Author | Wang Baiyun Shi Yue
2024 has entered Q2, and from the latest data, the primary market seems to have some signs of recovery. According to IT orange related data, in the first quarter of 2024, there will be 1,390 equity investment and financing events in the domestic primary market, an increase of 10% quarter-on-quarter and 14% year-on-year, and the estimated total investment will be about 229.172 billion yuan, an increase of 8% month-on-month and year-on-year.
Source: IT Orange
The macro-level data may not be exactly the same as the micro-level individual feelings. In any case, we sincerely hope that this is the beginning of a good year, not a repeat of the "high start and low walk" in 2023.
Although investment and financing in the primary market will maintain a certain degree of activity in 2023, the total amount of financing, the number of new funds established, and the disclosure of the public market will all decline to a certain extent year-on-year. According to the relevant statistics of the business card, the number of publicly disclosed investment and financing events in 2023 will be 11,113, a year-on-year decrease of 24.04%, and the total amount of publicly disclosed investment will be 720.854 billion yuan, a year-on-year decrease of 16.12%.
In addition to changes in volume and amount, the investment cycle of projects has also become longer. Relevant survey data shows that the proportion of projects with a longer investment cycle is close to 60%, and the proportion of projects with more than 9 months is significantly more than 6 months and 1 month. These data point more clearly to the fact that investment institutions are more cautious.
In addition, except for some vertical institutions that have maintained a relatively active investment pace and scale, since 2023, most investment institutions have a clear wait-and-see mentality. More than 40% of investment institutions have 50% or more of the remaining funds.
Regardless of the year-end data for 2024, it is certain that primary market investment and financing continue to evolve in a new logic that is gradually forming. Hou Jiechao, founding partner of Yibai Capital, said that the new "National Nine Articles" put forward three requirements: strong supervision, risk prevention, and promotion of high-quality development, which is bound to have a profound impact on the rules of the game in the primary market: from a single "pinching" logic driven by the return on capital to a multi-dimensional "precise matching" logic of factor resources, it is also bound to promote the evolution and iteration of investors, investors, entrepreneurs and tripartite service institutions.
Wang Zhixing, president of Tin Venture Capital, said that it is necessary for primary market investment institutions to transform and adjust in accordance with the trend, otherwise they may be eliminated. "Investment itself is a game of probability, affected by the general environment, the overall probability of success of enterprises is decreasing, and the model of relying on 'pepper noodles' to widely spread money on the track for investment is no longer viable. Our investment work needs to be deeper, more detailed, closer and more integrated into the industry. ”
There is also a set of data worth paying attention to, the number of private equity and venture capital fund managers in 2023 will be 12,893, a significant decrease from last year, about 9.86%. The number of newly registered private equity and venture capital fund managers is 316, less than 1/2 of the number registered in 2022.
The "capital winter" of the primary market in 2023 will hit a record low for practitioners. The ridicule of investors circulating in the circle of "investing in ramen in 21 years, chips in 22 years, and resumes in 23 years" is still in my ears.
However, we also found that there are still groups with relatively stronger "cold-tolerant" ability in the cold winter, showing their vitality through the cycle. Therefore, in combination with this survey, the author interviewed a number of venture capital institutions such as Tin Venture Capital, Chaoxi Capital, Bohua Capital, Richland Capital, Sanqi Mutual Entertainment Industry Fund, Yibai Capital, etc., and found their unique and referenced playing styles and strategies, in order to provide a reference for many participants in the reshaping primary market to survive and develop.
Cast early and small
Due to the combined effect of various factors such as changes in the market environment, investors' consideration of risks, and the impact of macroeconomic policies, the industry consensus of "investing early and investing small" is gradually taking shape, and there is a trend of further strengthening in 2024. According to the relevant data of the Financial Associated Press, the number of Series A events in 2023 will account for the highest proportion, about 40%, followed by the Seed Angel Round, which will account for 22%.
