VCs reduced their holdings by nearly tens of billions in two weeks, “no one wants to stay in it forever”

VCs reduced their holdings by nearly tens of billions in two weeks, "no one wants to stay in it forever"

A wave of exits is coming: in just two weeks, VC funds have pulled out a tens of billions of magnitude reduction plan.

On July 27, 2021, Dadi Bear announced that the two equity investment funds plan to reduce their holdings by no more than 4.8 million shares, and the amount of cash arbitrage can reach 200 million yuan.

On July 26, 2021, WuXi AppTec announced its shareholder reduction plan, and Summer Bloom (GIC’s related fund) plans to reduce its holdings by no more than 29 million shares, which can cash out more than 4 billion yuan.

On July 22, 2021, Cambrian issued a shareholder reduction announcement. The two funds of Yuanhe Origin intend to reduce their holdings by no more than 18 million shares, and the cash can exceed 2 billion yuan.

On July 13, 2021, Cobos announced that the shareholder IDG intends to reduce its holdings by no more than 10 million shares, which can cash out about 1.8 billion yuan.

On July 12, 2021, Rockchip announced that the National Big Fund plans to reduce its holdings by no more than 5,184,491 shares, that is, no more than 1.30% of the company’s total shares. A rough calculation of the amount of cash can reach around 900 million yuan.

After the continuous rise in the first half of 2021, the stock prices of these companies are basically at a high level. It is a good time for long-term VC funds to reduce their holdings. Sure enough, 2021 is the “financial year” for VCs. Just the VC funds behind these reductions can cash out tens of billions of yuan.

The recent turmoil in the secondary market has caused major shareholders to reduce their holdings. After the controlling shareholder of “Traditional Chinese Medicine Mao” Pien Tze Huang, which has a market value of more than 200 billion yuan, announced the reduction of its shareholding, its share price has fallen for four consecutive days and has fallen by as much as 26%. This shows the power of the reduction. However, compared with the reduction of holdings by controlling shareholders, the market’s response to the reduction of venture capital funds’ holdings was much smaller, and some companies even experienced rising bucks.

In January 2021, Cobos Board Secretary Ma Jianjun responded to the question of IDG’s shareholding reduction. He said: “As a private equity fund, IDG will have a duration of the fund when it sets up a fund. For example, when the fund is established, Say good to LP, IDG’s 10-year (Cobos) duration is now 8 years…So I think this is a very normal thing, it can’t be embedded in it forever.”

As the characteristics of venture capital funds with a duration are becoming more and more recognized by the market, the reduction of holdings is regarded as a boots landing rather than a bad news. In the high mood, the market is also easier to digest the underweight. For example, Rockchip’s stock price has risen 21% after being announced by the National Fund to reduce its holdings. In the full screen plunge on July 27, 2021, the Cambrian bucked the trend and surged 6.24%.

1. Projects that cash in billions of dollars and return dozens of times more frequently

Roughly combing through the reductions of venture capital shareholders since July, the overall rate of return is hard to see in the past, with returns of dozens of times appearing frequently, and large withdrawals of hundreds of millions or even more than 1 billion are common. In 2021, there is no institution that can produce super-returning projects. It may really need to reflect.

In the case of Cobos, IDG has received a total of 4 billion yuan in cash, and IDG’s investment was only 20 million US dollars eight years ago. At the end of 2013, Cobos, which plans to seek an overseas listing, established a VIE structure and introduced investor IDG, which was valued at approximately US$200 million at that time. However, the domestic IPO policy changed since then, which favored the listing of unicorns. Cobos dismantled the VIE structure and successfully listed on the Shanghai Stock Exchange in 2018.

At the beginning of listing, IDG’s return was not very impressive. The issue price of Cobos was 20 yuan per share, and it broke for a while, with a market value of only about tens of billions. In July 2019, Cobos lifted the ban on restricted shares. Following the usual practice of VC, IDG immediately initiated a reduction in holdings. From July 2019 to April 2020, IDG reduced its holdings by about half in two rounds, at a price between RMB 17 and RMB 32. After that, IDG stopped its shareholding reduction operation and chose to “ambush” for more than half a year.

