In 2022, the valuation magic disappeared into the tech world

Image source: Harry Potter

Text | The author | Shenzhou, the editor | Liu'er

Almost all investors had hoped that in the next decade there would be another Alibaba, Ningde era, BYD...

However, it is starting to become increasingly difficult to achieve this expectation. The magical era of valuations of billions, tens of billions, or even hundreds of billions of dollars is fading away.

01 "Gradually learn to face this fact"

The magic of valuation disappeared, first occurring in the new consumer sector.

In July 2021, the new chain brand of Sichuan-Chongqing flavor restaurant Met Xiaomian announced the completion of a strategic financing of nearly 100 million yuan, and the valuation of the enterprise reached 3 billion yuan after financing.

However, ChuangtouTiao (ID: ctoutiao) found that after meeting Xiaomian to complete the round of strategic financing half a year later, it is almost difficult to see projects with a valuation of more than 3 billion yuan in the consumer sector.

This was almost impossible in the consumer sector of previous years.

In the past two years, the new tea and ramen business has become a capital darling overnight, and there is a great trend of valuation after the financing of Didi and Meituan.

Heytea, the head player of the new tea drinking circuit, has been repeatedly rumored to be listed in Hong Kong, and the target valuation once reached 120 billion yuan. Even six months after its listing, Nesher's tea still has a market value of nearly HK$12 billion.

This phenomenon of valuation decline is not only happening in the consumer circle. Even in the silver age of hard technology entrepreneurship, the valuation of this wave of high-tech companies is still not pushed so high.

Valuation magic, gone!

Chuangtoutiao once gave an example in the article "We spent two months interviewing 'specialized special new' and found these problems" that even if the E round has been completed, the company is in the security field and is about to move towards an IPO, the valuation is still only 500 million.

Similar businesses are not few. We interviewed more than a dozen "specialized and specialized" companies with high-tech attributes, and found that their valuations were as high as 1 billion yuan.

This is a world away from the valuation of the wave of technology companies that were invested around 2015.

Such a "strange situation" in the venture capital circle has become commonplace. For example, a technology project that was still valued at 500 million yuan the day before may only reach a valuation of 1.5 billion yuan because of the attention of the top fund.

This phenomenon is common in the investment circle, and it has also derived the so-called "group heating", which is jokingly called the club deal (club agreement) in the industry.

Even in the semiconductor and smart manufacturing sectors, where a lot of money is pouring in, there are only a few companies that have the opportunity to reach a market value of tens of billions of dollars.

IT Orange data shows that in the large enterprise service track covering artificial intelligence, cloud computing, SaaS and other fields, only artificial intelligence companies can currently be valued at more than $4 billion. In addition, more than 30 unicorn companies are valued in the range of $1 billion to $3 billion.

"We must gradually learn to face this fact." A leading institutional investor told Headlines.

02 Before the dream began, it was shattered

In the early years, who could have predicted that the Ningde era would grow into today's trillion-dollar market capitalization enterprises?

In the eyes of a 5G industry fund investor in Shenzhen, investing in the Ningde era is simply a gamble.

He told Headlines: "Is there a valuation standard in the venture capital community? It's hard to answer, and probably all the answers are wrong. ”

At the end of November 2020, an article by Zhang Ying of Matrix Partners China entitled "How to "Make Friends with Valuation"" swept the entire network. The main point zhang ying expounded is that most Chinese Internet companies and technology startups have valuation bubbles, and what institutions need to do is to wake up in the bubble and make money in the bubble.

This is because we often deviate from the valuation of companies, so that the bubble is getting worse.

Generally speaking, there are two ways to value a business: the relative valuation method and the absolute valuation method.

The absolute valuation method (cash flow and dividend discount method) is generally suitable for mature enterprises that are moving towards the strategic financing stage. The majority of entrepreneurial companies generally use the relative valuation method because they do not have stable profits.

"In the relative valuation, we usually compare it with the same track company to get a valuation." One investor told Headlines.

In the Internet era, VCs usually use traffic logic as a chassis for the valuation of enterprises.

Under the support of traffic logic, they evaluate the investment potential of enterprises, usually looking at these indicators: market share, customer acquisition costs, daily and monthly active.

For example, taking shared bicycles as an example, investors will value them according to the amount of bicycles and electric bicycles. For example, in the case of co-working spaces, investors will value them based on the size of their workstations or operating spaces.

