Editor丨Cao Weiyu and Zhang Nan Source丨Vouzhong.com This year's equity investment market is facing unprecedented uncertainty. GPs say it is "difficult to raise funds", projects have to "reduce valuations", and IPOs are "difficult to exit". There are even LPs. They are worried abou

Editor丨Cao Weiyu Zhang Nan

Source丨Vouzhong.com

This year’s equity investment market is facing unprecedented uncertainty. GP claims that it is “difficult to raise funds”, projects have to “reduce valuations”, and IPOs are also “difficult to exit”. There are even some LPs are worried about future investments, but some LPs pointed out that "LPs are also involved to a certain extent." Some GPs also believe that this year is the best time to invest.

Is "half sea water, half fire" the norm? What does the market really look like? In response to the current market hotspots and pain points, ChinaVenture.com recently held another closed-door meeting "10 Questions of ChinaVenture", inviting more than 20 leading domestic front-line GP and LP institutions to discuss face-to-face their observations and insights over the past year. , as well as thoughts and predictions on the equity investment market in the next year. This meeting was hosted by Cao Weiyu, deputy editor-in-chief of ChinaVenture.com, and Zhang Nan, senior reporter of ChinaVenture.com.

Guest list:

LP:

Bao Sheng, General Manager of Jianzheng Capital

Jiang Yinhua, General Manager of Xiangcheng Fund

Wang Yunzhan, General Manager of Futian Guidance Fund

Liu Xiangning, Deputy General Manager of Shenzhen Angel Fund of Funds

Executive Director of Shougang Fund, Fund Business Development Department General Manager Li Yipei

Executive Deputy General Manager of Hangzhou Cultural Investment Wu Shuhong

Managing Director of Datang Yuanyi Jin Chong

Partner of Relay Capital Lu Jiaojiao

General Manager of the Investment Department of Guotai Junan Zhengyu Investment Fund He Miao

Executive Director of the Market Department of Guotai Junan Innovation Investment Liu Qin

GP:

Managing Director of Dehong Capital Manager Wang Wei

Founding Partner of Hanyi Capital Zhou Yinghua

Founding Managing Partner of Sirius Capital Shen Hailun

Managing Partner of Tianchuang Capital Hong Lei

Founding Partner and CEO of Kailian Capital Li Minshi

Pro Capital Executive Partner Xu Chenhao

Founding Partner of Yuansheng Capital Xu Liang

Huang Yin, Managing Partner of Huaqiang Venture Capital

Founding Partner of Bright Capital Luo Tingxia

"Ten Questions on Investment" is a platform built by China Investment Network to allow direct dialogue between GPs and LPs on the front lines of the market. At this year's "Ten Questions on Investments", some LPs pointed out that a large number of guidance funds have entered the closing period but generally failed to meet expectations, which will affect the enthusiasm of the government to invest; some LPs warned that it is normal for GPs to find it difficult to raise funds, and it is abnormal to be easy; LPs consider themselves to be "the one in the middle"; and most LPs are concerned about whether GPs can accurately understand the various demands of LPs.

However, the more than ten LPs present at the scene all had different demands, and the GPs responded frankly one by one to core issues of concern to LPs such as investment exit strategies, DPI management, and investment return. This gives us the opportunity to have a glimpse of the true background of the market, and it is not limited to simple labels such as "difficult to raise funds". "Ten Questions on Investment" hopes to make certain corrections to the current negative sentiment of the market, so that practitioners in the system can Those who can continue to move forward and grow as their horizons expand.

Difficulty in raising funds has become the norm, and investment opportunities are brewing

Since 2022, the primary market has undergone drastic changes in terms of investment and fundraising. This topic also aroused heated discussion among the guests at the Ten Questions and Answers session.

Wang Yunzhan, general manager of Futian Guidance Fund, pointed out the five major changes observed in 2022: First, subject to various factors, government guidance funds will also face funding problems; second, a large number of government guidance funds have entered the closing period. If Failure to meet expectations may affect the government's enthusiasm for funding; Third, the exit channels for listings have been smoothed, but good returns are becoming increasingly difficult; fourth, the requirements for government-guided funds are getting higher and higher, and the general requirement is to "need, want, and want", and blind pool funds are basically no longer available. The industry's guiding role is getting more and more attention; fifth, the government has increasingly higher requirements for fund standardization, especially in terms of information disclosure, performance appraisal, related transactions, and scheduled exit.

Faced with the "difficulty in raising funds" in the RMB fund market, Bao Sheng, general manager of Jianzheng Capital, who has the dual perspective of GP and LP, said: According to past fundraising experience, raising funds has never been an easy task. If it is easy to raise funds in certain years, it is actually a dangerous thing. Difficulty in raising funds has become the norm, and it seems particularly difficult now. This is mainly due to the impact of the entire macro environment. Everyone is more cautious than before.

