Jinshajiang Zhu Xiaohu: Don't get off the table, don't get off the table, don't get off the table

Zhu Xiaohu is always the first to say it.

At a time when investment themes are lacking and confidence is weak, this "living person in the investment circle" still dares to assert that China's big model is no play. This wave of radical output that was almost a gesture of dedication once again attracted huge criticism and appreciation for Zhu Xiaohu.

In the process, he also lived himself as a non-consensus per se.

In this conversation, Zhu Xiaohu threw out several industry secrets that should have been kept secret. For example, the consumption track identified as an "abandoned child" by the mainstream of the primary market has returned to Zhu Xiaohu's range, and the reason is very simple, "it is very cheap, and there is no reason not to vote". In the exit link, Zhu also overturned his wealth password back then, and bluntly said that he should no longer expect to get a good return by relying on mergers and acquisitions of large factories, "don't lie to yourself and investors".

Zhu Xiaohu also revealed a new operation, requiring dividends has become the consensus of the vast majority of early VCs, and at the moment of unclear exit, his expectation for LPs is to get back the principal in five years.

The rumination of investment themes and the iteration of business models are Zhu Xiaohu's adjustment of investment strategy in accordance with pragmatism, but more thoroughly is his "rebellion" against the classic venture capital concept. As one of the few veterans in the history of Chinese venture capital who has received two $1 billion returns, he now says that he must not pursue α and never think too highly of himself.

It stands to reason that the more successful the person, the heavier the path dependence, and Zhu Xiaohu obviously escaped this inertia. You can't tell if he says these things to others or to himself, but he overthrows himself faster than anyone else, is agile, has no love of fighting, and can always withdraw from the matter.

This is Zhu Xiaohu's attitude towards the cycle, and the secret is hidden in his values. In Zhu Xiaohu's current value framework, it is not important how much money he makes, but more important for self-realization, and intellectual challenges bring people far more pleasure than money. Therefore, what Zhu Xiaohu wants to achieve is not exactly the same as the standard of secular meaning, he has no obsession with scale, no baggage for fame, and the "deviance" he shows from time to time may be a temptation of some kind of tool or law, which ultimately points to the investment "works" he wants.

Zhu Xiaohu never said that he loved the profession of investment, but he did it.

On the eve of the 18th China Investment Annual Conference and Annual Summit, hosted by China Venture Information and China Ventures, China Venture had a wonderful dialogue with Zhu Xiaohu, Managing Partner of GSR Ventures.

Don't pursue α, and don't think too highly of yourself

ChinaVenture: The past two years have been full of uncertainties, and people's experience has been constantly invalid, and it has been confusing. Now that you enter 2024, do you have any relatively firm judgments?

Zhu Xiaohu: Indeed, in the past two years, the macro environment and the direction of investment and entrepreneurship have been changing, and the AI+ era is really changing with each passing day. My advantage is that the memory span is a little longer, the first time the Internet bubble, I was starting a business, the second time I was moving the Internet, I was doing VC, the perception is more profound, I have been thinking, what lessons can be learned?

There is still a lot of "immutability" that can be verified. For example, at the beginning of any era, there is a market for optimization tools, although they are short-term opportunities. When the mobile Internet first came out, Android optimization masters, hundreds of millions of users, had a four-to-five-year optimization cycle, but the evolution speed of the mobile Internet was not as fast as AI, and the optimization opportunities in the AI era must be short-term.

You can learn from the history of the past. As Mark Twain said, history always repeats its own rhythm, albeit in a different way.

ChinaVentures: So you don't think long-term experience will expire so quickly?

Zhu Xiaohu: Yes. Investors need to have a long-term vision and perspective in order to avoid double payment of tuition fees. You can't hand it over in the mobile Internet, and you can hand it over again in the AI era.

ChinaVenture: Since the end of last year, you have been interviewed a lot, and you have behaved with ease, which is in contrast to the silence of others. Do you deliberately stay silent for a while, and then stand up and speak again when you need to?

Zhu Xiaohu: No, we don't have this plan, all the students who write articles come to me, and they want to write a report at the end of the year, but I don't have any arrangements.

