Content source : March 2021, Zhongke Chuangxing | Hard Technology Champion Enterprise Entrepreneurship Camp.
Sharing guest: Wang Shaohua, general manager and founding partner of Shenzhen Huixin Equity Investment Management Co., Ltd.
Advanced note-taking expert | WeChat Angel
Rotating Editor-in-Chief | Lord Grim
Responsible Editor & Duty Editor | Jinmu Research
You are invited to think about:
How to make good choices of opportunities?
What is the focus of the development of a startup company?
How to choose an investor?
1. Entrepreneurship choice: opportunity and team
1. Find the track under the megatrend
When we start a business, it is impossible to do very ambitious things at the beginning, but to do a little better in the subdivisions and expand after going public. This is the core strategy of every startup.
Since we are making products in subdivisions, enterprises and products must be embedded in an entire industrial chain. Therefore, you must embed the company in the industry chain where you confirm that it can be successful.
For example, the most typical Goertek acoustics , although it is only a small company in Weifang, it has entered the Apple industry chain, and it has brought out many Chinese upstream listed companies that are engaged in accessories and downstream companies that are engaged in APP.
Therefore, as an entrepreneur, you must lower your head to pull the cart and look up at the stars. We not only need to know where the megatrends of this era are, but also the most vigorous development track or industrial chain under the megatrends, so as to put our own business success into it. In this way, the tide of the times and the development of the industrial chain will automatically push you forward.
2. New opportunities under the information civilization
Mankind has gone through three stages of civilization. The first is agricultural civilization, the second is industrial civilization, and the third is the post-industrial civilization era. We are about to enter the fourth stage-information civilization.
The mainstream productivity behind each civilization is different.
The infrastructure in the stage of agricultural civilization is the agricultural irrigation of Dayu, Dujiangyan and Zhengguoqu.
In the age of industrial civilization, it is necessary to manufacture industrial products. Building wealth first builds roads. When a country’s industrialization starts, it needs to build ports, airports, highways, and railways, that is, the era of “railroads”.
Today, the central government has proposed new infrastructure, and the “new” is new in digital infrastructure, such as 5G, Industrial Internet, IDC, and artificial intelligence.
Therefore, we need to know where your industry is in the entire territory of information civilization. In the Chinese market, from an investment perspective, there are two increments:
The first increment is 5G and digital transformation, which will inevitably drive the demand for new hardware.
The second increment is domestic substitution. The localization rate of chips is now 30%, and the State Council has set new targets and tasks, that is, by 2025, the localization rate of chips will reach 70% to 75%. Therefore, the government will work hard according to this goal.
If you think it is impossible, you have no chance. If you think it is possible, your company has a chance. Entrepreneurs must be optimistic, if you are a pessimistic person, you should not start a business. Difficulties are always more difficult than imagined, but there are always more solutions than difficulties.
The world has changed dramatically, and the first thing that changes is the hearts of the people. The “heart” of the entire Chinese industry is working hard in the direction of localization. This “heart” has not changed before, and you can’t work hard.
All start-up companies are “Qin loses the deer, the winner is king.” Whoever has the ability to seize the market will be the winner in the future.
3. Hardware and software
The hardware and software are orthogonal (the concept of linear algebra) sine waves and cosine waves.
When building a 4G network, everyone has to change 4G mobile phones, and the country has to buy base stations. At that time, companies that made chips and 4G base stations had their revenues, valuations, and stock prices rising, while software companies at the time did not have very high valuations.
When there are more hardware companies, there will be more opportunities, and when everyone sees the opportunities, they start their own businesses. When the 5G network is about to be built, the software company starts to move up. They form an orthogonal relationship.
Therefore, whether it is entrepreneurship or investment, we all need to grasp the law. Nowadays, hardware has a good product, enters a good market, and will have an IPO in a few years, and it has entered the harvest period.
The biggest investment opportunity in the future is the software company after the 5G network is built. 5G+6G is an era. Everyone starts from their own industry, benchmarks their positioning in the entire digital economy, and gets things done. It must be a key link in this field to realize its value.
As of the end of 2020, China has built a total of 700,000 5G base stations and connected 200 million 5G terminal devices.
People who do communication always pursue one thing, that is, the communication between people is getting smoother and richer, making the communication between things more and more possible. In the past ten years, everyone has done a lot of academic research and exploration, and finally decided to abandon other technical routes and jointly form 5G.
Therefore, the essence of 5G is how to make communication better. There are now three major application scenarios for 5G:
First, the speed is increased by 10 to 100 times, and the application of 4K, 8K, VR, and AI can be spawned. It can also increase the number of connections from 100,000 square kilometers to 1 million, which is an additional 900,000 connections.
Second, these extra connections can connect objects, load the physical world’s perception of objects into sensors, receive data and then send them out, nurturing artificial intelligence.
