VC New Normal: Fighting, Elimination and Eternal Truth

VC New Normal: Fighting, Elimination and Eternal Truth

One day in the first half of the year, investor Meng Ying received a message from the founder of a consumer project that the other party wanted to break the contract. Prior to this, Meng Ying’s institution had issued an investment letter of intent to the founder and made a bridge loan. In a short period of time, an institution gave a doubled valuation, and the founder immediately regretted it.

Early the next morning, Meng Yingfei went to the city where the founder was. It was pouring rain outside, and Meng Ying had no umbrella, nor was he in the mood to hold one. The founder avoids seeing him, and he is stuck in the founder’s company downstairs.

Meng Ying forced herself to calm down. After meeting the founder, he was determined, “Everything can’t be over.” First, without criticizing or criticizing, but legally, bridge loans can provide rights protection. If the founder defaults, his investment transactions for a certain period of time will be locked.

But the matter is not over yet. Meng Ying had been mediating with the founder, and finally invested in it in a compromised way.

In terms of results, Meng Ying and his organization are lucky, but the relationship between the founders and investors should not be just a simple binding of interests-trust has been shaken, and all this is not lucky.

A leading institutional investor once stated to “LatePost” that in 2012, his institution issued an investment letter of intent to Didi, but because it did not provide a bridge loan in time, it was directly “cut off” by another company. To some extent, the investment scramble in the consumer sector today is no different from the O2O sector back then.

“2014 is very similar to this year. At that time, there were a few people around us who came out to make angel investments. They raised a hundred million yuan and invested at will . The paper value (paper value) is very exaggerated.” Partner of a waist fund Said to “LatePost”.

Like the “double innovation” boom of the year, today, the supply side (funds) is extremely abundant. After the epidemic, the U.S. government released water to support the economy, and large amounts of funds with nowhere to go flowed into U.S. and Hong Kong stocks, pushing up stock prices. The good exit also allows the funds in the primary market to hold more money.

But if there were a lot of water and fish in the past, there are not so many big opportunities now. The demand side (assets) is drastically reduced. An IT orange analyst told “LatePost” that the number of new economic startups recorded on its platform in 2015 was 30,000, and the number may have been 5,000 in the past two years, which has been declining.

Meng Ying said that he learned two things from this incident. One is that achievement comes from fluke. “To put it bluntly, the difference between Shen Nanpeng and I is luck.” The second is to have a strong mentality , “You must be better than others.” More ruthlessly, compress the path of success faster and step on the shoulders of others.” Meng Ying gave the impression of being friendly and sunny. His words sounded more like him, and he could not find a better way to survive. Said.

1. Consensus: the extreme involution of the consumer industry

How to understand the current boom in the consumer industry? Chen Yuetian, a former partner of Chenhai Capital, said with emotion that you can hardly find an investment institution that does not look at consumption. Investors are not talking about Yuanqi Forest, Hey Tea, Bubble Mart, Perfect Diary, Three and a Half Meals, but looking for them. On the way.

Chen Yuetian couldn’t be more familiar with the tuyere. He has created a vent. At the time when the entertainment track was hot in 2016, this long-haired investor has already invested in companies such as SNH48, Miwei Media, and Dream Culture. The core is that it must be earlier than the wind. “When friends on the media side begin to notice that this is the track, you can’t vote anymore, and the valuation has soared up early.”

Most of the investment that is pouring into consumption today may not have seen its value in advance.

In 2016, the outlet is still entertainment, and most investors are still “arrogant” towards Pinduoduo. At that time, Vitality Forest had been established, Bubble Mart was extremely short of money, and Hey Tea and Perfect Diary had just received VC financing.

In 2018, investors are “hinging under the aura of Pinduoduo.” Hillhouse invested in Perfect Diary, Meituan Dragon Ball Capital invested in Hey Tea, and on the eve of Yuanqi Forest being scrambled by capital, Bubble Mart was ready to completely close the first-level investment channel.

By mid-2019, the market has heated up. In the past, they hesitated, “Why did they invest in a lot of Amoy brands in 2012, and none of them made money?” But at this time, before they had time to figure out the answer, new brands had already risen following the flow of new channels, and their valuations had soared, which cannot be ignored.

In 2020, with the listing of Nongfu Spring, investors see more possibilities for consumer products. During the epidemic, consumption has also become a unified export of money.

“Just like everyone took out a category map to fill in the blanks, there are fewer and fewer blanks that can be filled in, and more and more subdivisions are needed.” said an investor in the consumer field.

