and since the beginning of the year, Xiaomi has invested as many as 93 times abroad, totaling about 9.23 billion yuan, second only to Tencent in the domestic CVC field. From the perspective of investment fields, intelligent hardware and advanced manufacturing are xiaomi's "prey", just announced the manufacture of cars in March this year, and then began to increase investment in advanced manufacturing and other areas related to new cars. At present, the world's technology tree is becoming more and more complex, no company can win in a single battle, for Internet companies, every investment in science and technology may be a new life in the future.
Not only do large factories need to invest in "continued life", but for start-ups that are "waiting to be fed", blood transfusions from Internet manufacturers are definitely eye-catching "gold mines". Compared with traditional VCs, hugging the "thighs" of CVC can not only get financial support, but also get a lot of additional dividends from the hands of large manufacturers.
At the end of July 2020, when the enterprise digital solutions company Digital Technology received more than 100 million yuan of angel round financing from Tencent, the company was only established for more than a month when it announced the news. Tencent boldly launched this nascent company, in order to help its "old friends" find a reliable digital solution team, with Tencent's matchmaking, digital technology in retail consumption, retail finance and other industries to win many industry head customers, become a dark horse in the field of enterprise digital services, compared with other start-ups, can be described as a birth to win on the starting line.
Once backed by the big tree of the Internet factory, whether it is business or technology, start-ups can be stained. For the sake of ecological synergy, enterprises usually have strong business cooperation with Internet companies soon after obtaining CVC investment, and large factories can directly bring resources and solid orders and profits to enterprises, which is difficult for VC institutions to help enterprises. In addition, large factories may also open some of their technical capabilities exclusively to the invested enterprises, and being able to "steal" the industry's top technology teams is an unattainable opportunity for any start-up.
In addition, unlike traditional VCs, Internet manufacturers usually take strategic synergy as the first priority when investing, and financial returns are not decisive demands, that is, start-ups do not have to be "under pressure" because of profit targets after obtaining CVC investment. For VC institutions, their investment funds come from LPs and superior funders, and LPs who take making money as their responsibility will usually invest their funds in multiple VC projects, and constantly adjust their positions according to the rate of return, and projects with lower returns will naturally not be favored. The vast majority of CVC's money comes from its own funds, and it is not necessary to be responsible for the superior funding party, and the money in its pocket is much more flexible to use. Even some Internet companies are ready before investing, if the revenue of the invested enterprises is not good, the Internet manufacturers can directly "take over" the acquisition, so many start-ups are extremely eager for the olive branch of CVC.
03 CVC grabs business, will VC investors lose their jobs?
Internet giants are skyrocketing in the investment field, and the investment industry has obviously been unable to ignore this new force. Nowadays, the entry time of CVC is getting earlier and earlier, the investment is getting bigger and bigger, and the rice bowl of traditional VC investors will be robbed by the power of the Internet?
For the entire VC industry, the years after the epidemic have been an undeniable winter. In 2020, the total investment amount disclosed by China's PE/VC was 767.9 billion yuan, which was almost "waist cut" compared with 2019. On the one hand, it is more and more difficult for investment institutions with insufficient family foundation to raise funds and invest, on the other hand, the competition for head projects by head institutions with money in their hands is becoming more and more intense. Therefore, the entry of CVC has brought a huge sense of tension to traditional VCs.
As China's capital market becomes more and more mature, it is difficult to have new industries emerging, the number of high-quality targets in each industry is limited, the cake cannot be larger, and it will be more and more difficult for investment competition between CVC and VC. For red shirts, Hillhouse and other head VC institutions, their long-term experience and strength in the field of investment is still there, in the short term will not be CVC as a greater threat, but for the middle waist VC institutions, the reputation of the Internet manufacturers is greater, more resources, the achievements in the investment business are also obvious to all, the prosperity of CVC will indeed rob some of the VC customers.
Taking Hanwei Microelectronics as an example, in December last year, the company obtained tens of millions of financing in the A round, led by the OPPO Strategic Development Department, and the followers of the round appeared two VCs, Ivy Capital and Gaorong Capital. In the same month last year, OPPO also entered the market as the earliest investor in MicroRon Electronics, and half a year later, the company received two rounds of financing in a row, including investors such as Morning One Investment and Lenovo Venture Capital. Ma Huateng once lamented that Sequoia had invested in all the projects he wanted to invest in advance, but now in the semiconductor and manufacturing tracks, half of the country has been taken down by big manufacturers, and constantly rushed ahead of VCs, trying to eat the steepest growth dividend in the early stage of development.
However, overall, the amount of CVC's annual investment is only the tip of the iceberg in the entire equity private market, and the gradually developing CVC is more like a catfish jumping into the investment market than a threat, which has brought a boost to capital flows.
For Internet companies, large-scale investment does not mean that they are about to transform into investment enterprises, whether they pay more attention to financial returns or strategic returns, the fundamental purpose of CVC is to use investment business as the main business transfusion. The excellent foundation of Internet enterprise investment business is because its own products and ecology are very mature, so enterprises hope to use the ecology of large factories to empower their own growth, the name of the main business is loud enough, the strength is strong enough, in order to have the courage and confidence to throw an olive branch. When more and more enterprises enter the ecology of Internet giants through investment, the prosperous industrial chain will force large factories to urgently promote product innovation and ecological construction. In this flywheel effect, the main business and investment of large factories will not be like a seesaw high and low, but complement each other, and eventually form an "investment perpetual motion machine" that sucks gold and feeds back.
For VC institutions, the rise of CVC can also make it profitable. According to CVSource investment data, in Tencent's past investment events, there are more than 550 cooperative institutions, and the number of cooperations more than 15 times includes top VC/PE institutions such as Sequoia China, Hillhouse Capital, IDG Capital, and Matrix Partners China. When a company is "matched" by an Internet manufacturer, it has received support in traffic and orders, and it is likely to soar in the short term, so it will also become an excellent target in the eyes of many VC institutions.
All in all, the development of any industry requires the continuous influx of living water from the source, and today, CVC is a continuous stream of "clear flow", bringing new "traffic" to the domestic capital market.
04 Conclusion
Buffett once said that value investing doesn't guarantee us profitability, but value investing gives us the only chance to really succeed. The Internet industry has entered the second half, investment has become a tool for major giants to continue to attack the city and plunder the pool, for investors with heavy money, capturing the current atmosphere of the times is an important chip to obtain long-term value.