A detailed approach to venture investment strategy: to favor continuous entrepreneurs in early risk

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The essence of venture capital is to reduce risk through a series of measures, discover value, cultivate value and finally realize value, obtain high return. In the actual investment process, because the audit scale is very delicate and strict, so there will be manslaughter and wrong vote. For venture capitalists, "light is real" does not apply. The fluctuation of the VC ECG is not only closely related with the industry, but also with the psychological endurance of the individual and even the great environment of the Times.

"I don't need money, I just want to talk about the understanding of Alibaba." ”

12 years ago, venture capital had just intervened in the Chinese Internet, when Mr Ma received an invitation from Morgan Stanley Asia's senior analyst Guta to attend the meeting, he was a little frustrated because the scene was filled with people of different colours, not "someone wants to meet you in secret". Is there such a secret meeting?

Ying (UT company founder) is one of those people. As far as he recalls, they were actually choosing investment projects, "all Internet enterprises to call the head to the office", is not a person; Introduction project, also very famous some people go up first, Ma Yun, and he "dress is also the simplest, is a broken jacket."

The most important thing is, originally agreed to the meeting time is 30 minutes, but when Ma Yun downstairs waiting, the coordinator told him: "If 6 minutes after listening to you are not interested, you have no chance to leave." ”

Now it seems that the coordinator is a greater prophet than Paul the octopus. The first 6 minutes, son interrupted Ma Yun's speech: "I do not know what Alibaba is, but I if the investment must be 30% of the shares, you can continue to talk." How much money do you want?

Rethinking the Entrepreneur

Liu Xi, general manager of Shenzhen Innovation Investment Group, Beijing-Tianjin and north China

12 years on, China's internet has undergone tremendous and profound changes, and venture capital has played second only to entrepreneurs or even more important roles. The report from the research center of the Qing branch and the investment group shows that the number of China's venture capital and private equity market LP is close to 5,500, and RMB funds account for 75% and 46% respectively in the number of investment cases and the amount of investment. But the 6-minute myth of Ma Yun is still worth savoring, because it satisfies the factors that venture capital is willing to intervene in many aspects: The battle-fighting team, the feasible business model, the huge market space, the high growth rate that can be expected will bring the huge investment return, and the founder's "Madness" ...

If your project can help investors to interrupt the excitement ... Well, similar scenarios can happen. In fact, if you're good enough, you don't have to expect a story like an elevator statement. Even if you don't press the elevator button, they will give you a button to start the capital.

But if you're missing this, even if you're familiar with them, even if you have an angel investor "sponsor", even if you sell more shares ... Still not.

"We are very taboo to use friendship to replace the judgment of the project," Wang Wei said, "Moral hazard is only the second thing, the most critical is the risk of this mode of thinking." Acquaintances are good, but it's a big mistake to vote on his project because it's a good feeling. ”

Wang Wei is the managing director of Shenzhen Venture Capital Co., Ltd., engaged in venture investment for several years without a drop. He told the network leader that because of the uncertainty of the early projects, if the entrepreneur's past, such as his experience, ability, network resources, will help to judge the project. "In the middle and late projects, the problem is very small, cast are strangers, but later became friends." ”

"If you just vote for someone you like, you're going to die badly," he said. "Wang Wei's tone aggravated a bit," when judging the project, if the emotion instead of reason, you will ignore many potential risks. At the same time, investors give you money to invest, but also a lot of trust. Therefore, objectively judge the project, is not only responsible for the investors, but also responsible for themselves. ”

So are venture capitalists particularly keen on serial entrepreneurs?

Angel Bay founder Pang Xiaowei once to the network leader reporter said: "Angel Bay prefers continuous entrepreneurs, the lessons of failure is the cornerstone of the growth of entrepreneurs." "Pang Xiaowei is clearly looking at the issue from an Angel/early project perspective. But at this stage, it's still too early to make a big deal.