Li Tianyu, the middle-level manager of the head fund, said that it took them three months to complete an investment before, and this rhythm is simply impossible today. “A subdivision of the track, not considered a special head project, from the first time I saw a decision-making, only 2 to 3 weeks or even less time .” He said. This is a change that has only occurred in the past year.

Once the project “takes off”, it will be worth billions of yuan. “If you are willing to vote, you can vote, and if you don’t want to vote, then you will fall.” Li Tianyu said.

The Chinese pastry chain Momo Dim Sum Bureau, established in June 2020, completed five financings in just one year. When there were only two stores, its valuation reached 200 million yuan, and then capital gave a valuation of 1.2 billion at the beginning of the day. In the just-concluded round of financing, today’s capital gave a valuation of 1.6 billion. At this time, it has just opened 18 stores, and another 8 stores “to be opened”.

The less advanced investors have to face: a startup company with only 18 stores has a single store valuation higher than Starbucks. Give it or not? Their answer is to use models and algorithms to estimate how big the Chinese dim sum industry will eventually be.

“If you (Momo Dim Sum Bureau) have a high probability of being number one, I can accept the company’s value in advance to allow time and investment opportunities.” A person close to the transaction told “LatePost”.

The power seesaw began to lean towards the entrepreneur.

Dai Yusen, an investor who once co-founded Jumei Youpin, said that when starting a business ten years ago, they were all looking for investors, and very few investors were looking for them. But the current situation has been dubbed by industry insiders, “Investors are’kneeling’ at the door of entrepreneurs.”

When Sequoia invested in the fast fashion e-commerce platform SheIn in Series C in 2018, the company was not planning to raise external funds. In the end, it was Sequoia Capital partner Zou Jiajia who persisted in “kneeling out for half a year.” SheIn is currently one of the most watched star unicorns. Zou Jiajia concluded that sincere and frequent communication, long-term observation and in-depth understanding of the entire e-commerce business, and insight into what the CEO really wants, moved SheIn founder Xu Yangtian.

In the three and a half rounds of B+ financing, due to “there are too many investors who want to follow up the three and a half rounds of financing”, the founder Wu Jun had to ask investors to write a written material to promote financing in an “efficient” manner. To invest in the makeup brand Huaxizi, investors need to self-report their valuation and answer five questions raised by the company. These five questions include:

  • What is the valuation for Huaxizi?
  • In addition to funds, what real resources can it bring to us?
  • Can pure financial investment be accepted?
  • Why are you optimistic about Huaxizi? What do you think is the core advantage of Huaxizi?
  • What do you hope to plan for Huaxizi’s future development?

In the new round of financing of Cha Bai Dao, investors also robbed their heads and wrote “small essays” with sincerity, but this time they took the initiative.

Hu Boyu, the founder of XVC, who started to write PPT for entrepreneurs in 2014, said, “In fact, this is also our post-investment service. If we do it in advance and increase trust, the founders will choose us.” He said that most of XVC The TS is signed on the same day. 

The investor is Party B, and the entrepreneur is Party A. “You can treat yourself as dung to compare your heart.” Hu Boyu said that because the requirements are too high, the XVC investment team has 6 people for 4 years. It is difficult to find the right person.” We don’t pay much attention to experience, and we pay more attention to the habits of thinking, and then the love for entrepreneurs and entrepreneurs.

A head of the US dollar fund said to “LatePost” that his fund began to package together the previously independent post-investment services so that entrepreneurs can reach them with one click. “Previously, post-investment services were a nice to have (icing on the cake). ) , now has become a competitive advantage (competitive advantage) .” He said.

Money is no different from money . Entrepreneurs who have the right to choose prefer “investors who can get it through a conversation and have similar values.”

A consumer goods entrepreneur said that in the angel round of financing, he and investors only saw three sides from realizing and deciding to invest within a week. “During the chat, I learned that I was using a laptop, and I quickly placed an order to send an ipad.” The details made him feel surprisingly consistent in their values, “And the birthday is only 6 days away.”

2. The super fund stage is tumbling, and the big waves are in the sand

Before founding Guangdian Capital in 2016, Fu Zheng worked at CVC Capital, when his office was on the 16th floor of the China World Trade Center office building. At that time, the 5th floor was Zhen Fund, and the 19th floor was his current investor GIC (Singapore Sovereign Fund) . It’s like a subtle metaphor, “The physical distance between us was very close at the time, but we did things in parallel, and we all worked methodically on our own track.”

And now, his runway is gone, only full-stage melee.