ChinaTou.com: Although it's a little rude, but Touzhong wrote an article saying that you have a hard mouth, what do you think?

Zhu Xiaohu: I think it's very good, it's very real, I don't mean to keep anything, but at the moment, it's the same thing that LP and I have been talking about.

ChinaVenture: At that time, we made a summary and said that your general logic is:

Q: Can you vote? A: I'm quite comfortable.

Q: Have you raised any money? A: I still have money.

A: I don't want to raise a lot of money.

A: I have a profit dividend.

Q: When can I get a refund? A: Let's talk about interest rate cuts.

Can this logic explain the current state of you and GSR?

Zhu Xiaohu: You summed it up very well, I didn't even think about it so clearly.

Now no one is grabbing the investment project, the market is in this state, really back to 20 years ago, when I first started to do VC, it was like this, it took 3 to 6 months to investigate, the company can achieve the expectations and plans every month, and the investors will really make money.

The same goes for quitting. Today, everyone relies on profits and dividends. This year, the second level only looks at high dividends, and the first level also looks at dividends. My assumption is that "I will get back the principal by dividends in 5 years", and now I can't see it clearly at all when I exit, so I can only rely on this assumption.

ChinaVentures: You started talking about cash flow and profit very early, right? The judgment was the same then as it is now, has the logic behind it changed?

Zhu Xiaohu: Yes, I said at the beginning of the epidemic (the problem of cash flow), but the logic behind it is far from the same. At that time, everyone was only worried about how long the epidemic would last, and the question was simple. Now that the page has been turned over, there is more uncertainty about macro changes, and the exit of the capital market is also very unclear, and this cycle may be at least in years, or even 5 years.

Today, businesses must be run with an extremely conservative mindset, and we clearly see that "the leftover is king". The entrepreneur who had dinner with me this morning had 1/10 of the financing amount of all opponents, but he was alive and well and very healthy, and his opponents were basically removed from the list of suppliers by Party A.

ChinaVenture: Is the outside world's acceptance of your shouting also changing?

Zhu Xiaohu: Yes. The entrepreneurs who listen to our advice, are alive and well, and those who don't believe in us are living miserable, really. And to be honest, entrepreneurs who have not been successful before are more willing to listen, and those who have been successful before are not willing to listen to advice.

ChinaTou.com: Path dependence is relatively heavy?

Zhu Xiaohu: Yes, those who have been successful in the past 10 or 20 years have relied on the path of success, and this kind of entrepreneur is very painful today.

ChinaVenture: Last year, the "grass platform team" was very popular, and it seemed to have become a general box, which can be disenchanted by anyone, including investment. But if you think about it carefully, what is the problem that the grass platform team is talking about? I understand that it is the failure of science and rationality, and in investment, science and rationality as working methods may also be invalid, what do you think about this?

Zhu Xiaohu: The statement of the grass platform team is very good. All of our successes in the past 20 years have been dividends of the times, huge β in China, and have been achieved by sitting on the elevator in China, entrepreneurs and investors.

I have always said internally, don't pursue α, don't think that you are smarter than others, work harder than others, once you start to pursue α, it is the beginning of losing money.

ChinaTou.com: It sounds like determinism, the world has been decided, and where you are placed, you will get what the result is.

Zhu Xiaohu: No, you can still choose what β to pursue.

For example, why don't I watch the mother and baby track? This is a negative β. But in such a big market as China, there are still many positive β, such as the early and old people, and now there are 20 million new retirees every year, these people have money, time, and are willing to spend, which is completely different from our parents' generation, and our parents' generation does not consume when they have money.

There are also pets, now at least one pet per family. The chaining of retail formats is also a huge β, and the chaining ratio is far lower than that of the United States, far lower than that of Japan, and far lower than that of Hong Kong.

With such a big market in China, you can still look for the next β, but don't think that you are smarter than others and work harder than others, this is not reliable.

ChinaVenture: Then what else can we believe? Believe that we are more down-to-earth than others?

Zhu Xiaohu: Yes. But you must recognize that you are average, and you can make β money, and the error tolerance rate of making β money is much higher than that of making α. The young and old people are such a big dividend, with 20 million new retirees every year, and they can't lose anywhere if they lose.

