Zhang Suyang, a senior partner of IDG Capital who has been abdicating for more than a year, reviews the past and talks about his current career.
The full text is about 6100 words, and it takes about 10 minutes to read.
Dictation | Chapter Suyang
Finishing | Lu Hualei
Edited | Qi Jielun
Introduction of Zhang Suyang, founder of Volcanic Stone Capital:
Famous venture capitalist in China. He received a bachelor's degree in electrical engineering from Shanghai University in 1982, and in the following years, he studied or studied business management, international finance, EMBA and other courses in Germany, East China Normal University and China Europe International Business School. He was the senior director of central planning coordination of Shanghai Bell Company, the deputy general manager of Shanghai Telephone Equipment Manufacturing Company and the general manager of Shanghai Wantong Industrial Company. He joined IDG Capital in 1994 as a partner. Retired from IDG Capital in April 2016 and founded Volcanic Stone Capital two months later to focus on investments in the medical and TMT sectors. During his time at IDG, he led the investment in many well-known companies such as Ctrip, Homeinn, Hanting, and eBay.
23 years, from walking on thin ice to wind and water
Many people think that I started investing after I joined IDG Capital (hereinafter referred to as IDG) in 1994, but this is not the case. Before I joined IDG, I started investing when I was a general manager at Shanghai Vantone Industrial. But at that time, investment was mainly concentrated in the industrial sector. Because in 1993, there were no Internet companies in the market, and the domestic "heaven and earth" industry did not allow investment, so the only field that private investment companies could enter was the industrial field. At that time, we mainly invested in technology companies in Metrohm.
But my first 3 investments in IDG failed, $200,000 each, 3 for $600,000, and $200,000 in the end. In the '90s, $200,000 was a big number, putting a lot of pressure on me at the time, and there was no way to alleviate it. I was very anxious and sometimes couldn't sleep.
IDG is a partnership mechanism, and in principle, even if only one person in a few people makes money, we can get dividends. So from the perspective of personal income, I may not have to reduce my income as a result, but the failure of these projects makes me feel very guilty. At that time, we joked that if we threw a project, we would run to the bathroom and slap ourselves.
In fact, these 3 failures were all cheated. The word "cheating" may not be appropriate, because it is not necessarily the partner who subjectively wants to deceive me, the main reason is still a system problem.
At that time, IDG had just entered China, it was still a joint venture, and 50% of the funds came from China, and the other 50% came from THE US IDG. According to the regulations at that time, the company invested by the joint venture company must also be a joint venture, and in the Sino-foreign joint venture, the investment ratio of the foreign joint venture is generally not less than 25% of the registered capital of the joint venture. That is to say, if the proportion of foreign capital of the enterprise is to reach 25% through THE investment of IDG, then our investment shares must reach 50% of the total share capital of the company to meet this requirement, which is a very high number.
In addition, at that time, there was also a policy stipulating that investment companies could not directly establish companies with natural persons, but could only cooperate with companies established by natural persons. So the three projects at that time were 50% invested by us, and a company established by a natural person invested another 50%, so that a joint venture company was formed. For this natural person, this joint venture is only part of his original company. In terms of interests, their main focus is still on the original company. If the original company earns 1 yuan, it all belongs to himself; while the joint venture company earns 1 yuan, it also needs to give IDG 5 cents. The focus of interests is different, resulting in the fact that the last few joint ventures will never make money.
The first high-yield project I invested in was Shao Yibo's eBay. When I say high yield, I mean a profit of more than 10 times the profit. I invested in him in 1999. In fact, although IDG has been making investments since the early 1990s, the previous few years have been accumulating, and it is really on the right track, and it was after 1998 that it was able to invest in good projects.
The amount of money we invest in eBay is not much, only a few hundred thousand dollars. The logic of investing in them is very simple, I just like Shao Yibo, and what they do has been proven in the United States. By then, eBay had already had a lot of success in the United States, and Chinese liked this contrasting, upside-down thing.
Shao Yibo is a very smart person, the kind of intelligence that you can see at a glance. His past experience is also very good, and he has been walking on a more standardized road. In addition, he is also a man of taste. By taste, I mean his taste in what he does, capable of expressing a sense of self-esteem and appreciation.
eBay was in Shanghai at the time. At that time, Xiong Xiangdong (former director of IDG Capital Investment and now the founding managing partner of Huaying Capital) introduced me to Shao Yibo. I still remember Xiong Xiangdong telling me at that time, this person is very good, you will like it.