Talking about the impact of the general environment, Zhou Yinghua, the founding partner of Hanyi Capital in Shanghai in the past few months, has a deep understanding of it. Recalling the first regular meeting when we returned to the office after the epidemic prevention and control was over, no one was very interested. Zhou Yinghua, who has been in the industry for 20 years, believes that investment is an industry that goes through cycles, and we must take a long-term view. Some macro factors will have an impact temporarily. But many great companies also develop and grow in the most difficult times. As the saying goes, "The crops will not be silent." The difficulty of raising funds for

has escalated, which is undoubtedly a challenge for GPs, but there are still GPs who firmly believe that now is a good time to invest. Wang Wei, managing director of Dehong Capital, said that as a PE company adhering to the KKR style and pursuing an M&A strategy, it was a little confused when the market was the hottest around 2017. But looking back now, the market at that time was overheated and irrational. Now that the general environment is changing and a large number of companies are facing integration and elimination, late-stage PE institutions such as Dehong will have structural opportunities.

There are even GPs who firmly believe that 2022 is the vintage year for investment. Xu Liang, founding partner of Yuansheng Capital, pointed out that based on past investment experience in , Tencent, and Yuansheng, the year of fund establishment and investment is directly related to returns. This year will be a good time for market-oriented financial LP investment. , but DPI requires active management by GP and is unlikely to be achieved through IPO. In addition, the sustainability of U.S. dollar and RMB LPs is also increasing. The previous fund performance was good and there was no major change in strategy. LPs will basically continue to hold them.

"LP has also been involved to a certain extent"

China's RMB LP is a multi-layered and complex market. On the one hand, LPs are large in number and widely distributed but equally diverse, with different funding sources, investment demands, and screening criteria. On the other hand, the situation of RMB LP is also worthy of attention, including government guidance funds, which are also facing many problems that need to be overcome.

Wu Shuhong, executive deputy general manager of Hangzhou Cultural Investment, said that the demands of industry guidance fund investors also need to be comprehensively considered. As the importance of cash flow becomes more and more prominent, from a DPI perspective, it is hoped that money will continue to be recovered in order to continue to provide GP with the next round of investment. In addition, regulatory audit tasks are arduous and increasingly stringent, and the Industrial Guidance Fund needs to undergo several audits from all levels every year.

He Miao, general manager of the investment department of Guotai Junan Zhengyu Investment Fund, said bluntly that "LPs have also been involved to a certain extent." The number of 10-question LPs in this session was even more than that of GPs. In He Miao's view, fierce competition among LPs is good news for GPs, and they don't have to worry too much about raising funds. Judging from the macro situation, as the interest rate center declines, various financial institutions and investors will regard equity investment as a necessary allocation. The problem is that the Chinese market is too big, and there are too many types of GPs and LPs. GPs should also know more about LPs and accurately find out the key points under "both need, need, and need" of RMB LP.

Specifically, how diverse are the demands of RMB LP? Just the few LPs present have different demands, and subtle changes are also taking place.

Jiang Yinhua, general manager of Xiangcheng Fund who is based in Suzhou , said that there are still many demands for fund investment, which can be summarized in three points: first, the pursuit of financial returns, and the appreciation and preservation of state-owned assets is the most important demand; second, Industrial guidance is very important. Double investment is the bottom line, and the standards are relatively loose. In addition, funds are also following up on direct investment, focusing on screening GP projects. Generally speaking, the sales of GPs this year are not much different from last year, but the focus has changed - more inclined to "small but beautiful", especially GPs with industrial nature.

mentioned the nature of the industry, and a GP present had distinct characteristics. Huaqiang Venture Capital is located in Huaqiang North, Shenzhen, and its investments also have a distinctive "Huaqiang North" style. Huang Yin, managing partner of Huaqiang Venture Capital, pointed out that the track mainly focuses on the semiconductor industry chain, and its subdivisions include consumer electronics, industrial electronics, new energy, automotive electronics, etc. Huang Yin’s positioning of his own organization is that it has a certain industrial foundation and can find underwater projects, which can provide LPs with good returns and bring industrial synergy.

Compared with the many restrictions of guiding funds, the demands of third-party wealth management platforms are simpler and more direct.Jin Chong, managing director of Datang Yuanyi, said bluntly that as a market-oriented fund manager incubated by Datang Fortune , the underlying funds come from high-net-worth individuals , which have higher income requirements, so there is no need to "have both." "As long as there are benefits and compliance, we are currently focusing on big manufacturing, big health, and big consumption, including digital economy . In the past, I mainly focused on the team, industry research, and investment strategies. Now I will pay more attention to the impression and cooperation of previous LPs, how to proactively manage DPI, future exit strategies, etc.

Government Guidance Fund and Market-oriented GP: Impossible Triangle ?

Most of the LP guests present came from government guidance funds. The "game" between guidance funds and market-oriented institutions naturally became a key topic of discussion.

Pro Capital executive affairs partner Xu Chenhao has considerable experience in managing state-owned assets and summed up three key points of "good service": First, state-owned assets need principal security, and it is very important to do a good job in risk management. In the pursuit of reasonable returns, While reporting, we must ensure the highest probability of return; secondly, we must contribute to industry guidance and make forward-looking predictions on investment directions in conjunction with national strategies. This is also the organization’s main differentiated advantage; finally, while pursuing industry guidance, The reinvestment of government-guided funds will naturally not be bad.