ChinaVenture: While emphasizing β, you also lamented that you missed bytes, which are not β.

Zhu Xiaohu: Byte Nahui, I really didn't understand a key point that should be understood, from PC Internet to mobile Internet, from search to recommendation. Now I'm thinking, what exactly is going from recommendation to the age of mobile to AI? It's a huge question, no one knows what the key behavior is in the age of AI, is it prompt? I don't believe it.

Why am I not optimistic about GPT? Because human nature is getting lazier and lazier, from search to recommendation, it is people who become lazy, but from recommendation to prompt, people have to become harder and smarter, which is very difficult.

ChinaVenture: Let's go back to a rational question. We see a lot of loopholes in the market and in the organization, and everyone is pointing fingers at each other and thinking that the other has a problem. Then expose each other, saying that the other party did not use reason as a tool when making investments. This is most obvious in the secondary market, and investors are the most irrational, but the primary market is now criticized for this problem, and investment is driven by emotion.

For example, large models, even if the project is so expensive, everyone is still anxious to invest money in it, and it is not okay if you don't invest, which is obviously not a rational result, but identity determines many behaviors. What about you, is this the case? Are you also in a confrontation between the emotions of your true perception and your identity?

Zhu Xiaohu: People should always have a balance between greed and fear, which is an eternal theme for investors. But it's true that everyone has FOMO sentiments.

One is investment pressure, in the past two years, the investment pace of all US dollar funds has been very slow, after the three-year investment period has passed, the money has not been invested, how to explain to LP?

Asking for dividends is the consensus of the vast majority of early VCs

ChinaVenture: Not long ago, the American large-scale model companies Inflection and Stability both had a "founder runaway". As soon as this incident came out, did it prove that these people also showed their defeats?

Zhu Xiaohu: It's getting clearer and clearer, and there's no drama behind the American model. Except for the 4 big factories in front of them, they are relatively safe, but I don't know if they can hold on.

The large model itself does not have a good business model, and GPT now has about 250 million monthly active users, which is basically flat and does not rise. C-end products can't be seen today, I have to wait until the iPhone is equipped with a large model and then look at it in a year or two, I can only say that GPT is definitely not the endgame, GPT does not meet the needs of users, it needs users to be very smart, know how to prompt, this is too demanding for consumers, the C-end products in the future AI era, will definitely not be in this form, to be extremely foolish, extremely simple.

ChinaVenture: What about the B-side?

Zhu Xiaohu: The B-end is a price war. If you ask the entrepreneur today, you must use which large model is cheaper, and only in those particularly difficult scenarios will the most expensive API be called. This business model – to be honest – would not be particularly valued if the big model company were a waterworks.

ChinaVentures: As a case, what do you think of the "running away" of these two founders?

Zhu Xiaohu: Very typical. The Inflection team is okay, but there is no proprietary data, no proprietary scenarios, compared to the previous 4 large models, there is not enough differentiation, why does the market need you? So Microsoft poached the team, of course, there are also anti-monopoly considerations, and then give investors a compensation of principal and interest.

And I think it's interesting that Microsoft is so rich that it gives this amount of money to buy a company.

Stability is simpler, the diffusion model was invented by Stability, but it is open source, and a good business model has not been thought of. The videos we do in China are all developed based on the diffusion model, and so is Midjourney, but the commercialization of Midjourney is much better than Stability, at least today, with more than 100 people and an income of two or three billion US dollars. Stability, as the originator, does not have a good business model. You just have technology that is useless, and you don't know how to use technology, and you end up making a good open source and making wedding clothes for others.

ChinaVenture: Therefore, the case of Stability has greater practical significance for Chinese enterprises.

Zhu Xiaohu: Yes, the financing of Chinese AI companies has come to this point, and if it has not been commercialized, it will be difficult to go on the road ahead - money is not unlimited, and the conditions for follow-up financing may be very harsh.

ChinaVentures: In the past few years, everyone talked about non-consensus, according to my understanding, the so-called non-consensus is a small disagreement on the basis of a big consensus, for example, at a certain point in time, everyone is looking at the same type of product, some people can be ahead of the investment for a period of time, and the result can earn a better return.