So one afternoon, we met on Nanjing Road and ate some wontons together. After the conversation, I called Zhou Quan (managing partner of IDG Capital) and said that Shao Yibo will fly to Beijing tomorrow, and you can talk in Beijing. The next day after they finished talking, I had a phone call with Zhou Quan and decided to invest money in Shao Yibo. From the time I met to the time I decided to invest money, it was a total of 20 hours. We later joked that this decision was shorter than the time when Tianjin was liberated.
At that time, eBay had only been doing it for a few months. We finally signed a contract near Shao Yibo's house in a tea room called "Cultivating Reading Garden" on Hengshan Road. He came over in shorts and was very casual. Later, eBay sold to eBay, and IDG earned nearly 20 times the proceeds.
▲ Zhang Suyang said that his earliest entry into the investment field was during the Wantong period, and his first 3 investments in IDG failed.
In fact, when we invested in Ctrip, Homeinns and other companies, the time to make decisions was not very long, because there were not many people at IDG at that time. At the end of the 1990s, IDG had more than 20 people. With fewer people, the decision-making mechanism is very fast. Decide on a project, that is, make a phone call, ventilate, and everyone feels that they can make a decision. For example, when investing in Ctrip, Zhou Quan went to Shanghai for a business trip, he and the founder of Ctrip had a meeting, we met a head, and we decided that we could invest.
When we invested in Ctrip in the first round, we invested $430,000, and when we invested in Home, it was only $2 million, which was not a very large amount.
When I invested in Homeinn in 2003, they had only six or seven stores. We were investors in the first round, and then we followed them twice in a row until they went public, and we gradually withdrew.
Investment in Ctrip mainly values all 4 of them as strongmen. Of the 4 of them, except for Fan Min, the other 3 people I knew earlier. The original backgrounds of the 4 people are good, and they can complement each other; in addition, the field they cut into has precedents abroad and has great potential at home.
Ctrip makes reservations and tickets, and these businesses have been proven to be possible before. At that time, there were about thousands of companies responsible for booking rooms and booking tickets in China, and most of them were profitable, so Ctrip's business model had long been proven. From a certain point of view, Ctrip is not so much a success in business model as it is a success in management. Ctrip's contribution is that for the first time, it has made booking and ticket booking an industry in China.
At that time, the biggest difficulty in doing IDG was not too few projects, but the limitations of the system, and even the establishment of an investment company in Shanghai by IDG was specially approved. According to the laws and regulations of that year, in order to prevent foreign hostile forces from funding domestic hostile forces through legal means, foreign investment companies cannot be freely registered in China. To set up a foreign investment company, several conditions need to be met, such as the company has invested in more than 10 enterprises in China, or has invested in companies with assets of more than 1 billion yuan in China. Therefore, most of the foreign companies that could invest in China at that time were subsidiaries of large companies, such as Intel and IBM.
Therefore, if idg has set up an investment company in Shanghai, if it wants to invest in a company in Nanjing, it needs to obtain the approval of the Shanghai Administration for Industry and Commerce. The Industrial and Commercial Bureau has issued a certificate before we can invest in Nanjing. So we didn't have much choice at that time, and we really couldn't invest in money. Now everyone doesn't know the situation back then, and it's a bit of a fantasy to talk about.
IDG's three investment companies in that year were mainly in cooperation with the government, so the investment in the company's registered place was basically completed in the form of special approval. For example, Beijing IDG cooperated with the Beijing Science and Technology Commission that year, and Shanghai IDG cooperated with the Shanghai Science and Technology Commission. There are such channels, so the investment can also be carried out.
This situation did not gradually open up until around 1998. In terms of policy opening up and improvement of the investment environment, I think China has really made a lot of progress in recent years.
Discover the common traits of great entrepreneurs
During my time at IDG, I think there are about a dozen companies that have invested in more successful investments. The more impressive are those listed companies, such as Ctrip, Tudou, Homeinn, Hanting, Kanghui Orthopaedics, Jiuan Medical, etc. Among them, the highest return multiple should be good, this should have a return of about 65 times, home also has a return of more than 50 times.
In 2000, IDG had about $100 million in funds. The investment amount of a single project generally does not exceed 10% of the fund. IDG can invest in some excellent projects, I think the main reason is that the partners have a wealth of industry experience and knowledge - this is a serious team, we have 7 partners, each of them is among the best in the industry, strong decision-making ability; second, flexible decision-making.