Recently, an investor said that a company has just completed the "A +++++ round" financing. Although some people in the industry "complain" that in order to reduce risks and improve certainty, investment institutions are currently requiring enterprises to even follow the revenue and profit standards of mid-to-late stage projects for early-stage projects, which is contrary to common sense, but if we ignore the "reasonableness" game between the investment psychology of this trend and the logic of the industry, from the perspective of its existence itself, the more important issue is how to improve the success rate of the institution's own project selection in the process of pursuing "early investment and small investment".
Liu Yu, vice president of investment of Sanqi Mutual Entertainment Group, said that in terms of cutting-edge technology investment, Sanqi Mutual Entertainment Venture Capital will invite the group's professional technology center and R&D center, as well as the business team to jointly evaluate and demonstrate, so as to reduce the risk of information asymmetry. For example, in the field of AI and human-computer interaction, "we basically take all the competing products and 'run' them seriously. The AR optical waveguide technology project and Micro LED optical display project invested by Sanqi Mutual Entertainment around 2020 were later acquired by international manufacturers, proving its accuracy in capturing industry nodes and selecting industrial chain links.
The joys and sorrows of human beings are sometimes not the same, and the same is true for the primary market in 2023. Venture capital institutions with the right direction and effective mechanism can maintain the previous investment rhythm, while during the same period, the investment scale of traditional industrial investors has declined significantly. Taking domestic Internet giants as an example, relevant data shows that Tencent's investment in 2023 is 1/7 of its peak in 2021, while Alibaba's investment is less than 1/10 of its previous peak in 2017, and ByteDance, which has a revenue of more than 700 billion yuan, has less than 5 billion yuan of foreign investment.
At the same time, Xu Wenbo, founding partner and chairman of Sinoexpo Capital, said that it is also necessary to see the "Phnom Penh of dark clouds" - now everyone may face some challenges, so they are overwhelmed, and there is no need for the two institutions to raise each other's prices before. "I won't offer an irrational price just to grab a project. ”
Sinoexpo Capital is one of the few institutions in the industry that has successfully adopted the two-wheel drive strategy of direct investment business and fund investment business (sub-fund investment + secondary share investment). Xu Wenbo said that the company's two-wheel drive model is of great value to the team to form a synergistic effect. "On a project, there will be teams with different direct investment and fund to form a joint echelon, and everyone will contribute to each other. Guangdong, managing partner of Sinoexpo Capital, believes that strategies to deal with competition include cognition, resources and decision-making efficiency. And the joint echelon happens to be "one thing to improve efficiency." Wei Xiaoan, founding partner of Sinoexpo Capital, said that he was particularly glad that he chose to invest in upstream parts and other projects in the field of new energy vehicles, and finally gave up investing in vehicle projects. Compared with the "bloody wind" of the price war in the new energy vehicle market from 2023 to the present, the life of the upstream industry is much better.
Cheng Yong, the founder of Richland Capital, believes that judging investment from the perspective of "industrial elements", rather than just technology and industrial development cycles, is the key to the team's successful layout in the fields of new materials, equipment and digitalization. "In the investment process, it is necessary to clarify the strategic positioning, build a team that understands the industry, and understand the pace and internal laws of industrial upgrading. Cheng Yong said.
Richland's transformation began in 2015, when the decision to invest in the less popular industrial technology sector has earned it the competitiveness it has today. "We had a two-year transformation, and at that time, a colleague was still focusing on Internet model projects based on business inertia, and then I told my colleague that whoever proposed to invest in such a project would have to ask someone to leave. "Transformation is extremely difficult, and you must be the most determined to turn the team around from within." ”
Different from most institutions to form a team according to the industry track, Richland Capital builds a team according to the underlying disciplines, and at the same time requires the team members to become multi-faceted talents with "nail rake" skills, "each nail tooth" represents the cognition of the underlying disciplines related to technology and industry, the thicker and longer the nail tooth, the better; In Cheng Yong's view, continuous DPI delivery capability is the core competitiveness of the organization.