Third, low latency and high reliability. In this way, 5G will make industrial control and autonomous driving possible. Therefore, these things will indeed not happen today and will not happen tomorrow, but they will definitely happen the day after tomorrow.
After the arrival of 5G, everything will be interconnected and society will be changed, and all walks of life will be reshaped by digitalization. Therefore, a digital twin physical world and a 1:1 digital world will be formed in the future.
Therefore, through digitalization and information civilization on the current basis, a China can be recreated.
5. Build a diverse team
Whether you are an investor or an entrepreneur, the abilities you need are different at different stages of the company’s growth. The initial stage is technology, followed by market and resource integration capabilities, and finally corporate strategy and management capabilities.
Many entrepreneurial teams of technology-based companies will face a natural shortcoming-too technical. From the perspective of information theory, orthogonal information is the most valuable.
Orthogonal, that is, the sources of team members are completely different. If all the members of your team are technical men, and everyone thinks the same, they will be worthless to each other.
Therefore, we need to build a diversified and compound team, adding people with commercial attributes, commercial sense of smell, and even people with artistic sense of smell.
Many large technology companies are not founded by technical people. Jack Ma learned a foreign language, and Jobs studied art and design, but they all made good businesses. Because their teams are orthogonal.
Your strengths are often your greatest weaknesses. If a person with a technical background is engaged in technology every day, he will not be able to access other news from the outside world. At this time, you need to make the following two steps:
First, change yourself so that you have the mentality to embrace the world.
If you are a technologist, don’t drink or eat with a bunch of engineers after work. It’s better to find a few people who are studying art, business, and culture to communicate more. This will gain you even more and the orthogonal effect will be even greater. Big.
Second, enrich the team.
For example, if you are an investor, you must find people with a background in investment; if you are a “hard technology”, you must find people with a background in science and engineering.
Blackstone’s “Schwarzman’s Biography” mentioned that when he first founded Blackstone, he wanted to find the so-called business operators from Yale and Harvard, but they were reluctant to enter small companies. Finally, he found some long-distance runners and troops. These people have resilience. Although they don’t know much about investment, they are serious and can do their work well.
2. Enterprise development: do a good job in the iteration of the four major stages
What is hard technology?
Simply put, hard technology is technology that is higher than high technology. Whether it is semiconductors, integrated circuits, artificial intelligence, biomedicine, aerospace, materials and other fields, it can be called hard technology.
A good hard technology company must complete four stages of iteration: good technology, good products, good market, and good company.
1. Good technology
Since everyone dared to start a business, they must think that technology has advantages.
Angel wheel companies are all good technology companies, that is, companies with technological potential. Therefore, angel companies need to use this money to turn good technologies into good products.
2. Good product
Turning a good technology into a good product has many pitfalls that need to be leaped by the enterprise.
The first pit is the process by which technology becomes a product, that is, how to complete the mass production of the product. For many companies that make materials, the products made in the laboratory are completely different from the things that are mass-produced in the end.
The second pit is to accurately define the product. Many entrepreneurs with a technical background often make a mistake: let the market adapt to technology and ignore the needs of the market.
For example, a chip company lacks engineers who do chip design, but product managers, that is, those who define chips.
Many start-up companies that make chips have figured out the product definition by themselves, and they have done a good job.
Later, all the test performance indicators are in line with the original design requirements, even super required to complete, the user does not pay, and that the product is obsolete. It’s not that the company team is doing a bad job, but the product definition problem.
Therefore, a good product needs to not only satisfy a large rigid market demand, but also have a competitive advantage in cost and yield.
3. Good market
How to prove that this thing is a good product?
The best way is to find a beacon-level user to help you do the endorsement. Those better, faster pace of the company, its product development and definition, are tied with the head of the customer together with the.
At this stage, the role of technology is second to none. We should target major customers in the market, establish national sales channels, establish a systematic market team, and do PE rounds of financing to expand production capacity to meet market demand.
4. Good company
A good market does not mean a good company. The average life expectancy of Chinese SMEs is 3 to 5 years, while that of foreign SMEs is 5 to 8 years. This time is basically the life cycle of a product.
Many SMEs target a market demand, develop a product and sell it. At first they sold very well, but later due to consumer upgrade requirements or technological advancements, sales volume will experience a downward trend.
Therefore, a good company can continue to do one thing repeatedly, crossing the product cycle. To become a good company with a long-lasting foundation , it needs to solve the problems of commercialization of technology and products, the problems of sales and product scale, and the problems of governance after scale.
Five to eight years is a product cycle, and 30 to 50 years is an industry cycle. Therefore, there are very few companies with a history of more than 100 years, and most of the world’s top 500 companies have a life cycle of no more than 50 years.
Therefore, great companies like Siemens and IBM have completely different things from what they first started to what they do now, spanning the entire industry cycle.
When the company reaches iteration at each step, the valuation will be different. If we grasp the growth law of hard technology companies and grasp the characteristics and needs of each stage, we can do the right thing. Successful financing is only the result, and gold will always shine.