Dai Yusen, a partner of Zhen Fund, said that in the angel stage where Zhen was in the past, there were very few cases of robbery. But since last year, the late-stage fund ended up going to the early stage, and case-robbing has become more and more important.

Last year, Zhenge invested in a fashion consumer goods project with a valuation of tens of millions of RMB. As a result, Sequoia, Hillhouse and Zhenge gave TS to TS. “This is a very rare (situation) . The three companies are in three different stages, in an early case.”

Later, the founder chose Zhenge to lead the investment, and Sequoia followed suit. Hillhouse turned to the company’s competing products.

In February 2020, Hillhouse, which started in the secondary market, officially established Hillhouse Ventures, covering early-stage projects ranging from RMB 3 million to USD 30 million. On the first anniversary, Hillhouse Ventures completed more than 200 investments-investing in a company almost every day, and at the same time completed independent fundraising in USD and RMB with a combined scale of more than 10 billion yuan.

The only thing that can compete with Hillhouse is Sequoia. In June 2018, Sequoia China announced the establishment of a seed fund. On the third anniversary of this year, Sequoia China Seed Fund announced that it has completed more than 170 investments.

Use the asymmetrical capital advantage to grab the top project. After the top project gets huge funds, it will continue to attack the pool and land, and then obtain the monopoly of the track. Sun Zhengyi’s Vision Fund was the first to implement this style of play.

In an interview with “LatePost” in 2019, Wang Hua, a partner of Innovation Workshop, said that after 2018, the interface layer opportunities of the Internet are almost gone, and the small and beautiful, gunman-like era of VC will gradually pass away. Overlay play will become mainstream.

“When I was young, it (the project) did not look like a unicorn or a butterfly. I don’t know which one is which. Then I would vote for it. Anyway, the chairman.” Cao Darong, former partner of Lightspeed China and founding partner of Yunjiu Capital Describe “LatePost”.

“So many people and so much money went to the early projects, and the entire original rules of the game were broken,” an investor from a seed fund told “LatePost”. “It turns out that the valuation of the project within the first round of 50 million is very high. Normal things, now you are one or two billion (valuation) , the founders look down on you.”

A head fund investor told “LatePost” that a second-tier fund wanted to invest in a consumer project. The two partners chatted with the founder for two days. Then they learned that the next day they came into contact with the project, the project Take the Sequoia TS. Sequoia went with a blank TS. The key is that Sequoia only touched on this project on the day it gave it to TS.

A colleague Li Tianyu knew recently left the original waist fund and joined a fund with a higher ranking and a larger scale of fund management. There is no change in what he sees. The reason he left is that the amount of financing for the A-round project he saw has been raised from the usual 3 million to 5 million US dollars to 10 million US dollars or even higher. But because the original fund didn’t raise enough money, he couldn’t see it anymore, he could only look at the larger fund.

“5% of GPs took 95% of the money in the market.” Shao Hongxia, senior partner of Fortune Caizhi, said at an event in May. 

The extreme head effect is a sign of the maturity of the equity investment market. According to IT Orange data, among all investment institutions in China (including angels, VCs, and PEs) in 2020, only 155 institutions have invested more than 5 times, and nearly 70% of institutions have no investment transactions.

But the real question is, does China need so many GPs? Due to the past prosperity of the capital market, as of 2020, the number of private equity fund managers in China’s fund industry associations is about 24,000, which is the place with the largest number of VC/PE institutions in the world.

A partner of a leading US dollar fund said that he used the college entrance examination, the most competitive national exam, to describe this change in the investment industry. “The 5 million and 8 million college entrance exams will actually not affect the Tsinghua University entrance examination. It’s difficult, it’s already difficult.”

He said that the real risk does not come from competition among investors, but from no great entrepreneurs. But this era is so good, great entrepreneurs emerge in endlessly, how can you not be optimistic. Finally, he sent a paragraph totaling 466 words about how he contributed to a popular consumer brand’s draft article, and bluntly advertised himself.

3. Competition within the organization

The annual leave is about to expire, but investor Meng Ying is not ready to take it. “If my project is one day late, it may be someone else’s (colleague) .” Meng Ying said.

In essence, the internal and external evaluation standards are all good cases. If the secondary market is built on the basis of open and transparent information, colleagues can help each other to discover value together. Then the primary market relies on information asymmetry, colleagues exclusive competition, “find a way to fight life and death.”

In the big fund, there may be 10 people at the same time depending on the consumption. Once an investor contacted the entrepreneur, he said that you are the fourth person I know of your organization. Seeing the project before anyone else, the “first speed entry system”.

