Big factory investment, no longer crazy

Shynrancaijing original

Author | Tang Yahua

Edit | dawn

In the investment circle, Internet giants have always been called "deep pockets", and the slogans of startups are, "learn literary and martial arts, sell to BAT", "be the first in the industry, make up for the shortcomings of the big guys". At one time, because of the investment or mergers and acquisitions of giants, there was a huge "exit board" market in the venture capital field.

Previous entrepreneurs, whether they were copied and subverted by large factories, or invested by large factories, almost always took large factories as an important consideration. Today, such voices are hardly heard in the venture capital community.

In the past year or so, the investment of large manufacturers has changed lanes, whether it is quantity, amount or field, it has greatly shrunk, and the direction of investment is also changing from virtual to real, from extensive to refined, and more inclined to hard technology and the real economy.

The reasons for the cold investment of large factories are the impact of the general environment, the relationship between policy guidance, the peak of Internet growth, the consideration of reducing costs and increasing efficiency of large factories themselves, and the factors that large factories have not returned on investment and are no longer willing to be "wronged".

Today's large factory investment has basically returned to the position of serving the company's strategy and business. On this basis, using investment to understand market innovation and changes, laying out cutting-edge technology encouraged by the state, and serving heavy enterprises to embrace the real industry are all "abacus" for large manufacturers at this stage.

Layoffs of teams, reduction of investment, shrinkage of fields, and the investment of large manufacturers has cooled

Over the years, large manufacturers have been "deep-pocketed" and keen to expand their business territory and obtain financial returns through investment or mergers and acquisitions.

Several major manufacturers have been active in investment in 2021 and before. Tianyan data shows that Alibaba has more than 50 investment events in most years, and the number of investments by ByteDance has been rising since 2014, reaching a peak of 70 in 2021.

Data source / Sky eye check

The story begins to take a turn in 2022. The most obvious is that the number of large factory investments in 2022 has fallen sharply year-on-year.

IT Orange data shows that as of November 2022, the outbound investment of Tencent, Alibaba, and ByteDance dropped from 273, 82, and 65 in 2021 to 85, 30, and 19, respectively, with the total number of investment projects less than one-third of 2021. Among them, the decline in the number of investment and mergers and acquisitions of Tencent and ByteDance is even more obvious, 60%-70% less than in 2021.

Tencent's investments in the past three years were 111, 214 and 48, respectively, and since Q2 2022, Tencent's quarterly investments have become single digits, down 77.6% from 2021.

In addition to Tencent, in the past three years, the investment activity of the five leading manufacturers of Station B, Meituan, Baidu, Ali and ByteDance, the overall activity of Q3 from Q1 2020 to 2021 increased, and then began to decline, and after Q2 2022, the investment activity of each company declined sharply. It can be seen that 2022 is a watershed for the investment of large factories, especially in Q2 2022.

Looking back at the first half of 2022, large manufacturers have indeed experienced a round of layoffs and investment team turmoil.

ByteDance eliminated its strategy and investment division in early 2022. According to public reports, Zhao Pengyuan, the former No. 1 of ByteDance, took 5 employees to the president's office to be responsible for the company's overall strategy, others were laid off, and the financial investment department as a whole was cut.

In July 2022, according to Phoenix.com, Alibaba's strategic investment department will carry out a team reduction, and the team size will be reduced from 110 to about 70 people. At the time, insiders said that this was true, and no news of this came out later. Tencent has also continued to "slim down" and has greatly reduced its holdings in a number of listed companies, including JD.com, New Oriental, Huayi Brothers, Meituan, etc.

However, in the overall cautious situation, Tencent is still the most generous of the Internet giants. In 2022, Tencent has 91 investments at home and abroad, followed by Xiaomi and Baidu with 50 and 24 respectively, followed by ByteDance, Alibaba, B Station and Meituan.

Image source / IT Orange

From the perspective of the investment field of large factories, the popular consumption and entertainment media in previous years are no longer the places where large factories spend a lot of money, but are replaced by enterprise services, intelligent hardware, advanced manufacturing, medical health and other fields. From this point of view, the investment of large manufacturers is converging.

Specifically, in 2022, Tencent will continue to invest in games and enterprise services, while focusing on real industries, such as advanced manufacturing, medical health, and intelligent hardware, investing in manufacturing enterprise Ruili Integration, artificial intelligence technology application company "Wuzhi Intelligence", etc., as well as the largest domestic home medical service institution "Fushoukang".

Data source / IT Orange report

In 2022, Baidu's investment has also changed significantly, mainly in the fields of advanced manufacturing, intelligent hardware and entertainment media, while in 2021, the two industries with the most intensive investment by Baidu are healthcare and automotive transportation.

The direction and quantity of Meituan's investment have not changed much, and the number of investments shown by Tianyan Check is about a dozen per year, and the field is still dominated by cutting-edge technologies such as intelligent hardware, advanced manufacturing, and automobile transportation. Meituan has invested in the field of hard technology "Future Robot" for industrial vehicles unmanned driving general technology platform and domestic single-photon sensor chip developer "Lingming Photonic", industry insiders believe that Meituan's layout of intelligent robots and other fields is closely related to the distribution and fulfillment of local life needs of its basic business.