But in today's market, is the concept of non-consensus dead? It seems that everyone's strategy is similar, and the things they invest in are similar.

Zhu Xiaohu: No, I think this is your observation from that angle. Non-consensus is non-consensus because no one says it. This road is particularly cold, but there are actually many people walking in it, such as consumption.

Consumption is a typical non-consensus today, there are many funds investing, and I am also investing, really, very cheap, but everyone is reluctant to talk about it. If everyone thinks that a track is gold, why should we tell others? We have been investing, it is really cheap, single digit PE.

ChinaVentures: Do you mind talking about the current logic of consumer investment?

Zhu Xiaohu: Three years ago, consumption was 20 times or even 50 times PS, and it was PS in the next 12 months, now I only talk about PE, single-digit PE, and PE in the past 12 months. Don't tell me stories, I only listen to PE. And as an early VC, I asked for dividends, and I told my LP that I could get back the principal by dividends in 5 years, and the risk was extremely low. After all, China's 1.3 billion people and huge consumer market have to consume every day.

This track is a big deal compared to three years ago. Three years ago, everyone talked about new consumption, and all consumer goods could be redone and invested together, and the valuation was so expensive, I was reluctant to invest at that time. It's so cheap today that no one votes, why don't I vote?

In the past, venture capital was invested in small shares, and it was withdrawn in a few years, and the money was shared with LPs. The dividends you mentioned, the logic starts to look like Micro Connect, but that's a completely different financial product.

Zhu Xiaohu: I think it is the change in the source of funds and exit channels that has caused the change in investment strategy, which is very normal.

We have been discussing for many years, whether venture capital, as a foreign product, can be sustained in the Chinese market for a long time, and whether it is a short-term strategic adjustment or the beginning of a long-term product change?

Zhu Xiaohu: The preference for long money is not something that can be changed in the short term, and the trend is at least 3 to 5 years. It's not like the money of retail investors in the stock market, where three white candlesticks can change beliefs.

ChinaVentures: In the long run, will the product form of venture capital change?

Zhu Xiaohu: If it is a state-owned renminbi fund, it will, and its behavioral preference must be extremely risk-averse.

ChinaVentures: What about US dollar funds?

Zhu Xiaohu: It's hard to count on dollar money in the future. In the past, there were a bunch of people behind us (who continued to invest), and they financed three or four rounds a year, but now looking back, no one took it, and those big dollar PEs that used to be very smart did not come to China, and some growth funds went directly to invest in the second level.

I don't know when to withdraw from the first level, and I may not be able to sell it when it is on the market, so why invest in the first level? The second level is so cheap now, and it can be withdrawn at any time.

No one voted behind VC, so our behavior will definitely be very different from before. I've always told entrepreneurs that every financing you make now should be treated as the last money.

China Ventures: To sum up, if you look at it in 3 to 5 years, in the long run, venture capital may become something completely different.

Zhu Xiaohu: It has changed, and today's demand for dividends is basically the consensus of most early VCs. Our investors will only ask, when will we see the cash flow? You can't see an IPO today, you can only rely on dividends, at least to ensure a stable cash flow.

China Investment: An article a while ago said that Zhu Xiaohu's wealth password was invalid, which is the method of "investing in first and exiting first". What do you think of this statement?

Zhu Xiaohu: That was the investment logic of 3 or 5 years ago, and it definitely doesn't work today. Not only China, but also the United States. Microsoft's acquisition of Inflection gave investors principal and interest, and such a wealthy $3 trillion company went to acquire a start-up company and put a lot of money in it, which is just this logic.

Today, we can no longer expect to get a good return by relying on mergers and acquisitions of large factories, which is very realistic.

If you think that this wealth code still exists today, and you are still thinking about selling billions of dollars to Alibaba, I think you are lying to yourself and investors. This wealth password is indeed invalid, it is indeed gone, it is indeed impossible. Why do I value dividends more? Dividends are more stable, safer and more reliable.

ChinaVenture: But after the big factories invested in, some of the early investors of the large model have withdrawn.

Zhu Xiaohu: That's a very small part of the money, and the big money costs billions of dollars, which is no longer possible, and no big factory will buy it at this price today.