"Logically, serial entrepreneurs may have more entrepreneurial experience and, of course, more experience negotiating with investors," he said. "Shenzhen Innovation Investment group Beijing and Tianjin and North China general manager Liu Xi gave a more detailed analysis:" If a serial entrepreneur is selling to investors halfway through every venture, the biggest possibility is that he is only good at a certain stage of entrepreneurship and excavation, does not mean that he has the ability to start projects from early to the final stage of success. He may just pursue fast and pursue mergers and acquisitions. In addition, his personality may have some things that are not durable enough. ”

Obviously, this is the most taboo for venture capitalists. If the investment of the Angel project is not big enough, and may also have VC, then, for the decision makers of venture capital, the primary goal is to hope that the project will continue to grow, and continuously through a number of rounds of investment promotion projects to do strong, and eventually to achieve the IPO, or a merger and reorganization of Otherwise, the capital struggle for the drumming will not go down.

Based on this, Liu Xi that entrepreneurs should not evolve into professional serial entrepreneurs, but should be like the founder of Hanting Hotel Hanting, "put an idea to implement, and successful." And then start a business, through successful experience and rich resources to replicate and expand the relevance of business, there is a bigger opportunity. ”

In the view of venture capitalists, successful entrepreneurial experience is far more persuasive than book knowledge.

"The primary feature of VCs is not high risk"

Wang Wei, managing director of Shenzhen Co., Ltd.

"Some people simply think that you are a risk investment, of course, should invest in high-risk projects, which is very naïve." ”

Liu Xi says all investors want to gain and avoid risk effectively. As a venture capitalist, in fact, from the English venturecapital original translation should be a venture investment, "We are to through due diligence, terms and design, such as a set of measures to identify and reduce risk, while through value discovery, value cultivation and value realization of the ability to continuously promote the enterprise's high growth, Reduce the risk of high investment. This is our core objective. ”

Therefore, the characteristics of venture capital, "First of all, the investment object is entrepreneurial project, followed by high growth, the third is high risk, and finally high income." "The real ability of successful venture investors is to make investments more valuable, more accurate and more efficient," Liu Xi said. If you throw a blind shot, who dares to throw the money at you?

"Why does DCM vote for us and give the most favorable terms and make the fastest decision?" In the office of Soho under construction to accept the network leader Reporter interview, share media CEO Chen Li Baoxuan Certainly understand, really will send him to 21 floors, not elevators, but DCM partner Lin.

Chen believes that entrepreneurs must consider two issues: one is the advantages of the team where the second is the industry's space development opportunities. "If you're looking for a project, the investment will be quick, otherwise you won't be able to chase them." ”

Clearly, video advertising is such a "find the right project."

He said he had the idea of doing video advertising as early as 2009, but did not meet a group of like-minded partners, and the business model was immature. Later, in doing the sharing of media, finally everything is ready, and then get the financing of DCM, "from the first contact to the final implementation, only two weeks." ”

But if he is looking for financing when he has ideas, is there any chance of success? Angel investors may jump, but the investment committee of venture capitalists is likely to veto it.

Idea is not the object of investment. Thinking is not the most important thing, even the idea of a business model. "In essence, we invest in teams that can implement this business model, and they have the resources, knowledge, experience, and implementation capabilities, plus the combination of business models," Liu Xi said. ”

Based on this, Liu Xi that the business model is not decisive, "it ultimately depends on whether you can choose the right and more executive team, rather than the most original business model." Business model is a good thing, of course, but its leadership will only stay for a while. At the same time, the business model should be changed according to the market changes. ”

There are more important reasons to choose a good team. Because the object of venture capital is always in the whirlpool of competition, the entrepreneur must also face all kinds of competition and copy of many peers, so, "must choose a good team, improve the project to deal with competitor attack ability, good business model, good growth ability and core advantage, The construction of a relatively high threshold of competition, is through the team to achieve. Liu Xi said, "Can you pin your hopes on a team that is poorly performing?"

From the entrepreneur's point of view, if its core competitiveness does not have a unique advantage, the team's executive power is not swift and powerful, if at the strategic level and competitors too head-on conflict, if ... The final result is that, in the view of venture capitalists, the value of their investment will be a big question mark, even if the valuation is much lower than the founders expected.