"Just as startups worship speed and scale, valuation worship is an extension of the logic of traffic primacy in the Internet era." One media outlet once summed up this phenomenon.

With the depletion of the Internet traffic dividend, the cost of Internet enterprises to obtain customers is getting higher and higher. They can no longer encircle users by raising a lot of money and burning money, and the era of "traffic totem" is no longer there.

Looking at those entrepreneurial outlets in the past, from community group purchases to smart travel, from online education to new consumption, waves of capital have maximized valuations in the traffic pool.

Even in the secondary market, the market value of the head Internet companies is also revising downwards.

According to a recent research report released by CITIC Securities, the valuation of Chinese Internet companies has entered a low range in the past 5 years. As of October 2021, the top Internet companies such as Alibaba, Tencent Holdings, Meituan, JD.com, pinduoduo, etc. have fallen by 40%, 38%, 41%, 28%, and 58% respectively.

Time to 2021, the dream has begun, began to become less beautiful; the dream has not yet begun, it is broken.

03 Playing high-tech, everything or relying on "gambling"?

A Shanghai private equity fund was founded in 2008, and from the beginning, they set their sights on high-tech investment in new energy and new materials.

Fourteen years later, they told Chuangtoutiao (ID: ctoutiao) that they still haven't found a relatively scientific valuation system for tech companies.

Investing in tech companies is fraught with greater randomness and uncertainty.

A VC focusing on hard technology angel investment told Headlines, "The early venture capital of the technology track is relatively special, and it is essentially a gamble. ”

Especially in the seed round of enterprises, a mature business model and profit model have not yet been established. Institutions may really just look at people.

Some people who do research say that the value of a company can be based on the proportion of the company's scientific research investment without profit.

However, some investors said that "it is not necessarily reasonable for such enterprises to use scientific research as valuation standards." He lamented to Chuangtoutiao (ID: ctoutiao): "Many of these companies may spend a little more money on research and development and die." ”

There are also some companies that, in order to quickly achieve the next round of financing, let more institutions and money come in, usually when talking to institutions, they will lower the valuation.

Some insiders said that even those publicly disclosed financing and valuation information are only the information that enterprises and institutions have exposed to the market, and cannot represent the real price of enterprises.

Even the top investment institutions believe that in this non-standard industry, everything depends on strength, but also depends on fate.

Jingwei China, which has invested in Ele.me, Didi and Ideal Automobile, has begun to actively engage in hard technology fields such as aerospace and new drug research and development in recent years.

However, Zhang Ying, who has always loved to tell the truth, said that the final result can only be "looked at God".

He said that the success brought about by the focus on the mobile Internet in the past has made Jingwei more bold and courageous to invest in some exciting hard technology projects.

In making technology investments, Zhang Ying has long accepted the fact that he regards the failure of a large part of these cutting-edge investments as inevitable.

04 Valuation adjustments will eventually become the new normal

Another background to the boom in valuations of many companies around 2015 was that the primary market at that time was "very rich".

At that time, the vast majority of DOLLAR-led funds in the market began to set up a new round of funds. This wave of funds has planted relatively aggressive venture capital "seeds" because they have money. VCs put their money into the hottest Internet and mobile Internet.

At the same time, the U.S. stock market is unprecedentedly open to Chinese companies. Driven by capital, the number of Chinese companies we have witnessed going public in the United States is also unprecedented.

This makes investors in the market think that the projects they have invested in will "blossom". Even if they know that the valuation of the company is inflated, they are still willing to pay for the market.

However, as the clock goes by 2021, everything is changing.

The wave of funds established around 2015 reached the exit period. In 2020, the market has set up a number of funds, and a lot of this money has gone into the pockets of new consumption and hard technology.

Amy Space founder Zhang Pinshu told Chuangtoutiao (ID: ctoutiao) that in the case of new materials, the cycle of this kind of track is generally very long, and it is uncertain whether it will run out in the end. Even if it runs out, there is only one segment of the market, and it is impossible to be as big as the tens of billions of markets.

This is also the ultimate reason why the valuation of hard technology projects is generally not high.

This inversely boosts the valuation of enterprises to "cool down".

An institutional investor with a career of 15 years told Chuangtoutiao (ID: ctoutiao): "One fact is that there may be no standard for valuations regardless of the track. Another fact is that valuation adjustments will become the new normal in the future. ”

However, regardless of the real facts, and no matter how many facts still exist, it is certain that even in the high-tech field, the magic age of valuation under the logic of traffic is fading away.