China Investment: You say, why are there still people talking about the "Zhu Xiaohu model" at this juncture? Back then, you used a strategy that was different from others, which was considered advanced and ingenious by everyone, but now that the ingenious thing is ineffective, people will sigh.

Zhu Xiaohu: This is not my logic, it is the logic of the market.

Five years ago, the whole market was talking about high growth, and during the capital bubble period, everyone was desperately burning money in exchange for growth and scale. This is the story of the capital cycle, when capital is cold, we talk about profits, and when we talk about high growth during bubbles. The United States is very typical, and today it is not about high growth, it is all about whether it can be profitable, and the valuation of the last few IPOs has also been greatly discounted compared with before. The United States is very clear that there is a cycle of almost 5 years, and the cycle of China may be longer, at least 5 years, and it must be profitable.

ChinaVentures: Let's talk about ToB, suppose an LP asks you to share the "Zhu Xiaohu password" of today's ToB, what would you say?

Zhu Xiaohu: On the B side, we don't ask for dividends, we ask not to burn money, and maintain 2 to 3 times growth every year, which is my favorite investment story. The demand of China's B-end is definitely there, and the society must go digital, but the spring of the B-end may take another 5 years, so you must not burn money.

The cases we have seen are very clear, when there are only two in an industry, you can live very well, you can make your customers wait in line, and you basically don't have to burn money. The B-side is that the leftover is king, and if you insist on it for another 5 years, whoever can see the spring after 5 years will be the winner-take-all.

ChinaVenture: FancyTech: You've talked a lot recently, and the logic of investment at that time and now should be completely different, right?

Zhu Xiaohu: At the beginning, FancyTech was engaged in content aggregation, and the initialization data was very good, but the premise of our investment was that it had to be converted to AIGC to become bigger.

Therefore, when it was invested, FancyTech was forced to switch to AIGC, which was transferred a year earlier than its peers, and today it is far ahead of the market. And that's what we set when we talked about the path early on.

ChinaVenture: So if SaaS doesn't catch the AIGC bus, it will be completely yellow?

Zhu Xiaohu: If you can't catch up with AIGC, the value you create for customers will not be thick enough. Why is the sales cycle of SaaS in China so much longer than that in the United States today? Traditional SaaS is really difficult to sell. Why is it the best return for the United States to invest in SaaS in the past ten years? The sales speed is fast, two or three times a year, and it will soon reach an annual income of 100 million US dollars.

It doesn't matter how much money you make, it's more important for self-actualization

ChinaVenture: Recently, I heard Wang Defeng talk about Marx's theory of capital, and the basic thesis is that capital is a tool of social power, so as long as you pay, you will exercise power, and if you exercise power, there will be exploitation. So many things are economically sound, but not necessarily from the point of view of the relations of production. For example, from an economic point of view, someone can pay 20 yuan to hire you to buy a cup of coffee, or they can pay 20,000 yuan to hire you to buy a cup of coffee, as long as the deal is reasonable. But from the perspective of production relations, 20 yuan for a cup of coffee and 20,000 yuan for a cup of coffee are both exploitation, and even 20,000 yuan to buy a cup of coffee will cause you more serious exploitation.

I've been wondering, does your sense of relaxation come from actively avoiding heavier exploitation as a GP (the fund is relatively small)?

Zhu Xiaohu: I think so. 20,000 yuan to buy a cup of coffee is completely different from 20 yuan to buy a cup of coffee. To maintain a sense of relaxation today, the most important thing is to control the scale and lower expectations, I spent 20 yuan on a cup of coffee, I don't have any pressure.

Today it is almost impossible to see a company with a billion dollars, but it is still easy to see a company with a billion or 2 billion dollars. So it's about controlling the scale, controlling the price, and I'm going to buy a cup of coffee, and I'm only going to take the money for a cup of coffee, and I'm only going to give the price of a cup of coffee.

ChinaVenture: You have been in the industry for almost 20 years and have you never been controlled by FOMO?

Zhu Xiaohu: I'm a little timid, I have a natural fear of high valuations and high prices, I'd rather buy a cup of coffee, go in according to the price of coffee, and bet that it might become a money printing machine in the future. But you say that it is the money printing machine of the future, let me put it in at the price of a money printing machine, I don't believe it.

