NIE2024｜"New Investments": What Everyone Is Talking About: Breaking Through Cycles! How VC/PE Can Do a Good Job in "Investing" and "Management"

What new considerations do VC/PE institutions have at the investment end? Zhang Jiacheng believes that overcapacity is accompanied by many domestic industries. Under today's highly competitive industry landscape, higher requirements are put forward for entrepreneurs, which can be described as becoming the image of a 'hexagonal warrior'. Therefore, Haier Capital maintains its investment direction unchanged, but has higher requirements for startup projects and founders.

Managing Partner Zhang Jiacheng of Haier Capital

Fei Jianjiang emphasized two major labels of Yuanhe Yuan Point: early-stage and technology. There are two main reasons behind setting this tone in 2013. First, they believe that early-stage investment creates value, and only institutions that create value can survive and develop in the market in the medium and long term; second, they believe that technology is the driving force for a new round of productivity, and the entire industrial transformation requires technological progress. Therefore, theoretically, technology can transcend cycles. As an investment institution that can transcend cycles and continuously create value, Yuanhe Yuan Point can survive in different market environments and maintain its vitality and competitiveness. In the current market environment where challenges outweigh opportunities, Yuanhe Yuan Point's development strategy of investing early and in technology will not change.

Managing Partner Fei Jianjiang of Yuanhe Yuan Point

VC/PE capital plays an important role in promoting the development of new-quality productivity. Ji Wei believes that when it comes to mentioning the premise of developing new-quality productivity, people are more likely to think of 'revolutionary technological breakthroughs', but in fact, there are two other factors - 'innovative allocation of production factors' and 'deep transformation and upgrading of industries'. 'This means that in addition to the impact of technology, to develop new-quality productivity, first, the industrial side needs to have confidence in making investments and expanding reproduction; second, it requires the revitalization of the consumer terminal; third, it requires the effective allocation of production factors. And venture capital institutions play an important role in the effective allocation of resources.'

Founding Managing Partner Ji Wei of Hua Ying Capital

First, integrate deeper with industries. In the past, financial investment institutions (especially those investing early-stage projects) consistently adopted a top-down methodology, that is, research-driven. By predicting the development prospects of industries, sorting out industry context, clarifying the value chain relationship between upstream and downstream industries, they explored projects that had the potential to grow into great enterprises. However, currently, Hua Ying Capital will have more exchanges with key enterprises and chain leaders in the industrial chain on a daily basis. Therefore, the current methodology has become a model that combines top-down and bottom-up methods driven by research with in-depth local and industrial involvement. 'I think it is very difficult for investment institutions that are divorced from industries and from the actual implementation of industries during the technology transformation process to do good investment.'

Second, invest early and in small projects. At present, the core technologies of many investment directions were initially transformed from the accumulation of universities and research institutions. 'Hua Ying maintains deep and close contact with research institutions everywhere. We hope to see the development context of some innovative technologies earlier and accumulate technical talent resources from the source.'

Third, have a global perspective. In the past, enterprises went global by using China's developed supply chain and moving mature models related to the Internet and e-commerce abroad. Today, more and more enterprises are not only making global layouts after forming global competitiveness but also thinking about globalization issues when initially allocating production factors related to the Chinese market and global market. 'As an investment institution, we should provide assistance to enterprises during this process. Hua Ying has some unique advantages. While deeply cultivating the industrial chains everywhere, since all our partners have a global background, we can help invested enterprises solve problems such as adaptability and compliance during the globalization process.'

In recent years, state-owned capital LPs have gained increasing prominence in the equity investment market. This change in the investor structure has not affected the strategy of Common Investment of 'investing early, in small projects, and in hard technology'. Xia Zhaoyang believes that the needs of state-owned capital shareholders LPs highly coincide with the company's investment strategy. Investment should not only be consistent with the strategic development direction of the country and region but also demonstrate one's own professional qualities and industry accumulation to achieve real investment synergy.

Executive Director and Founding Partner of Common Investment, Dr. Xia Zhaoyang

Xia Zhaoyang's definition of 'hard technology' is not limited to hardware but requires the organic combination of software and hardware. From an industry perspective, it can be summarized as 'one support for three industries', that is, sub-industries such as advanced energy, advanced materials, and advanced manufacturing, and on this basis, expand to support technology fields such as new-generation information technology, artificial intelligence, and integrated circuits.

Xia Zhaoyang further stated that in recent years, the relevant hard technology capabilities and talent resources in China have continuously accumulated and entered a stage of application interaction explosion inflection point. The capital winter has made startup teams and investors more rational and cautious, and also enabled truly capable teams to quickly stand out and occupy a leading position.

The current investment market is experiencing a downward trend, and valuation adjustment has become an inevitable phenomenon. Xia Zhaoyang believes that this is the result of market self-regulation and also a sign that the investment environment is gradually maturing. The response strategy of Common Investment is to maintain keen market insight, seize structural opportunities, and at the same time establish a consensus with entrepreneurs to jointly address market challenges.

Among the four links of 'fund raising, investment, management, and exit', the management link is also quite important. How can investment institutions empower invested enterprises and achieve a win-win situation?

Ji Wei bluntly said that in the past decade, there have been great changes in the management of enterprises by investment institutions. Ten years ago, if 'management' was mentioned at investment meetings, there would be a lot of controversy. At that time, investors thought that excellent enterprises did not need management and that investment institutions only needed to provide funds, and these enterprises would grow into great enterprises by themselves. But now, empowering invested enterprises has become an undeniable choice. However, there are further changes regarding how to empower them.

Ji Wei further explained that in addition to the regular empowerment provided by Hua Ying's post-investment team for invested enterprises, regular strategic development discussions, and resource docking, there are now three levels of deepening: First, there will be higher-frequency information interaction with invested enterprises, 'because enterprises mostly focus on micro-business operations, but we have more research on macro-policy changes in the industry. And this information is likely to have a significant impact on their development, so we need to align more frequently.' Second, build more bridges, that is, at the implementation level, find places that suit the development of enterprises and make docking; third, equip larger and more professional teams at the overseas level to help enterprises compete globally.

'There is a consensus in the investment community that it is better to manage well than to invest well, and it is better to exit well than to manage well.' In Zhang Jiacheng's view, management is actually more about empowerment. In this era of full competition, if an enterprise wants to develop successfully, it hopes that all resources are 'all in'. Among them, as a shareholder, investment institutions play a huge role in the development process of enterprises. As industrial capital, Haier Capital established a post-investment management and strategic department as early as ten years ago, helping enterprises with practical empowerment by combining industrial resources, from small order cooperation and IP empowerment to strategic formulation and cultural output.