Market-oriented LPs dance with state-owned assets
According to the data of the Financial Associated Press, the activity of investment institutions with state-owned assets will increase significantly in 2023, in addition to Shenzhen Venture Capital and Shenzhen High-tech Investment, Hefei Venture Capital, Tin Venture Capital, Su High-tech and other investment will all have more than 20 shots. According to the data of Enniu, the number of state-owned capital background institutions has been growing for five consecutive years, from 807 in 2018 to 1,064 in 2023, accounting for 13.11% in 2023 from 7.58% in 2018, and has become one of the most important participants in the venture capital market.
Source: Enniu data
Among the investment institutions with state-owned background, there are two different types of development models, the investment model of local leading industries represented by Hefei, and the more market-oriented venture capital model represented by Shenzhen Venture Capital and Tin Venture Capital. Wang Zhixing said that the business territory of Tin Venture Capital is based in Wuxi, relying on the Yangtze River Delta and radiating to the whole of China, and its development strategy is to actively promote cooperation with the industry, jointly set up funds, jointly invest in projects and give full play to their respective advantages. "Whether it is risk control or project investment, we have professional judgment ability, and from the perspective of technical judgment and industrial empowerment, the industry side is more professional than us. Wang Zhixing believes that "the Yangtze River Delta and the Pearl River Delta have natural industrial advantages, with a more complete industrial chain supporting facilities in China, and are the main battlefield for investment institutions." ”
The proportion of state-owned assets in investment institutions continues to rise, which is a new issue for some market-oriented GPs. The volume of state-owned assets is large, the resource endowment is good, and the requirements for returns are not as high as those of market-oriented funds. In addition to direct investment, state-owned LPs are also one of the significant changes in the primary market in recent years. According to data from the venture capital data platform IT Juzi, the total scale of LP investment by institutions in China's private equity market will be about 1.84 trillion yuan in 2023, declining for three consecutive years. Among them, policy-based LPs account for more than 50% of the fund. Other companies with a large proportion of capital contributions are industrial, financial institutions, and financial companies, accounting for between single digits and 20% respectively. Before 2018, the mainstream of market investment was financial institutions, industrial and financial LPs, and in the following five years, except for industrial LPs, which were relatively stable, the remaining types of LPs shrank significantly, while the proportion of policy LPs increased significantly.
According to the data of the "2023 LP Portrait White Paper", in 2023, 7,383 private equity funds will be newly recorded, and the LP subscription scale will exceed 1.6 trillion yuan. State-owned assets and local guidance fund LPs are more active, accounting for 1/3 of the number of state-owned assets and local guidance funds, and the subscription scale of sub-funds is as high as 70%.
Xu Wenbo, founding partner and chairman of Sinoexpo Capital, said that the investment business of state-owned fund of funds will also be of great help to the team to establish an industrial map and market tentacles. In addition, "there is a need to attract investment in various places, and our direct investment fund has the ability to help local governments find high-quality enterprises efficiently, because our ability to grasp and judge the underlying assets is not available to many other institutions." Localities are willing to put their funds in our hands and work with us. "At the same time, our market-oriented language and in-depth understanding of enterprises enable us to help enterprises strive for better policy support." That's why we've been able to grow so fast. ”
Of course, for state-owned LPs, different institutions have different positions, including the consideration of scale and efficiency, independence and complementarity. Liu Jie, founding partner and chairman of Chaoxi Capital, said, "In our current LP structure, the proportion of funds with local guidance attributes is still very small. This is related to the context of our historical development, which has been deeply cultivated in the industrial ecology, so most of our funding sources are from the industrial side. At the same time, we still hope to adhere to the market-oriented style of play, and deliberately control the proportion of 'demanded' funds, which can be regarded as a kind of stubbornness. Essentially, we don't think of ourselves as a large-scale institution, and to achieve a high exit return, we need to be completely independent in our investment decisions, and we don't want to be influenced by too many other factors, which is the principle we want to adhere to. ”
Chaoxi Capital is an industrial investment institution focusing on the field of new energy and electronic semiconductors for a long time, and has maintained an active investment rhythm since it officially transformed from industrial mergers and acquisitions to at least a few equity investments in 2021, such as investing in nearly 20 projects in 2023, with a total investment of more than 1 billion yuan. Many of the invested companies of Chaoxi Capital have achieved substantial growth in performance and valuation in just 2 years, and have a relatively clear exit path, so Chaoxi has also won the recognition of LPs.
