Why does it have to be listed even if it bleeds?
Investors are eager to exit, and some US dollar VCs can no longer wait.
It only took 4 years from establishment to listing for a certain AI project. However, driven by the investors behind it, it had to go public as soon as possible. "Hurry up and get started before the popularity of AI has completely dissipated, otherwise you won't be able to get started in the future." An investor familiar with the project said bluntly. "If you take the last train to go public, there are still stories to tell, 'market fragmentation has leading advantages, etc.', but it will be too late."
There are many projects that were forced to go public, and some of them signed with investors to bet on . I have to go up. There are also some who are taking advantage of the last remaining warmth of the trend to go public to make money. The last part is forced by investors who are eager to cash out, "Everyone shouldn't make it difficult."
01 Let investors withdraw first
html On April 22, Zhihu was listed on the Hong Kong Stock Exchange. The listing of
in both places is obviously based on multiple considerations. On the one hand, the current US stock market is volatile, and Chinese concept stocks have plummeted across the board, which has deviated from the fundamentals. On the eve of Zhihu’s listing, the U.S. Securities and Exchange Commission (SEC) has just added 17 companies, including Zhihu, to the latest batch of “pre-delisting” lists under the Foreign Company Accountability Act. On the other hand, before the listing, there were 9 rounds of financing, with a financing amount of up to 10 billion, but the US stock market has fallen to 900 million US dollars. It has been 10 years since the first round of angel investment in .
Let early investors or investors with larger shares withdraw first!
Taking a closer look at this secondary listing in Hong Kong, it is not as simple as imagined. According to the prospectus, Zhihu plans to issue 26 million Class A ordinary shares for this IPO, and all of the shares will come from early investors. This means that Zhihu will complete the dual primary listing of Hong Kong stock by not issuing new shares.
To understand simply, Zhihu’s Hong Kong stock IPO financing amount is 0 yuan.
After the IPO is completed, only 10% of the shares are publicly issued, and the remaining 90% is reserved for international placement by institutions. This means that most of the shares of early investors ended up in the hands of institutional investors, with only 2.6 million shares available to the public.
In the market, some people regard Zhihu's listing as "precise assistance" to early investors - allowing investors to withdraw first. Before the IPO of the US stock market, Capital Today held 16.2944 million shares of Zhihu, while before the IPO of the Hong Kong stock market, Capital Today held 15.3319 million shares of Zhihu. After Zhihu is successfully listed on the Hong Kong stock market, the number of shares held by Capital Today will become 3.3319 million shares. This means that Capital Today will reduce its holdings by 12 million shares through this Hong Kong IPO, accounting for 78% of its total shareholdings. It can be said that It is a "clearance" reduction.
In the past, Capital Today participated in Zhihu’s Series D and Series F financing in 2017 and 2019 respectively. Some media said that its investment cost in Zhihu was US$5.83 per share. If calculated based on the exchange rate of US dollar to Hong Kong dollar of 1:7.84, the investment cost of Xuxin is HK$45.7. Selling 12 million shares at HK$51.80, Xu Xin's cash amount was approximately HK$620 million, and the investment income was 73 million yuan.
Investors' withdrawal was completed, and soon, Hong Kong stocks gave their own price tag: on the day of listing, the market value was HK$24, which was even 2% less than the closing price of US stocks. In addition to precise support such as
, there have also been cases in the industry where companies were forced to sign and pledge.
On April 15 last year, Luo Yonghao posted on Weibo, "Perhaps the entrepreneurial failure and stubborn debt repayer with the most positive energy and the brightest mentality in history." During the financing process of Smartisan Technology in 2017, when all investors had signed and were anxiously waiting for the life-saving investment funds to arrive, a certain investor maliciously refused to sign and forced him to personally sign a mandatory share repurchase agreement.
In the industry, it is normal for investors to sign share repurchase agreements. Some of them also have joint liability clauses. The key is whether the entrepreneur wants to take the money. Nowadays, under the harsher market environment, investors’ requirements for projects are increasing. The key reason is that ordinary projects cannot make money even if they are listed on the market.
02 The illusion of IPO
For a long time, the IPO bell was the highlight moment that VCs were most looking forward to.
In 2017, Qudian was listed. Zhou Yahui, then the founder and chairman of Kunlun Wanwei Group, sold 3% of his shares and earned 340 million, becoming a big winner. When it went public, Zhou Yahui published a 10,000-word long article revealing the entire process of investing in Qudian, which was a hit in the venture capital circle.