To do early investment is to invest in people, and to examine an entrepreneur, in addition to the management ability, communication ability, business ability that everyone generally values, I value: first, entrepreneurs should follow business ethics; second, entrepreneurs should have ambitions and be able to persist for a long time; third, entrepreneurs should be responsible, and they should be responsible for users, shareholders, and employees; fourth, entrepreneurs should be mentally healthy people.
Although many entrepreneurs are also very persistent, they are paranoid persistence, which is not good. I want entrepreneurs to have a good mental state, that kind of rational positivity. Some people are crazy, I don't approve of it.
I learn about the above information through conversation, so I talk about a wide range of topics, usually this kind of topic will be 1 to 1.5 hours. For companies interested in investing, we require at least two meetings, otherwise decisions cannot be made.
In addition to the above standards for people, we also have standards for this company, mainly to see if the company can be made into an "institution". For example, if a company's annual profit has reached 10 million yuan, and when I chat with their CEO, their finance, human resources, marketing and other department employees come to him to ask for instructions, then I will deduct points for them in my heart. Such a company is certainly not an institution, this is a one-man company, there is no way to make it bigger.
In addition, it also needs to see whether the company has a strategic plan. Companies with a strategy are bigger than companies without a strategy, and the road is also wider. For example, eBay's Shao Yibo, his strategy is very good. The feasibility report he submitted to us at that time showed a very clear logic, and even if it is put into perspective, it is a good learning sample.
In addition, when judging a business plan, a very important criterion for me personally is to see if it has too many adjectives and whether it can explain the matter very cleanly and refreshingly. Now a lot of BP is full of all kinds of tall adjectives. For me, it's also a move to cut points.
In the more than 20 years of investment, we have learned a lot from our peers and entrepreneurs, such as Ji Qi, the founder of Hanting. Ji Qi and I had known each other before they founded Ctrip, when he was also the general manager of East China at Sinochem Yinghua Intelligent Systems Co., Ltd. in Beijing. At that time, he wanted to start a business all day, and he dared to toss and turn, break through, and not admit defeat.
Shao Yibo likes to do things in a formal way because he has an American education background; while other entrepreneurs do not have to follow the norms, they believe that this goal will not relax, but with the changes in the way, they will also take corresponding changes. This difference in the way of doing things has its own advantages, but in the end these people have done it.
I like people who have done business and succeeded, but I'm less receptive to people calling themselves serial entrepreneurs, because serial entrepreneurs are mostly failures. I prefer entrepreneurs who have been successful in starting businesses in succession to serial entrepreneurs. If someone claims to be a serial entrepreneur, I will give him a negative score.
Good entrepreneurs have some precious qualities, such as persistence. Like Jiang Nanchun, I have known him for more than ten years, he has been starting a business since college, and until today he has maintained such a high enthusiasm that has not changed, or he works very hard. He has always been moving towards a goal and has the confidence to make a big company in this field.
I think it's normal to stick to a thing for 3 years, but if you stick to it for 10 years, then the nature changes. This is a character trait that not everyone has. First of all, I can't do this myself, and if I compare with them, the gap is relatively large; secondly, the kind of difficulties they encounter are that we can't touch, and they are much greater than us.
Jiang Nanchun's Focus Media model is self-created, and there is no foreign model. Only two Chinese companies listed in the United States are self-created models, one is Jiang Nanchun's Focus Media, and the other is Ma's Alibaba. Other companies can more or less find a role model to learn from abroad.
When Jack Ma was looking for financing for Alibaba in 1999, I approached him. He met more than a dozen investment firms during that time, including well-known investment firms such as SoftBank and Goldman Sachs.
At that time, I docked Ma Yun, because he was in Hangzhou, I was in Shanghai, and the distance was relatively close. But the real interview was in our office in Beijing. At that time, IDG's office was not as beautiful as it is now, that is, 3 "broken" rooms in Beijing. At that time, Ma Yun, just like now, was a person with relatively strong spirit and special confidence. He came to our office and looked around first. I thought at the time, he guessed that his heart was muttering: Just these 3 broken houses, do you still want to invest in us?
That was Alibaba's Series A funding round. We were ready to invest $3 million for Alibaba, but we really couldn't invest in it, And Jack Ma didn't accept our investment, and I think it may be that IDG wasn't famous enough at the time. Looking at it now, for us, this is a very regrettable thing.
When I see the way Ma speaks today, I will recall the way I met him in 1999. After so many years, his aura and way of speaking are exactly the same as when I met him.
His entrepreneurial enthusiasm is no different from that of that year. It is not easy to persist for such a long time and always maintain this spirit. This kind of entrepreneur is not an ordinary entrepreneur. Many entrepreneurs already feel that they are big companies when they achieve a valuation of 300 million yuan.