Hou Jiechao told the author that the industrial landing business of "dancing with state-owned assets" is not to meet the simple "task of attracting investment and returning investment", but to comprehensively consider the degree of cooperation of industrial clusters, maturity, upstream and downstream key customers, logistics and many other factors, so as to achieve accurate value matching. "It doesn't make much sense to take money just for the sake of taking money, it's more about forming an industrial resonance, which requires entrepreneurs, investors, and tripartite service organizations to understand the principle of industrial chain rotation. "This ability is not achieved overnight, Yibai's team will work with entrepreneurs to analyze the ripple effect of industrial clusters, weigh the pros and cons, and ultimately achieve a win-win situation for all parties. "We pursue the logic of long-term value creation, and really want to help local and local industries and entrepreneurs solve the problem of long-term win-win development, rather than just to complete their own short-term KPI tasks. ”
Since its establishment in 2018, Yibai Capital has been deeply engaged in the field of industrial technology, and in just 5 years since its establishment, it has ranked among the top 3 FA institutions in many authoritative lists in the industry. The resources and methodology accumulated over the years have made it a "breakthrough" through the winter of capital. At present, in addition to the thousands of active investment institutions and tens of thousands of science and technology enterprises, Yibai has also widely covered hundreds of ecological partners, including various localities, industry leaders, universities, professional service institutions, etc., and actively created a strong alliance of "Yibai Science and Technology Innovation Ecological Matrix".
Sea
In recent years, going overseas has become one of the important options for enterprises to find new increments in the "involution" domestic market. In the investment world, this trend is becoming more and more obvious. High-quality overseas assets and overseas LPs are the fulcrum to cope with international and domestic, macro and micro uncertainties.
In the past year, Sanqi Mutual Entertainment ranked among the top three in the industry in terms of revenue in terms of game going overseas. The company adopts the model of integration of research and operation, and at the same time, "following the core supply chain of international manufacturers to make investments, you can have a very deep understanding of the industrial chain, and even make some investment and layout before investing in large factories." Liu Yu told the author.
"We are fortunate that the new energy track that Chaoxi focuses on is large enough, the chain is long enough, the industry is extensible enough, and there is enough hedging between them, and the market is also a global layout. Liu Jie told the author, "Over the years, I have found more and more opportunities, not only domestic opportunities, but also many overseas opportunities." We have to fly the globe, and that's a requirement for ourselves this year. ”
At the LP level, Richland Capital has become one of the institutions that has introduced the most funds from Fortune 500 companies in China. "This (going to sea) is very important in the next two or three years. This step must be taken as long as you invest in technology. From my point of view, this is a milestone event. Cheng Yong told the author that Richland's investment in domestic materials and equipment has performed well, but there is still a big gap between China and the United States in this field, "which is also an important direction for the company's future development." ”
"I understand internationalization as 'integration', overseas expansion is not a matter of funding, not that I eat you or you eat me, but to help overseas enterprises at the same time, so that Chinese enterprises continue to grow. Cheng Yong said.
Do a good job of "exiting"
IPO is still one of the main ways for domestic primary market investment institutions to exit. According to Choice statistics, a total of 313 companies will be listed on the A-share market in 2023, raising a total of 365.436 billion yuan; Compared with 2022, the number of IPO companies decreased by 112, and the funds raised decreased by 230.392 billion yuan. As an important part of the "fundraising, investment, management and withdrawal", the pressure on institutions to withdraw is also increasing in the case of the temporary suspension of domestic IPOs, and mergers and acquisitions are once again on the agenda.