Taking Sequoia as an example, investments in Meituan , Kuaishou, Pinduoduo, Weilai and other projects have brought at least 250 billion to 300 billion in book returns. As companies IPO one after another, early VCs are reaching the peak of fame, fortune and influence.
When Xiaomi was launched, a piece of news "The first investment of 5 million US dollars, today's return is as high as 866 times" broke the industry. One project, a hundredfold return, is the dream of countless investors.
But today, an IPO does not mean making money. Data from
that summarized more than 20 early-stage VC funds and 500 deals showed that 45% of their investments failed to fully return the principal, and 34% of the targets did not even return half of the principal. Overall, the median loss rate is 39%, the median MOIC (multiple of investment capital) is 1.9 times, and the IRR is 13%.
The paper returns started to become lower. There are two price influences: the valuation price of the purchase, and the price given by the capital market. The price of
has always been the focus of discussion in the investment industry. The price at which you buy it directly determines the multiple of return.
Take Sungrow as an example. If you buy it in 2012, the return rate in 2013 is 353%; but if you buy it in 2013 when the closing valuation is as high as 85 times, you will not make any money in the next 6 years; but if you buy it again in 2018 If you buy it at 15 times the closing price, the yield in 2020 will be as high as 599%; if you buy it at 95 times the closing valuation in 2021, the price this year will have been cut in half.
The same is true for the primary market . The earlier investors are, the higher the risk cost they can bear. Even if the valuation goes higher in the later period, the safety cushion of and of early investors is still high. This is also the core investment philosophy of Graham :
- 1. Pursue the margin of safety, hoping to buy something worth 1 yuan for 4 cents, so that the probability of winning will be far greater than the probability of losing;
- 2. Take advantage of the irrationality of the market Volatility looks for opportunities to buy at deep discounts and sell at great value.
Graham's margin of safety theory mainly includes two dimensions: price margin of safety and financial margin of safety. The first is the margin of safety in price. "The value of stocks cannot be measured in detail." It is determined by traders' respective life experiences, business experience, financial strength, expectations and other factors. The stock market is filled with all kinds of traders, and not all of them are value investors.
Even if they are both value investors, different people will have different valuation systems and different income expectations, and everyone will have different understandings of the same company. Even for the same company, its economic environment economic cycle will differ over time. Therefore, you must leave yourself a sufficient safety margin to ensure that you have a buffer zone when you make a mistake, so that you will not suffer excessive losses. Although value investing was once popular in the primary market, each company's approach to value is different.
The second is the financial margin of safety. The margin of financial safety mainly refers to the better financial fundamentals of the company you are buying. At the very least, you can't buy a company and then become insolvent and bankrupt within a few years. Therefore its debt cannot be too high. The ability to make money must be sufficient, it must have a high profit margin, the business must be stable all year round, the ability to resist risks must be strong, and it must be able to ride through cycles.
In fact, Graham's margin of safety theory can be summed up in one sentence, that is, "A good company must also have a good price!". A good company refers to the financial safety margin, and a good price refers to the price safety margin: 1. Buy to live longer, 2. Buy to make more money, and 3. buy to grow. In this way, investors can leave themselves enough safety space before the company declines.
But in fact, in the past, many leading VCs bought many projects that were not profitable and had no money-making ability. Some people hope that in the future, with the help of capital, they can occupy the market and then make explosive profits. However, many former unicorns have still not found a way to make profits in projects led by innovative models such as the Internet.
Theory is a theory, but human nature is the anchor of investment.
In addition to valuation issues, with the opening of exit channels for Science and Technology Innovation Board , listing is no longer an unattainable threshold. The number of Chinese companies' IPOs in 2021 reached 669, an increase of 16.3% from 575 in 2020. Among them, there were 4524 cases of A shares, 97 cases of Hong Kong stocks, 39 cases of US stocks, and 9 cases of Taiwan stocks. The funds raised in the initial offering exceeded 900 billion yuan, accounting for about one-third of the total global IPO funds raised. "
In addition, listing breaks have become a common phenomenon.
