IDG Hugo Shong: 20% Investment Why failure team is the biggest risk

The team is the biggest risk

Venture capitalists have virtually no way to evade risk. First, we do not manage the company, we are only a small shareholder, generally not more than 30% of the shareholding. Secondly, there is little we can do all day long, and only when the start-up company is in trouble will I be able to get to the place as soon as possible. In the United States, the general rule of investors is that the project radius does not exceed 200 to 400 miles of range. In other words, 200 miles and four hours can also be arrived, to meet early communication.

How do we avoid risk? In fact, much work needs to be done to assess the project. For example, find some market research reports, and find some experts to give you information on the project market. can also use some trustworthy company data, IDG has a favorable advantage, because IDG has a market research company, some of the data on it research we are authoritative.

In fact, the biggest risk is the management of the risk, that is, the entrepreneurial team. First, whether the leader of the investigation, our investigation will find a lot of his friends, to see if he had some bad deeds, is not a man, pit people, did anything wrong, even including his family is not very happy, is not a divorce with his wife, these things need to be more clear.

Second, understand that these people in his team are not of good quality. Some people say I have no problem, my brother tube this, wife tube that, so I will not necessarily vote, why? Because I think he can't, first he can not trust others, he can not be a good leader, his seven aunt eight to get to the company, you can not put some capable recruit.

However, there are many risks that cannot be avoided. We had a company. Very good, the manager is very good, but the entrepreneur particularly likes driving, moreover opens the express. We always say you don't drive too fast, he said the most important thing in his life is the son, one is his car, wife are placed outside. One time he died in a car accident, that's the risk.

For venture capital, we want to invest in an industry that is not necessarily a project, and the risk is relatively small.

Why is it important to invest in an industry? In any big industry, the first one can make money, the second can make money, and the third place can earn money. In terms of venture capital, if you look at an industry, you may be able to analyze every project to see what is different about the company in the industry. For example, we cast 3721, also cast a Baidu, and we also cast a search, are doing searches, but each search is not the same.

Failure rate 20%

IDG is the first to enter China, but also the most invested venture capitalists.

Generally speaking, in foreign venture capital investment 10, success two is good. For IDG in China, about 10 out of three are successful, very high. There are two or three more, can not be said to be a failure, can be listed may be, still in consumption. I estimate that only about 20% of the cases may have failed.

Many people say that 8848 of the investment we have failed, in fact, 8848 from the return on investment we do not suffer. Because we were in the market before we were ready to go public.

Why am I unwilling to say which companies have failed to invest? Because one of the biggest differences between Chinese and American companies is that American companies die easily, venture capitalists don't, and entrepreneurs quit, and the company ends. And in China is not the same, the venture to go, the company has to toss about, pay less to take, still in that consumption, more difficult to die. Another feature is that investment returns in China are longer than they are abroad.

For example, the last year we paid the highest return is the house search, the house was 1996, ten years, we have a total of 900,000 U.S. dollars, now has 45 million dollars of income, but also a part of the shares.

We are in the process of investment, you do not think, there are early warning mechanism. Because we have to look at every quarter, every month's report. If you say a company, the CEO always said this year can not finish the task, the next year and finish the task, the third year is not a task, this person is not very good.

In short, venture capitalists to avoid risk, the most important thing is to have a wealth of knowledge and experience, to see the industry. I think venture capitalists should keep learning, look at the success of the example, analyze why it is successful, but also analyze a lot of unsuccessful examples, know how it failed. What kind of technology must be done, or which technology must not be said to be wrong, as a venture capitalist, you must first judge whether it can be bigger, from the size of the economy can be bigger.