Cheng Yong believes that when facing the challenge of narrowing the listing exit channel, enterprises need to have enough profitability to cope with future changes in the capital market, "Now we must consider the two indicators of liquidity and profitability, which requires the ability of GPs in the primary market to be very large." In the future, we want to increase our efforts in M&A, where there is inherent liquidity, and [next] we just need to think about profitability." Liu Yu also told me that mergers and acquisitions and follow-up rounds of financing are feasible paths, "especially in the context of the suspension of IPOs." ”
As early as the second year of its establishment, Yibai began to carry out M&A business. Yibai's research found that compared with more mature capital markets, China's capital market lacks in-depth insight and effective guidance on the strategic value of mergers and acquisitions to the company's long-term development. "The value of M&A may have been underestimated by the market before - M&A should not become a helpless second choice or lifesaver after the IPO slows down, and enterprises should take the initiative to take M&A as one of the core means to form close synergies with strategic industry parties to achieve long-term strategic value creation. Hou Jiechao said that the characteristics of organizational integration that Yibai has been adhering to determine that Yibai's FA business and M&A business can achieve deep collaboration and integration, rather than simple information flow and docking.
In the past two years, Yibai Capital has continued to strengthen its investment in the M&A team, including "M&A veterans" with more than 15 years of experience in M&A and listed company management. In the current environment where the primary market exit is dominated by the industrial side, Hou Jiechao requires the Yibai M&A team not only to have the precipitation of industrial resources and in-depth insight into industrial needs, but also to be able to cooperate with the industrial side to build and achieve long-term strategic success.
In addition, how to achieve the optimal allocation and balance of resources as a tripartite service organization, empower enterprises to achieve in-depth linkage with the industry, and help GP/LPs to achieve effective exit while effectively helping to accelerate the development of new productivity in the field of science and technology industry is a topic that Yibai has been striving to do since its inception.
It should be noted that the number and scale of mergers and acquisitions have also declined under obvious macroeconomic pressure. "We have two preparations, one is to try to make some good assets IPO when they are infinitely close to the 'dragon gate', and the other is to help enterprises develop and grow in the primary market through investment, financing and mergers and acquisitions, that is, to give money to A, and A to integrate B. We may have invested in A and B and C, but now we have to concentrate on it, which will also help the development of the industry. Xu Wenbo said.
Richland Capital's longer-term goal is "to return to the essence of business in the future to consider the way of investment, and to break through the term limit of the fund through the design of financial product structure, which is a promising way out." At present, no one in China has left, and we hope to learn from foreign excellent experience and find our own way in the current environment and market. ”
"To be a vertical institution, you must also have the ability to endure loneliness. Liu Jie said that overcoming the FOMO mentality is one of the "cultivations" to be completed by mature institutions. "For example, maybe two or three years later, we will find that the new energy track is very good, but it is possible that there are not too many opportunities for major changes in the industry from Chaoxi's judgment, and everyone's cognition is relatively convergent, so we will not invest at this stage, it is better to do a good job after investment, provide growth assistance for key enterprises, complete the exit in time, and complete the harvest when the harvest is due. We choose more to do more practical things that provide some certainty. This is also one of the characteristics of Asaki. ”
Digital transformation
Almost all of the surveyed investment institutions said that they have increased their investment in digitalization, in order to use big data, AI and resource pools to improve team efficiency, understand the latest industry data, valuation space, market prospects and technology trends, etc., while reducing personal subjective interference, improving decision-making accuracy and improving risk control. According to the survey, nearly 84% of organizations have adopted digital processes. The amount of investment in the construction of digital systems also varies from millions to tens of millions according to the needs of the institutions themselves.
However, in order to "stay on the table", digital transformation not only requires the timely precipitation of business information, but also the intelligent and efficient integration and application of effective information inside and outside the organization. This means that institutions should not only efficiently integrate internal resources and optimize business processes, but also work with external partners to strengthen the matching application of information flow and intelligence, which also makes the ability to operate the external ecosystem necessary.