Data shows that among the 417 companies listed on the Science and Technology Innovation Board, 38 companies have not yet made profits when they IPO. As of April 25, a total of 31 companies still have "U" in their stocks. , that is, 7 companies have achieved profits after going public. Wind data shows that 25 of the 38 unprofitable listed companies have seen their stock prices break, of which 16 have broken by more than 30%, and 5 of them are biopharmaceutical . The stock price of the company has exceeded 50%.
This year, this situation is also crazy. In April this year, a total of 24 A-share stocks were listed, of which 12 were broken, and the proportion of broken shares was as high as 50%, which is far higher than before. , the category "Computer, communications and other electronic equipment manufacturing" accounts for the highest proportion, exceeding 40%. Among the above 12 new stocks, 2 will have a net profit loss in 2021, namely Puyuan Jingdian and Hainan. Chuang Pharmaceutical.
html On the evening of April 21, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, talked about the breakout of new stocks at the Boao Forum for Asia 2022 Annual Meeting sub-forum. He said that some IPOs have fallen below the issue price recently. It does not mean that there are too many IPOs. But the pricing power needs to be further improved. After
was listed, the company was in a state of bankruptcy for a long time. How can VC make money? This is the biggest difficulty for most VCs at present.
03 The rise of the classical VC transformation rugby model is not. The emphasis on exit has made many VCs begin to rethink their investment models.
investors are roughly divided into two categories: classical VC funds and emerging funds. There is a big difference between them: the exit model of classical VC funds is through a. , or a few projects, covering the income of the entire fund.
In a fund, if you invest in 20 projects, then 10% or 2-3 projects will support the overall return. But nowadays, this method seems to be unbearable. . The reason is that the chances of obtaining excess returns are being reduced by the risks brought by high valuations.
deal's scale and valuation have reached new highs, and the traditional VC method is not so effective.
In addition, the secondary market. On the other hand, the price of Internet projects is decreasing year by year. This is why some US dollar VCs have begun to invest in technology projects. The rise of
hard technology is still based on the choice of buyer's market - the secondary market provides more opportunities for such projects. High prices. "This was something we did not expect. Some of the -specific and new projects we invested in were sought after by the secondary market, which strengthened our determination to invest in such projects in the primary market. "A partner from a leading institution said bluntly.
In recent years, the style of emerging funds is: through precise shooting, the success rate of the project is required. They do not blindly pursue the rate of return of a single project, but put the success rate first.
To further optimize this logic, it is to set up a rugby investment model, pursuing risky projects in the middle to obtain high returns; in the middle are more deterministic, low-risk projects.
Under market fluctuations, classical VC is also transforming. . Last year, Sequoia Capital , one of the world's largest, oldest and most successful venture capital funds, quietly changed its Twitter profile.
opened Sequoia's Twitter homepage, and the header image remained. It's "We help the daring build the legendary companies", but the introduction below says DAO, Buidl, and LFG.For this reason, Shen Nanpeng, the head of Sequoia China, expressed his desire to "All in Crypto". Since then, Sequoia Capital’s Twitter profile has been changed to “Mainnet faucet. We help the daring buidl legendary DAOs from idea to token airdrops. LFG.” In this short sentence, at least 6 special facts related to cryptocurrency were discovered. vocabulary.
moving into the Canadian dollar currency field and fully embracing Web 3.0 is a global strategy that Sequoia Capital is currently exploring.
Someone in the industry joked, "The era of classical VC is over, and even Benchmark is speculating in stocks." Classical VC began to move towards the future from various aspects such as investment targets, logic, and investment methods.
Of course, no matter what cutting-edge technology you bet on, keeping your funds safe is still the bottom line. The issue of exit has always been a secret that is not discussed in the investment industry. Even with a large number of listed projects in hand, LPs now have to ask one more question: How many of them can make money?
VC exits much slower than expected. Especially VCs who are pursuing the number of IPOs.
In the past, when the Internet was at its most popular, a group of opportunistic investors appeared. They intervened in projects at an early stage of opportunity and helped publicize the project. When the project financing reached its peak, they retired and found a successor. This approach was once ridiculed by the market as opportunism , but now, with the passage of time, this approach seems to be the best way for GP to protect LP. After all, being responsible for LPs is the key to the industry cycle. When the
industry was booming, in order to compete for projects, many TSs were provided in a day, and some of them omitted the due diligence process. Breaking the head but also grabbing the source of the case is the topic that investors are concerned about - wolf nature.
But today, when the wolf nature does not make money, management and risk management have withdrawn and returned to the table.