Manslaughter and wrong vote: The wind throws the black book

Founding partner of Venture capital fund

In the history of venture capital, because of a shot and fame and fortune, shocked the rivers and lakes.

A recent legend is Pitt Hill, a venture capitalist who invested $500,000 in Facebook in September 2004. On May 18 this year, Facebook shares were listed on the Nasdaq, with a market capitalisation of $104.7 billion trillion, with 9% of Pitt Hill's shares diluted to 1.63% after subsequent rounds of financing, but also as high as 1.7 billion dollars and 8 times more than 3,400 times years.

However, there seem to be many cases of manslaughter.

One of the well-known, is Shire (micro-bo) that year, Ma Yun, "this man into such a son, what future?" Although he denied the "appearance" in the recent "China Operator" program, the real reason is that Ma Yun "made a price too expensive". At that time, Shire with Alibaba and 8848 do contrast, and said, "The sky where there are so expensive things, China does not produce this thing, too expensive." Even so, he said: "I think from the point of view of regret, I did not see Ma Yun can do this today." ”

In fact, this kind of manslaughter is quite normal, especially in the seed period, early, because this time the project energy has not burst out, in the end is a big business or small business who can not assert.

Wang Wei said: "Investors of foreign investment institutions will be very cautious, the whole scale is a little bit stricter, so manslaughter is more likely to happen than wrong vote." But mistakes are avoided as far as possible. ”

Wang Wei's tangle is how to grasp the yardstick of judgment. The scale is easy to cast wrong, too strict is bound to miss some of the growth of a good project, so the key is, "focus on the development of the context of enterprise, while ignoring the progress of some superficial symptoms." ”

So, "give you a Billion" author, beginning venture capital founding partner Charlie that, rather than require entrepreneurs to succeed, not as investors restrain themselves, "Do not think good things do not do, do not see the team do not vote, another 10 years, 50, 100 years, so some are good projects, do not worry." His attitude is: "Would rather miss, do not make mistakes." ”

That being said, it is difficult to do. An extreme phenomenon is that a lot of venture capital is invested in a certain field, but the result is drubbing. The most prominent example is the 2011-year group buying trend.

Liu Xi that the intention of venture capital is of course to invest in high growth projects, even to create a great company or to promote the development of a certain industry, but it is also possible "because of the mistakes of industry analysis, corporate judgment and human greed," appeared "excessive investment in some industries or enterprises, So that the whole social capital appears to be not economic, inefficient state. Obviously, the phenomenon of burning money in this situation has been unavoidable, and ultimately caused a huge waste of social wealth. Of course, Liu Xi also said that this is only in a certain period of time, the local phenomenon of individual industries.

In addition, venture capital institutions and enterprises may be too radical, in the signing of an agreement to set up some of the provisions of the gambling agreement, and finally the situation. "But overall, the success rate of excellent venture capital institutions is quite high, whether from the ratio of success to failure, or the failure of success to compensate for such aspects are not comparable to other industries." This is why venture capital attracts the top talent and the top rich. ”

3 years ago, Haitao, chairman of Shen Chong Investment published a speech on the project archives of Deep Venture investment, and circulated online as "Deep Creation Black Book", in-depth analysis of the reasons for the success of some investment projects, and finally boils down to five: Founder's entrepreneurial spirit and poor management, Imperfect corporate governance and incentive mechanism is not in place, products and management is not sustainable, failed to establish a business model, financial management there are black holes.

Liu Xi said that, thanks to this experience, deep venture investment, including his own success rate and investment quality gradually increased, since 2006-2011 he has invested 26 projects, now listed 8, this year also reported 4, next year there are 5 to be declared listed. It is gratifying that, among them, has produced a group of industry leaders, including the music Network, network Technology, East Field modelling, Zhao instrument jewelry.

Capital strategy for forward-shift in investment stage

Venture capital is generally divided into several stages, the sooner the investment seems to be a single project yield higher, but overall, early project risk is greater. As a result, investing in a particular period of time seems to be a "private matter" for one of the VCs. But the data show that this is "the world", and shows some kind of regional characteristics. Prior to that, a clear feature of the domestic venture is to do private equity investment (PE) or pre-IPO financing (IPO) in the later stage, with a larger yield and less risk.