Yibai is one of the practitioners of digital transformation and upgrading of primary market institutions. Hou Jiechao said that Yibai positions itself as a "super linker", or "the 'API interface' of the industrial technology ecology". It can also be understood that Yibai wants to become a resource integration center. To realize the vision of "API interface", it means that Yibai must not only have a wide range of databases and resource accumulation, but also have an open, altruistic and win-win mentality, and "dance" with the multiple roles in the industrial chain. "Entrepreneurs, governments, industries, and investment institutions want what Yibai can provide, flexibly access, and help the market achieve efficient allocation of resources. Hyperlinkers are not simply connected or docked, but resource sharing, precise matching, and deep integration. The support behind this is not only the continuous improvement of the strong middle platform system, but also the rich resources of China's science and technology industry accumulated by Yibai, as well as the win-win model of "open source sharing" with ecological partners.
The ultimate goal of Yibai is to build an ecological infrastructure for China's industrial scientific and technological innovation, become an ecological hub for China's industrial science and technology, improve the efficiency of resource allocation for each link in the ecology, reduce the cost of communication and trust building in each link, and finally empower the value creation of the technology industry with efficient and diversified full-stack services. ”
Looking ahead to 2024
The outlook for investment and financing trends in the primary market in 2024 is a complex issue because it involves many variables, including the macroeconomic environment, policy environment, scientific and technological progress, market demand and other aspects. Based on the integration of internal and external factors, combined with the advantages of the institutions themselves, the survey found that AI accounted for 83.33% of the areas that investment institutions chose to pay the most attention to. Echoing the hot scene that has just entered 2024, from the world to China, from OpenAI's Sora to Kimi launched by the dark side of the moon, has received widespread attention from inside and outside the industry.
Liu Yu said that Sanqi Mutual Entertainment will continue to focus on the fields of games, AI and human-computer interaction, and also pay attention to computing power and middle-tier investment opportunities in the context of domestic substitution. She believes that financial support and industry policy guidance are crucial to the stability of the industry.
However, although AI is the first place in terms of attention, in terms of the proportion of total funds, "advanced industrial manufacturing", which is currently the second most concerned industry, has surpassed AI and become the industry with the largest proportion of investment expected by institutions in 2024. Of course, AI is also "not to be underestimated", accounting for the first place in the total investment of 25% of investment institutions. The contrast between the two is strikingly contrasting with other industries.
Liu Jie believes that in 2024, the explosion speed of new energy in application scenarios will far exceed that of previous years, and "new scenarios" has always been one of the important keywords when investing in Chaoxi Capital. "First of all, there is a push from the policy level. The EU's official introduction of a carbon tax in 2025 is nothing new, and Chinese companies need to respond to changes in overseas policies in advance. At the same time, China is also making efforts in the fields of carbon trading and carbon capture. On the other hand, it is related to the supply chain: the whole new energy industry has always been very 'volume', so the more 'volume' and the more innovative, the better the product quality will be, and the lower the price and cost will be. As a result, many scenarios on the application side that could not be counted as accounts can now gradually become economical, including distributed optical storage and charging, and the opening speed of scenarios will be very fast. ”
In terms of further breakdown, the industries with the largest proportion of institutional investment are expected to invest 30%-50% of their total investment. Secondly, a quarter of the institutions said that even in the industries where they have the largest proportion of investment, the proportion of their total funds is controlled within 15%.
Time passes.
Overall, investors' outlook for 2024 can be summed up in one key word: big waves. The industry investment and financing advice given by investment institutions that have developed a feasible path includes gathering industries, being cautiously optimistic, investing cautiously, and "staying at the table".
Cheng Yong believes, "In 2024, from compliance, product capabilities, and business growth, you need to use all your power to help the invested companies quickly reach a higher level." Xu Wenbo said, "In addition to direct investment business, the company is also actively exploring new investment opportunities in 2024, including cooperation with listed companies and participation in private placement in the secondary market." Hou Jiechao believes, "In 2024, we must find our position from a macro perspective, and then think about the changes and unchanged tides of the times, firmly based on China, and firmly value creation." ”
What kind of answer will 2024 give us, is it a comprehensive recovery or a structural pattern of "ice and fire"? The effective solution ideas of the interview institutions and the direction of "betting" in 2024 may not be the only solution, but at least to a certain extent, they help us explore the direction that can be used for reference. I'll stay tuned, and we look forward to sharing it with you in next year's survey.