From "Old Funds" to "Old And New Funds"
Although we missed Alibaba, it was good that we invested in Tencent and Baidu. BAT3, we voted two, which is also a good result. So it's a shame not to invest in Alibaba, but we can't have all the best companies in the way.
Tencent and Baidu, we both voted earlier. In 1999, we voted for Tencent's Series A; in 2000, we voted for Baidu Round B. Baidu is slightly better, we did not withdraw until after they went public, and the revenue multiple is relatively high. Tencent is more regretful: in 1999, IDG invested Tencent 1 million US dollars, but we also sold it relatively fast, about 1 year of investment and sold, because there was an opportunity at that time. This investment has a return of more than 10 times, and a net profit of 100 million yuan.
Looking at it now, selling Tencent's shares around 2000 was an obvious mistake, and many people commented that they couldn't understand why IDG sold Tencent at that time. But at that time, 100 million yuan was also a big number, and our IDG gang were all from poor backgrounds, and we had never seen big money, and we thought that these benefits were already very good. This is not modesty, at that time, IDG's partners were not rich people who made a lot of money and then did this, including Xiong Xiaoge, who was also a poor egg at that time.
When I say poor people, I don't mean that everyone is grassroots, but that everyone used to have good jobs and had certain positions and technologies in the industry. For example, Zhou Quan, who has won two NASA awards, is a manager; I am the general manager of Vantone Shanghai and the deputy director of the 520 plant. We have all made socially recognized achievements in our respective fields, but at the same time we are all poor people with no background and no funds.
Since 2015, IDG has gradually made strategic transformations and made more large-scale investments. Of course I've made big investments, but I'm personally still interested in early-stage investments, in technology-related startups. But I've been working in IDG's early investment department for a long time, and I don't want newcomers to think that we old people still control this piece of the business, and it's difficult for them to take over. From this point of view, my personal retirement is the best way.
I made this decision on my own initiative. Although I am not the oldest in IDG, I have not reached retirement age. I have always made a decision without hesitation. Of course, my relationship with IDG is still very good, and I am still a member of the IDG Healthcare Investment Decision Committee.
After retiring from IDG, I and other colleagues set up Volcanic Stone Capital, divided into two funds, RMB and US dollars. The size of the RMB fund is more than 1.5 billion yuan, and the total amount of RMB and US dollar funds is not more than 400 million US dollars, and the investment is mainly in series A and B. Now IDG is also the LP of our company, and the three partners of Volcanic Stone are also my colleagues at IDG.
In fact, the positioning of volcanic capital and IDG is similar now. I just want to be a VCs who also focus on emerging companies. The risk control system and basic files we use now are similar to those used by IDG, and we can just move those over.
Volcanic Stone Capital is now mainly focused on the TMT field of new medical industries and partial technologies. We hope that volcanic stone capital is a cross-border model, such as the combination of medical treatment and AI, or the combination of internet and medical treatment. Because our experience has been accumulated to this extent, the more cross-border we are, the more advantageous we have. If we put these different industries together, we are more likely to be able to get involved.
Now we have invested in 16 companies, including GEEK+ in artificial intelligence, Jianke in the field of medical and health, Gene+ in Giinga, etc., most of which are the top two in the subdivision industry.
I co-founded IDG's Healthcare Investments segment in 2005. At IDG, I'm involved in more than 20 projects related to it, so I'm familiar with the medical industry. Now in the medical industry, Volcanic Stone Capital mainly focuses on areas such as new medical treatment. For example, we pay attention to the development of genetic testing to confirm the disease, and in the past, this required doctors to diagnose the diagnosis through "looking, hearing and cutting", instrument testing, and combined with personal experience.
To do Volcanic Stone Capital, we hope to invest in some excellent companies and help them grow. But we are still very eager to make money, and we hope to make more money for LPs. The investment speed is still relatively uniform, and now an average of 4 projects are seen every day.
A fund founded by a veteran of the investment community like me, I call it an "old new fund.". Those of us who lived through two world wars were the two troughs of 2000 and 2008. These veterans have had a history of success and failure. The experience of actually failing is important. For example, my current mentality is much better than it was then, knowing that if one project loses money, I have to make it up from other projects.
Wilde has a saying: There are two tragedies in life, the first is to get what you want to get, and the second is to get what you want to get.
【This article was first published in the 137th issue of Caijing World Weekly published on July 17, 2017】