Liu Xi that the majority of institutional investment in the latter part of the three factors: from the development stage, China is still in the initial stage of venture capital development. China new technology venture capital company was founded in September 1984, but it was not in full accordance with the concept of venture capital investment, played the role of the seeker. Since then, 1992 IDG and other foreign venture investment institutions into China, deep venture investment, such as the first batch of local venture capital established in 1999, and now it is only 12 years.

"Is there a fatalistic sense of age?" Liu Xi said, "in 1998, as a meteor fell in the sky, Mr. Cheng in the CPPCC ninth session of the" one proposal "but really opened the big curtain of China's venture capital ..."

The second factor is that "early investment projects require a lot of experience, many investors have not experienced enough, and have not yet achieved a round of two rounds of investment, listing and successful exit, so they cannot do early investment." ”

The third factor is simpler, Liu Xi said, "That is, the investor LP has not made a fortune in venture capital and has not tasted the sweetness." It doesn't matter if you make a lot of money and you have the capital to invest in early projects. ”

However, there is now a sign that the investment phase is moving forward. Because of the pressure of industry competition, and in order to obtain higher investment income, some investment funds will move forward the investment phase, through the angel/early projects to obtain huge profits.

According to Liu Xi, the percentage of success or failure in later projects may be six or four, the long-term project may be five to five, the early project may be a second defeat eight, "through venture capitalists to explore, nurture, improve the ability of outstanding projects, and finally achieve the development of this project and successful exit, other projects, although failed, The benefits of this project are sufficient to compensate. "But not every investment fund team has the ability to value discovery, value nurturing, and value fulfillment, so" only a few experienced, professionally qualified investors can succeed in early projects. If you venture into the early stage, like a team without entrepreneurial experience, there will be a high risk of failure. ”

Charlie that in China, "too short of experienced investment in early project investors, too many people holding money just want to do a little bit to get out of the bag," so, in the more than 10 years of VC career, he always focused on investment in early projects. One of the most interesting cases is investing in a company that wants to be a mobile MySpace. When the reporter asked about the investment phase of the move forward, he smiled: "Now there?" or very little. ”

Charlie has accumulated a lot of experience in a round of investment, and he believes that there seems to be no fundamental difference between the investment A and the other stages of investment, but a is a key node, and if no one throws it, it may be unsustainable and if voted, the second round is easy. Moreover, the valuation of a round and the value-added services of investors play a very important role in the subsequent financing, is the value of the rise "premium" or the sale is closely related to a round of investors, "we are more good at doing the first round of investment, and entrepreneurs have a lot of interaction to help entrepreneurs set a lot of different stages of goals, strategies, When to change, how to find and so on. ”

Wang Wei was one of the first investors to put forward the proposition of "investment stage forward shift". In his view, with the "on the improvement of the GEM delisting Scheme (draft)" and a series of policy adjustments and changes in the market environment, the practice of IPO the company before the IPO is now out of date, and the stakes are bigger and the benefits are very low.

Wang Wei to the Network Herald reporter introduced, in the United States, Angels, Archangels, VC, PE, etc., each fund has a very clear positioning. As to the choice of which investment stage, not only the return is relatively large, but also hope that the risk is relatively small, it can be fully affordable, "to see the organization's expertise, positioning and related accumulation." Not all institutions fit. ”

"In the early days to have a relatively large amount of items, if not cast more than 10 more than 20, it is difficult to obtain a stable return, may not come out of the family." Wang Wei said: "Early project success rate is clearly below 50%, and any one of the 50% of the success rate of the judgment is difficult to quantify." This means that you think a project has a success rate of 30%, which is actually 3%!.

Obviously, this is also one of the fate of venture capital, in the promotion of innovation, to obtain high returns, but also bear great risks. Here, "Light is true" does not apply. The fluctuation of the VC ECG is not only closely related with the industry, but also with the psychological endurance of the individual and even the great environment of the Times.