In 2021, 22.2% of Alibaba's investments were in the e-commerce retail sector. In 2022, Alibaba's largest investment will be in smart hardware, such as investing in AR device developer "Nreal" and collaborative robot developer "Fao FAIR". The second largest proportion is advanced manufacturing, enterprise services, and medical health.

Data source / IT Orange report

ByteDance's investment in 2022 is also closely aligned with its own strategic layout, mostly in enterprise services, smart hardware, and medical and health care. Last year, ByteDance has been increasing its corporate services, such as acquiring the no-code application building platform Heipa Cloud, investing in the low-code platform Weisi Technology, and controlling the "US-China Yihe" in the medical side.

Xiaomi's investment focus has changed from smart hardware to advanced manufacturing, and the increase is relatively large in the field of automobile transportation.

2022 can be said to be the most "cold" year for the investment of large factories, along with the entire Internet industry to reduce costs and increase efficiency, the investment department of large factories has also begun to tighten the "money bag", cut the investment team, greatly reduce the number of investment, and the investment field is also focused on areas that are more synergistic with their own business or generally biased in the industry, playing the "safety card".

Say goodbye to extensiveness, heavy war and light financial investment

Before studying the changes in the investment of large factories, let's first understand how the investment department of large factories operates.

Investment manager Zhang Li, who used to work in the war investment department of an Internet company, told Shen Ran that there are usually three types of foreign investment by large factories: the first type is upstream and downstream head enterprises that are not involved in the company's business, but have cooperation with the company, and some business can be handed over to the invested company after investment; The reason for choosing the second type of investment target is simple and crude, that is, to increase income, "we have acquired several companies, all of which have a certain volume, annual revenue of tens of millions, this direct can increase the company's income"; The third category is out of support, invest in some old employees who go out to start businesses, "of course, this itself is also the practice of big factories to expand their circle of friends."

He analyzed that the investment of large manufacturers generally goes through several stages, the first stage is to make some investment based on their own business or understanding of their own platform business; The second stage is some expansionary investment, and the investment department of large factories is also becoming more and more market-oriented; In the third stage, large factories began to focus on the main business, returning to strategic investment as the mainstay, supplemented by financial investment.

For example, when large factories make investments in the first stage, it is often because as a platform, they can perceive in advance the companies with relatively high activity on their own platform, it is easier to understand some business models, and it is easy to get data, so large factories have just invested well in this regard. Tencent, for example, has a social platform and is very aware of the activity of mobile apps.

In the second stage, large manufacturers feel that their investment is doing well, and there is still a need for offensive, defensive or expanding the second curve, and this stage of large factories will also begin to slowly transform into market-oriented institutions. Before 2022, the number of investment cases of large manufacturers is increasing, because the investment direction is becoming more and more extensive.

For example, ByteDance has invested in the fields of entertainment media and social networks from the beginning around its main business, and later expanded into corporate services, e-commerce, education, medical care, real estate, finance, games and other fields, and its investment territory has continued to expand, and in 2022, ByteDance has made drastic adjustments to return investment to the strategic and business level.

Comparing the investment before and after the contraction of several large factories, we can find several obvious characteristics: the frequency becomes lower, the amount becomes less, the field is more focused, and it is from extensive to fine.

It is not difficult to see from the previous article that the investment of large factories has shifted from scattered to focused on enterprise services, intelligent manufacturing, medical and health and other fields, and more investment in technology investment and service to the real economy.

Based on the statements of many investors, Tencent's investment is relatively the most professional, active and the most obvious among large factories. "Tencent's investment team is from almost the top backgrounds in the industry, and their entire decision-making mechanism is very market-oriented in all aspects of efficiency, and they make good use of their traffic advantages." Zhang Ye, an institutional investor, said.

He pointed out that Tencent is a company that is good at making products, and the traffic on many products is not particularly commercialized, and Tencent is not particularly good at doing more down-to-earth hard work, investment is a good choice, such as e-commerce, through investment in JD.com, Vipshop, Pinduoduo, and finally make good use of traffic. "Of course, there must be something unprofessional about them, such as because they see a wide range of areas and may not have such a deep understanding of a certain field."

Before 2022, relatively speaking, Tencent is biased towards financial investment, with less emphasis on holding, while Alibaba is more strategic business investment, attaches importance to business synergy supplementation, and has more large-scale and holding investments and mergers and acquisitions, and the overall investment performance in recent years has been decent. Since 2022, Tencent and Ali have more or less tilted their focus to areas such as smart manufacturing, and both are using a small proportion of holdings to diversify risks.

The investments of Meituan and ByteDance are not particularly impressive, and strategic significance may be more important for them. "Byte Investment Musical.ly created Tiktok, looking back this investment is super successful, this kind of status and influence, money can not be exchanged." In the early days, ByteDance's investment was more aggressive, full of fighting spirit, and attacking everywhere, which was a posture of attack and expansion. In recent years, Baidu and Byte's investment has become mainly serving the main business.