The investors of the aforementioned head fund showed internal project statistics in February this year. Excluding the two-week (14-day) Spring Festival holiday, in just two weeks, the top-ranked colleague in the fund’s consumption track saw more than 30 cases.

In order to take the case, investors even “copy homework” from each other. In some information exchange groups, investors in the corporate service group of agency A will exchange projects with investors in the consumer group of agency B. Some investors see 5 investors a week, just for exchange projects. In order to avoid information leakage, some organizations hold confidential meetings once a week, with only partners attending.

Chen Yuetian’s WeChat name has a letter A in front of it, which is usually done by real estate agencies and WeChat merchants. “Just to get free traffic,” said Chen Yuetian. He has done this since 2012 when he launched WeChat. For a while, he was called “A. Innovation Works Chen Yuetian”, “6000 WeChat friends, let them see me from time to time. “

Since 2011, Hu Boyu has been an investment manager at DCM and he invested in Kuaishou. “I think I’m more fortunate when I joined the industry. Early in my career, before my enthusiasm for the industry disappeared, I got some positive feedback.”

He said that most of it is luck. In 2014, he didn’t find it by himself, and FA pushed the Kuaishou project to him. At a Costa Coffee, he met the founders Su Hua and Cheng Yi with a smile. The investment committee passed it within a few days.

“This is completely impossible to repeat,” Hu Boyu said. “In investing, you can’t do without luck. You can only have luck.”

After staying in DCM for 4 years, he voted for 5 cases. “There were 3 out of 5 projects listed. Most of them were luck.” He didn’t think that Kuaishou would be the best case. “I had a while. I think Kuaishou may be worth 2 billion U.S. dollars, and Uxin (used car) may be worth 10 billion U.S. dollars.”

“At that time, there was an opportunity for the entire Internet to do it all over again,” said the investor of the above-mentioned top dollar fund. “You may not be able to invest in Tencent or Kuaishou, but you close your eyes and invest in a player who understands the ball and Lexin. It shouldn’t be particularly difficult.”

Dividends within the organization are also disappearing. There are more people, more levels, and more difficult ascent channels. “In the past, the organization had only three levels: analysts and investment managers, vice presidents and investment directors, and partners. Now, more than one job level has been added to each level.” Chen Yuetian said.

The above-mentioned investor said that an investment manager invested in the A round of a certain project. When he voted for the A+ round, he voiced, made phone calls, and sent WeChat to the founder. The founder ignored them, “As soon as the partner sends the message, the founder will return immediately. .” In the end, the project was given to the partners.

It is harder to go up. In the 10-year cycle, now VP of institutions (vice president) and D (Director) , it is difficult to achieve Partner Equity (equity partner) , because echelon already quite full.

“The speed of promotion can’t keep up with the speed of class consolidation. Before earning enough capital, (has) been harvested more quickly by a small group of people with a higher concentration .” Meng Ying said.

A young man who has interned in a certain head dollar said that he believes that now is not a good time to become a VC . He can’t change the world and can only be a tool man. The boss who took him suggested that he go to the big factory and come back later, but the big fund boss doesn’t think so. The latter can’t really feel the children’s mood, he said that VC still has a chance, “I said, there is no doubt. But the opportunity may be yours, not mine.”

Fourth, the meaning of VC

After last year’s annual summary meeting, Li Tianyu wanted to leave for the first time. He focuses on the To C Internet, and the input-output ratio is too low. Popular circuits such as chips, medical care, and consumption can vote 20 in a year. He can vote at most two, or he can only pick out various trade-offs. “If the original standard is used, he may not be able to vote at all.” He said .

Some VCs tell us that the money they make in the secondary market and Bitcoin far exceeds the money they make from doing VCs—this is the reality.

An investor said that he bought at station B for 4 billion U.S. dollars, which rose to a maximum of 45 billion U.S. dollars. At the same time, he bought at an average Bitcoin position of 4,000 U.S. dollars, which rose to a maximum of 40,000 U.S. dollars, which was a tenfold increase. .

The same is true for institutions. “For example, Hillhouse, the ones that they really hold in the secondary market, like ZOOM, are allocated billions of dollars. You invest 30 to 40 million yuan here (first level) , and even the interest rate is not as good as that. False.” said the partner of the aforementioned waist organization.

Classical VC admirer Chen Yuetian said that VC once invested in a company that made chips and the future of mankind from sand. It was a company that wanted to move computers to the desks of thousands of households. It was able to make all the skin colors and languages ​​of all countries in the world speak. Companies that can communicate with each other in real time.