This operation can be called a magical stroke, because Cobos’ stock price has taken off from the second half of 2020 and has risen eight times in one year, becoming a star company with a market value of 100 billion. It is this surge that has achieved IDG’s return of dozens of times. If IDG reduces its holdings a little bit faster, it will miss a super return project.

Although the returns of several other holdings reductions are not as impressive as Cobos, they are also very impressive.

WuXi AppTec’s shareholder Summer Bloom (GIC’s related fund) reduced its holdings by no more than 29,525,961 shares, and it can also cash out more than 4 billion yuan at the closing price on July 26. Summer Bloom is one of the largest investors in WuXi AppTec’s 2015 U.S. stock privatization transaction. At that time, it subscribed for 10.29% of the shares at a price of 330 million U.S. dollars. After WuXi AppTec returned to A listing in 2018, Summer holds 8.7% of the shares. WuXi AppTec’s stock price has risen more than ten times since its listing, and SummerBloom’s return is also more than twenty times in rough calculations.

After the trend of institutional grouping collapsed, small-cap companies have performed very well in terms of stock price and liquidity since 2021. Of course, the rewards for investing in hundreds of billions of white horses such as Cobos and WuXi AppTec will be amazing. If they fail to do so, Small-cap companies can also make shareholders full of profits.

Dadixiong is a rare earth permanent magnet material manufacturer with a current market value of only about 4 billion yuan. Its shareholders Anhui High-tech Jintong Anyi Equity Investment Fund (Limited Partnership) and Dongpingtan Yingke Xinda Venture Capital Partnership (Limited Partnership) plan to reduce their holdings by no more than 2,400,000 shares. The current share price can recover more than 100 million yuan. cash.

Hard technology was once considered to have a long cycle and the return was too low. At the opening of the Sci-tech Innovation Board, VC leaders once commented on the first batch of listed companies to China Investment Corporation: Many companies have been established for more than ten years, and the market value is billions, one or two billion, only Single-digit return, investment standards that cannot be met. And now one after another super-high return cases show that hard technology can also bring returns comparable to Internet projects.

2. After the Internet, hard technology has become the main track

It can be seen that the companies that have reduced their holdings mentioned above are all so-called hard technology companies. At a time when China’s concept stocks plummeted round after round, new stocks frequently broke, and Internet unicorns began to bleed to go public, A-share hard technology companies are really “hard”, and their market value levels are getting higher and higher. Even in the recent volatility, hard technology tracks such as semiconductors have not seen a general big dive, and the overall valuation level has remained at a high level.

Although after the registration system, Pre-IPO investment is becoming less and less promising, a partner of a new ICT investment institution told that the task in the past two years is still to capture as many IPOs as possible. Don’t worry too much about the income if you go public.”

While high-return projects frequently appeared, the US dollar fund, which originally did not pay attention to hard technology as a whole, also began to “make up lessons” anxiously.

The chairman of a RMB fund recently told China that one of his employees was dug into a corner by a mainstream US dollar fund, “I was paid 5 times the salary directly, and I couldn’t keep him at all.” This phenomenon is not an isolated case. The salary level of USD funds is generally higher than that of RMB funds, and the competition for talents is quite fierce. The chairman guessed that the more powerful people in mainstream RMB funds have probably been “combed” by them.

The speed at which the head mechanism has broken into hard technology is also amazing. At the beginning of 2021, Hillhouse announced that it had invested in 80 hard technology projects in 2020. So far, it is understood that Hillhouse has invested more hard technology projects than last year.

Undoubtedly, hard technology is the biggest trend investment of this era. After the Internet, hard technology has become the new main track. On July 24, economist Ren Zeping posted on Weibo that vigorously developing manufacturing, hard technology, real economy, new energy, and capital markets are “a great change that has not been seen in a century, and a great opportunity that has not been seen in a century.” This passage has been widely reposted on the Internet, which is probably the most mainstream view in the current capital market. The logic of the times may indeed have changed.


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