3. Before going public: how to find money?
As a hard technology, no matter whether it is entrepreneurship or investment, everyone’s direction and goal are the same, but the perspective of the problem is different.
For entrepreneurs who need financing to start a business, financing will be easier if they know the ideas of investment institutions. This is a game of cat and mouse, and it is also a game that promotes each other.
1. How to impress investors?
First of all, when your first-generation product comes out, investment institutions will pay attention to your customer feedback, that is, why they choose your product because of low price or good performance.
Investors generally do not like products that rely on “price wars” to capture market share, because such companies may not have a future.
Secondly, many investment institutions do not understand the industry you are in. You need to guide them to figure out the ceiling and market space of your company in a reasonable and well-founded manner.
Although they don’t understand the industry, they have logic on how to calculate the market space. However, they lack basic data. Therefore, you have to help the investor to calculate the market space for the product, and tell the investor that “you have already occupied a relatively favorable competitive position in the market.”
Finally, no matter what stage of financing your company is in, team ability is the most important. Especially the quality and ability of the core leader of the team need to be fully demonstrated by the investment institution.
In this world, the market you face, your competitors, your company’s operating conditions, and the general trend of the world economy are all changing. Nothing can be calculated with certainty. But two things can be basically determined:
The first is industry trends.
The second is people. As an investment institution, only by relying on the certainty of employment can it cover the risks arising from the uncertainties of various objective worlds.
If a company can do the following two things, it will give investors great confidence in betting: one is the introduction of lighthouse-level customers, and the other is the ability to absorb resources.
As a good company grows, it will constantly absorb resources, and the core of various resources is talents. Good talents can bring all the resources for enterprise development, such as new technologies, new products, good management and key customer resources, and even financing.
For example, Xiaomi , which created a miracle in the world , had revenue of more than 10 billion in the second year of its establishment, and entered the world’s top 500 in its ninth year.
It is stated in the biography of Xiaomi Mi Decades that when Lei Jun decided to become Xiaomi, he first went to Google and Motorola to dig people. In the development process, Xiaomi is not static, but constantly absorbing new people.
Another example is Huijin New Materials. At first, the team was academicians and vice presidents, which was very luxurious. In the process of its growth, it also recruited Huawei as the chief heat dissipation expert in 2012, the three chief experts of Alibaba server, and the president of China’s regional management production, one of the biggest competitors, and even some people are willing to drop it. Come over.
This shows that the best people in the industry and those who know the industry best recognize this small startup company. In fact, they are more than investors understand your company. Therefore, this company is promising.
2. What kind of investors are you looking for?
Investors are those who recognize the valuation and conditions of your business and are willing to invest in it.
In the angel round, everyone may not have the ability to choose capital. Therefore, at this stage, it is important to kick the ball first (find the right capital side). At this stage, the condition of repurchase cannot be agreed, otherwise you will not even have the chance to make a comeback.
Only when your company has reached the IPO stage and has relatively stable revenue and profits, can you talk about repurchase. At this time, the valuation of the company has also increased.
The second is to recognize your valuation. The valuations of “hard technology” companies at this stage are all determined by scratching their heads. Therefore, I suggest that you can use more government resources to invest in you and make products through topics.
Finally, the highest requirement is to shorten the iteration from technology to product. Or just like Chuangxing Zhongke , relying on the equipment, talents, technology accumulation and upstream and downstream supply chain resources of Xi’an Institute of Optics and Mechanics to help you reduce your investment in the product development process. Either it is to find customer resources who are willing to accompany you.
To put it simply, if you want to raise money, you need to find an organization that understands you best and is willing to share the storm with you.
When your technology and other aspects of the system have taken shape, you need to find investment institutions to help you take off. On the one hand, at this stage, you should focus on finding some CVCs and corporate venture capital based on industry needs to integrate you into its large ecosystem.
On the other hand, this investment institution will become a strong endorsement of your business. At the same time, it is also necessary to find investment institutions that cooperate with the industry to “hold thick legs.” Terms of the investment agency’s head is very demanding at this stage do not find him they, but they can communicate with the contact.
3.IPO VS merger
The dream of all companies is an IPO, but it is actually unrealistic. Even if you can IPO, it doesn’t make much sense. If you have a market value of 2 or 3 billion after listing, in fact, your valuation of financing in the primary market may now far exceed this number.
Therefore, in the end, you have to return to the essence of business: you have to figure out where the ceiling of your business is.
Secondly, how to break through one’s own ceiling requires development of some future-oriented strategies.
In many things, domestic companies will fall into the misunderstanding that they must be bosses and IPOs, and they are unwilling to be merged. But in foreign countries, mergers and acquisitions are common. For example, chip semiconductor companies in the United States, large companies are all acquired, and even the giants are now in mergers and acquisitions.
Therefore, if the merger is better for the future development of the industry, and the concepts of the two parties are the same, a strong alliance is a good choice.
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