But in Zhang's view, one of the problems of ByteDance's investment is that the business department is too strong, and when other large factories make investment, the investment and the decision-making power of the business are relatively separated, and even some of the investment departments are stronger than the business department, but the voice of the ByteDance business is too strong, and finally the investment team is assigned to different business lines and obeys the business command.

The "chain of disdain" in the investment circle has changed

In the past, in the investment circle, at the top of the contempt chain were dollar funds such as Hillhouse Capital and Sequoia Capital, followed only by the investment department of large factories, and then the RMB fund. In recent years, the investment circle is rapidly reshuffling, and the status of various types of funds is undergoing earth-shaking changes.

RMB funds with state-owned assets or private industry RMB funds are reaching the top of the pyramid, US dollar funds are going downhill, and the investment departments of large factories have also lost their halo, and their attractiveness to practitioners is declining.

"The investment department of large factories was still relatively popular before 2020, and now practitioners may not consider the investment department of large factories, because there is less room for the initiative of war investment, and now the investment team of large factories will only shrink and will not expand." Ling Feng, an investment manager of a large factory, said.

A number of practitioners said to Shenran that the investment of large factories has tightened in recent years for many reasons. First of all, the investment department of large factories is also part of the capital market, and the prosperity of the two is synchronized, and the entire capital market has not been active in recent years, and large factories will slow down with the exile.

Third, the platform economy is generally facing the problem of stricter supervision. An investment manager of a large factory said that they "haven't seen much about projects recently, and they have seen very few shots, and the internal investment is not very positive now."

In previous years, when large manufacturers made investments, strategic factors were often put first. Many of these actions can be understood as a strategy of enclosure or high moat, so it will be relatively less concerned about price. In recent years, as the competition pattern of large factories has gradually become clear, both large and small factories must maintain the existing business fundamentals, and the probability is that they will no longer frantically expand the enclosure.

Moreover, the business of large manufacturers has also contracted in the past two years, and their market value has fallen sharply, and they have begun to control cash flow. Tencent spent part of the money on buying back its own shares, "The logic is very simple, if there are not many good targets in the market, buying back its own shares is the most preferred." Zhang also said.

Also, because the market was overheated in previous years, now the capital market has a serious primary and secondary market valuation inversion, such as Weilong spicy strips, Nai Xue's tea, etc., even if such companies are listed, investors may not necessarily make money.

Chang Li's investment institution has also carried out an inventory, looked back to evaluate the efficiency and return of his investment, and found that many investment effects are not good, he speculated that the situation of large factories will be more serious, "because most market-oriented funds have clear investment strategies, focusing on certain areas, rounds, and relatively rigorous decision-making mechanisms, many large factories have not formed a reasonable mechanism, not necessarily have stage focus, more extensive than funds in the market, and the effect may be worse." ”

Chang Li also reversed the investment results from the development of some fields, pointing out, "Many ToB projects, previous generation AI projects, and some robotics and semiconductor projects that large manufacturers have invested in before, and many companies in these industries are facing challenges, let alone returns." He added that today's large factories are similar to the practices of market-oriented investment institutions, and have begun to adjust their strategies, slow down the pace, and change investment from extensive to refined.

"And the entire mobile Internet traffic has peaked, taking the road of relying on traffic or relying on business models before, it is not necessarily possible to run any revolutionary products or applications, there are not so many targets to invest in." Ling Feng said, "The next investment industry will definitely become more and more difficult to do, the whole will be more industrialized, the state-owned RMB funds and industry leaders will have more and more important voices, the entire industry will transition from the characteristics of long-term returns to the characteristics of revenue and profits, and the yield of the investment industry will also decline." ”

Based on the statements of a number of industry insiders, the current trend of recovery in the primary market may drive the enthusiasm of large factories to recover, but the next investment of large factories will most likely not restore the previous prosperity. They predict that in the next step, the investment of large factories will be more focused on the main business. Now many large factories themselves are worried about internal and external troubles, and the war investment departments of many large factories themselves have undertaken certain internal consulting functions, and the next probability is to solve internal business problems first, and then find suitable investment targets and attack accurately.

At the same time, on the one hand, the investment of large factories may be more in line with policies, such as the layout of cutting-edge technologies advocated by the state, on the other hand, large factories may put their own investment more on projects related to the second curve, rather than doing too many aimless attempts to explore.

On the one hand, the established strategy of large factories requires investment business assistance, and another reason is that investment can also inspire the strategic layout of large factories.

Ling Feng's large factory, investment also plays a role is to help the company's senior management expand their understanding of the frontier market, and then conceive the company's strategic direction, "For the boss, investment is first of all a tentacle to understand the market and supplement the blind spot, the boss must first understand the corresponding field through investment, and then decide to do it himself or not." ”

Nowadays, the investment of large factories has bid farewell to extensive frenzy and has entered the second half of refined management, and rationality, focus, and service are the next keywords.

*The title image and the accompanying picture in the text are from Pexels. At the request of the interviewee, Zhang Li, Zhang Ye, and Ling Feng are pseudonyms in the text.