ChinaVenture: Your self-humility is timid, but I understand that it has a different view of life. In other words, it's a matter of tools, and some people think it's purer to use a number as a goal, such as size, returns, wealth. You don't seem to be the same, you seem to have other goals, and making money comes with it.

Zhu Xiaohu: People have different personalities. When I was a child, I had a math competition, and I felt a great sense of accomplishment when I made a difficult math problem, and the intellectual challenge was far more enjoyable than money.

As an investor, every one or two years, you have to come up with a masterpiece to prove that you can still do it.

Zhu Xiaohu: Yes, definitely. You have to stay at the table, at least stay relevant, and have a voice in the market. This pressure is much more important than making money, how much money you make, and self-actualization is more important.

For me – really, it doesn't make sense to have more money than a number, but whether I can have masterpieces in every era, whether I can see where the trend is in every era, whether I can see an entrepreneur from a very early stage, and whether I can see the future of the AI era in advance is more meaningful and valuable to me.

ChinaTou.com: I thought you were playing with others to raise the bar and quarrel, but you turned out to be serious?

Zhu Xiaohu: That's right. Again, intellectual challenges bring far more pleasure than money. And now I don't think "big and beautiful" at all, but "small and beautiful" is safer, and the strategy is completely different from 5 years ago.

ChinaTou.com: You care about the work, but you don't seem to mind what others think of you. You will pay attention to some very hot things, such as an NFT shoe in a Web3.0 game, you will also buy a pair, everyone will vote for a large model, and you will also enthusiastically participate in the discussion, but those people will always say "Zhu Xiaohu is not with us all the way, he is an outsider". When people say that, do you feel lost?

Zhu Xiaohu: No. There are too many people in the cryptocurrency circle who are speculative, and for those people, I am an outsider and have nothing to do with it. The people who do things in the currency circle have a good relationship with me, and they often interact with each other in the circle of friends. It's the same with large models, and now the team that is doing large model applications comes to me every day, saying that they are looking for me, only looking for me, and they want to discuss with me, which is what I want.

Marx said that the innate mission of capital is to increase value, and further said that the core goal of capital is to maximize surplus value, so the premise is that you want to maximize the productive forces and means of production. Looking at investment with this logic, in the past few years, everyone felt that large-scale funds were stronger, and once the scale went up, it seemed to be "easier" than small funds. Do you feel this way?

Zhu Xiaohu: To be honest, I was really angry five years ago. Why? There is too much financing, and we can't keep up, and the value is diluted. At that time, I was very angry, and I really felt that the big one was good, and the big one could continue to bet and continue to maintain the value.

But not today, I don't have this concern, but I feel that it is very dangerous to get bigger, and I don't know if I can create a return. Now I only see the opportunity for coffee, not the opportunity for the money printing machine, small is safe, timid is more suitable, at least I can sleep every night, 11 o'clock at night sleepy.

ChinaVentures: Why didn't you make a growth fund at that time?

Zhu Xiaohu: Don't dare. To be honest, I think it's too expensive to get my hands on Eleme and Xiaohongshu in the back. In fact, there are still bullets, but I don't dare to fight, I am naturally timid, and I can't help it.

ChinaVenture: I am particularly impressed, in the last interview, you repeatedly said not to increase leverage, you can save your life at a critical time. Has this view been consistent for many years, or has you suddenly felt the need to restrain yourself in the past few years?

Zhu Xiaohu: I used to be just timid, but now I am more aware that I can't increase leverage.

ChinaVentures: Do you mean money by leverage, or is it life?

Zhu Xiaohu: Everything, it's the same.

ChinaVentures: What are the decisions you have made in the past year that are most likely to affect GSR in the next 10 years?

Zhu Xiaohu: It is to control the scale and improve the margin of safety, which is the most important strategy in the next five to 10 years.

ChinaVenture: Aren't you afraid of an unexpected and rational deduction?

Zhu Xiaohu: No hurry. The primary market doesn't change as quickly as the secondary market, and it's easy to change until it's time to trade on the right side, as long as you're still at the table. Now let's stay at the table, stay relevant.