If you compare AUM (funding scale) , VC is certainly far inferior to PE and hedge funds, but the real meaning of VC is to use new technologies to knock out new business models and products, and ultimately bring about huge social changes.

“And we are investing in a carton of milk, a bottle of soy sauce, a wife’s cake shop, a bag of instant noodles? Come on, the world will not get better because of an extra bag of instant noodles. Me.” Chen Yuetian said, the industry is getting boring now, and people are used to the PE of VC.

He didn’t enter the VC industry because of these. After graduating and entering Morgan Stanley, his career will move towards high salary and stability, but he knows that is not what he really wants. When he was 25 years old, he joined VC and wanted to find a sense of meaning in life. He said that when investing in SNH48, China did not have a mature idol industry, and that money changed the fate of 300 girls.

“Fire Phoenix” is the name of his newly established fund at the beginning of this year, because “Fire Phoenix does not die, sparks start a prairie fire.” The fund continues to invest in youth subcultures and find the next generation of social networks. Not long ago he and several cast Metaverse (yuan universe) related companies.

“You should learn to pick your fight (you should learn to choose the battlefield) , don’t fight with people in the whole market at all times. In fact, the core of competition is not how to win, but choosing a place is best not to compete.” He said.

Lin Fang is an investor in a small and medium-sized institution that mainly invests in consumption. In his opinion, there are four modes of consumer products that can be achieved , namely, platform type, large single product type, channel type, and small but unique chain type chain business type. . He said that the first three have no chance of his own, but the last one can be found.

He started a carpet sweep from south to north in the country. The first place to stay is Guangzhou, which is the birthplace of tea. From scratch, he first conducts street interviews in shopping malls, and then spreads to the surroundings, the granularity is fine to many street shops. He will also search for local food communities and Xiaohongshu.

Really found something. Lin Fang discovered the category of lemon tea after seeing the exaggerated queues in the store and the praises on Dianping and Xiaohongshu. “Perhaps in the eyes of a super-deal fund, this is a small investment, but I think it is an effective investment.” He said.

Investors of the aforementioned seed fund believe that angel institutions do not need to go back, but instead can form an irreplaceable role by doing good angels, such as finding small entrepreneurs to help the government in industrial upgrading.

” (Young people) are all anxious, definitely anxious.” Cao Darong said. He joined the industry in 1999, spanning the Chinese and American markets, and has been an investor for 20 years, investing in companies such as Dianping, Qingyun Technology, Xinye Technology, Manbang, and Pinduoduo. He realized that the most important ability of an investor is to filter noise. “About 99.9% of the information that investors receive every day is noise.”

This is not done in a day. “It’s like learning to surf, every time I fall tired, it’s too easy to give up,” he made a leaning motion, ” (but) at a certain moment, without warning, you suddenly feel it, oops, it’s easy This process requires patience. It is a genius to do it in 2 years, usually 4 to 8 years, but more than 10 years may indicate that it is really not suitable.

When Hu Boyu founded XVC, one of his cornerstone LPs asked him questions about how to make a fund. Hu Boyu thought hard for two or three months.

This question actually asks, what kind of organization the fund should be, how the team should be built, what kind of culture, decision-making mechanism, and incentive mechanism are needed. ” (Previously) I thought I wanted to understand, but I didn’t actually want to understand.” Hu Boyu said.

He believes that he cannot change the nature of this hard work, but at least it can reduce the pain caused by uncertainty. He must use the process to fight the results, use long-termism to fight short-term gains and losses, and use a better benefit distribution mechanism to reduce Internal competition and collaboration are encouraged. The team does not compare the case or the performance. Each time the review will never calculate the performance by a single person, only talk about “what have you done, what have not been done, what methods have been used, and what is the contribution to cognition and decision-making”; Even if individual projects are not invested well, they will not affect their careers; the distribution of benefits is to make everyone feel safe and consistent with the outside world.

Opportunity and hope will always exist. Dai Yusen said that the nature of the Internet is an exponential growth opportunity brought about by new technologies. This opportunity is not always available, but the Internet will never be the last. “Every time you feel that there is no innovation, a lot of innovation comes. .”

China’s venture capital market has been in development for 20 years, and the craze has shaped the current Internet landscape. When the dividends of certain industries disappear and the market returns to rationality, it will be eliminated and self-purified. Investors must accept that this is the norm and get along with it. And people who are truly brave, sincere, and unique may be able to go to the end.

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