Li Shishi, founding partner and CEO of Kailian Capital, who also has extensive experience in state-owned assets and government cooperation, said that the main goal of the institution is to avoid large cyclical fluctuations and create good investment returns for LPs, so the fund attaches great importance to cash returns , return investment and investment promotion services, and the organization also provides local governments with support in investment promotion and industrial chain construction by building its own industrial research institute, so as to avoid the contradiction between financial investment and investment promotion as much as possible.

However, some GPs are more cautious about government guidance funds. Shen Helen, founding managing partner of Sirius Capital, bluntly stated that the government has only allocated funds to one company in Nanshan District, Shenzhen. The main reason is that it needs to consider the combination of local location advantages and its own investment strategy. As an institution focusing on hard technology investment , Sirius Capital’s investment direction, projects and founder resources are concentrated in the Shenzhen Greater Bay Area, which has a natural advantage in satisfying counter-investment. After repeated evaluations, it was decided to build this government fund first.

Luo Tingxia, founding partner of Bright Capital, also pointed out that the term of RMB LP is generally short and difficult to match with the investment cycle . In order to enhance the adaptability, Bright Capital, which focuses on TMT investment, has targeted the investment of RMB funds in technology and consumption. Big track. Regarding cooperation with RMB LP, Luo Tingxia regards the cooperation as a process of mutual understanding and mutual achievement. The GP must first understand the demands of the LP and then allocate project investment.

Obviously, government guidance funds and market-oriented GPs each have different demands. Can their needs really match? How to match? These are all "technical activities".

Relay Capital partner Lu Jiaojiao said that the main contradictions focus on DPI and industry guidance or return investment. DPI is the way for the fund to survive, which is the most basic. As for return investment, it depends on the degree of matching. Many GPs will blindly pursue the scale of funds without considering the pressure of subsequent investment or exit, resulting in unsatisfactory subsequent return investment and industry guidance. After watching several GPs fall into the trap, as a fund of funds, we pay special attention to restraining the scale, and our investments must be in line with our own investment and management capabilities.

Some LPs are more calm about this natural contradiction. Li Yipei, executive director of Shougang Fund and general manager of the fund business development department, said bluntly that the most prominent contradiction now is that it has become more difficult to match demands, and the cooperation between LPs and GPs needs to be based on more requirements. First, after several years of development, the government-guided fund market has become more and more professional, putting forward more and more detailed demands, and there are also mutual exclusivity among different government investments; in addition, RMB LPs basically have direct investment business, and many Identity brings multi-dimensional and superimposed demands. In addition to attracting investment, it is also necessary to cultivate industries and take into account financial returns. On the other hand, GP’s demands are clear, mainly financial returns and expansion of scale. It is difficult to find a real solution between the two. We must try to balance each other's demands based on the ultimate goal of cooperation in order to achieve cooperation.Honglei , a managing partner of Tianchuang Capital who is both a GP and the chairman of Tianjin Venture Capital Guidance Fund, also feels deeply about this. In the process of participating in the formulation of LP policies, Hong Lei concluded a point of view: everyone needs to understand each other and properly respect the laws of the market and industry. In the end, we must sort out what we want. We must also face reality when formulating terms, and formulate relatively reasonable and operable terms, such as reducing the return investment rate as much as possible to achieve a win-win situation. As a GP, you should also pay special attention to the possibility of project exit and the realistic feasible rate of return.

Liu Qin, executive director of Guotai Junan Innovation Investment Capital Marketing Department, who also has a GP and LP perspective, suggested focusing on thinking about the underlying logic behind the demand. As a private equity subsidiary of Guotai Junan , Innovation Investment has been relatively active in recent years, setting up nearly 10 billion funds for two consecutive years. Liu Qin believes that the core for GPs to grasp the demands of government LPs is to understand the real needs of leading departments or individuals, and to find mutually compatible demands among the multiple dimensions of LP needs. If GP hopes that LPs will continue to invest, they should also continue to pay attention to LP dynamics, such as team changes, industrial transformation, assessment indicators, etc.

Based on its own characteristics, LP is also trying its best to enhance market adaptability. Liu Xiangning, deputy general manager of Shenzhen Angel Fund of Funds , said that the style of Angel Fund of Funds is to cultivate early-stage projects and industries. Since the early investment period is particularly long, it is not so sensitive to DPI, but hopes to ensure the safety of the principal. At the same time, it has designed some Profit-sharing terms, for example, if the fund can be successfully liquidated, all investment income from local projects in Shenzhen can be transferred to GPs and other social LPs, or other partners can repurchase the shares of the angel fund of funds during the exit period. In Liu Xiangning's view, the ideal relationship between GP and LP must be that everyone can work closely together. It is best for the angel parent fund to be able to exit during the exit period of the sub-fund. The parent fund has funds and is willing to continue to invest in new sub-funds. .