More important than the recession, early-stage investment institutions are facing structural opportunities.
@商科星球original
Author丨Yuan Jing
Edit丨Big Rabbit
The cycle, like an invisible hand, affects all living beings in 2023. From economic cycle, industry cycle to currency cycle, this invisible hand affects various factors such as consumer demand, changes in the industrial chain, and policy changes, as well as the pace of technological innovation.
At the moment when thousands of industries are moving forward with heavy burdens, Digital Planet (ID: digital-planet) decided to start a series of dialogues with the end in mind. Through this form, we hope to penetrate the fog and find the unchanging context under the change.
Spring River is a prophet of plumbing ducks, and the investor group has always had a keen sense of smell. Although it is still dark, some people have decided to hold torches, hoping to light the way ahead with faint fluorescent light. On May 27, 2023, the National Science and Technology Plan Achievement Roadshow Action-Zhongguancun Special Roadshow was held in Beijing. This article is based on the keynote speech and follow-up notes given by Zheng Zhen, a partner of Galileo Capital, at the event entitled "A Tribute to Entrepreneurs of the Era and Forging Ahead in Recession".
01
Two "Fate" and Two Aesthetics
"Great companies need to go through cycles," this is the consensus among entrepreneurs.
Taking new energy as an example, this cycle effect is very typical. From Qian Xuesen's call, to new energy companies' "siege" joint venture brands in overseas markets, domestic electric vehicles have come a long way.
In this process, scientists create theories, and entrepreneurs implement theories into industries. However, when the industry is immature, the impact of different cycles makes the entrepreneurial process full of uncertainty, and even has to go through the process from bankruptcy to dawn many times.
Some well-known technological innovators have crossed the cycle and finally reached the other side. Representatives of them include Qiu Bojun and Wang Chuanfu in China in the early years, and Gordon Moore and Elon Musk in the United States. Very different from the generation of Internet entrepreneurs, most of the life of technological innovators is ten years, or even decades of sharpening their swords. In contrast, the hallmark of tech innovators is that they are usually firm believers in their respective technical fields.
In the investment industry, the characteristics of the above two groups of people can be summarized as: "The latter emphasizes rapid iteration and adapting to the market, while the former insists on self and starts with the end in mind." Expanding, the core competitiveness of Internet practitioners is reflected in, Look for comparative advantages in homogeneous competition; while among technological innovators, barrier construction is usually reflected in industrial landing and scale capabilities.
Therefore, for investors, two different fates lead to two aesthetics for judging projects. At the moment when the Internet is classified as traditional, with the opening of the era of technological innovation, it will also affect the iteration of investors' underlying thinking.
02
Times have really changed
Now, no matter from which point of view, there are more and more scientific and technological innovation projects, and it can even be said that they are flooding the industry and appearing in the newspapers frequently.
What is certain is that the last era belonged to the Internet and the mobile Internet. At that time, the phenomenon of capital burning money to subsidize users occurred from time to time. But in the new era, "throwing money" does not work, and scientific research and technological breakthroughs have been raised to unprecedented heights.
At present, fields such as e-commerce, social media, and online education in the Internet industry are no longer sought after by capital; however, fields such as artificial intelligence and biotechnology represented by cutting-edge technologies that practitioners of technological innovation are engaged in have crossed the peak one after another. For the entrepreneurial group, in the era of technological innovation, scientific research background and professional knowledge are more emphasized than the iterative ability of user experience. In this case, scientific and technological talents who can truly understand and apply cutting-edge technology become The "sweet pastry" in the eyes of investors.
From the perspective of corporate growth curves, under the premise of the right direction, traditional Internet companies can form rapid growth through capital boosts, thereby quickly occupying the market. The growth of small-type enterprises is relatively slow, and they need to stay dormant for many years to study technology and polish their products. Once they find the right market, they can also usher in a wave of strong outbreaks. A comparison of the two types of enterprises is shown in the figure below:
At the level of business model, because technological innovation pays more attention to core technology, such founders own core intellectual property rights, and they can obtain commercial returns through more diversified methods such as patent authorization and transfer. On the other hand, as more people have seen, traditional Internet advertising, e-commerce, membership and other profit models are being challenged by more and more markets.
For investment institutions, the structural changes on the project side have far-reaching impacts: the traditional way of judging projects needs to be iteratively evolved, and in this process, investors need to improve their self-awareness in order to meet a new round of market challenges.
This model change from economies of scale to innovation-driven has been staged in the US primary market and has become a historical experience. Under this framework of thinking, cases such as bike-sharing wars, group-buying wars, and second-hand car wars that emerged in China around 2015 can all be found in the era of Rockefeller and Carnegie’s struggle. But later, from the beginning of Fairchild Semiconductor, the support of the US economy has become technological innovation companies such as Intel, Microsoft, and Apple.
In contrast, domestically, there is no doubt that the current market environment is already in an era of innovation-driven growth.
03
Investment Institutions in the New Era
What does an investment institution look like in the new era? The answer is "more professional and more durable".
This does not mean that institutions are more "volume". To use a fashionable saying in the digital economy, it is the investment industry that needs to reduce costs, increase efficiency, and transform and upgrade.
First of all, investors should work harder on research.
Galileo Capital is a typical research school in the industry and enjoys it. Generally speaking, scientists usually have innovation ability and original research ability, but this group may lack business experience and management ability. In the era of technological innovation, investors need to work with founders to continuously discuss and judge factors such as industry scale, business prospects, and team management capabilities, in order to reduce the overall risk of investment. Repeated discussion and continuous research can effectively help investors and technology founders deepen their mutual understanding, and at the same time better understand the founder's background, professional ability and knowledge level, so as to better evaluate their future business potential and management ability .
In addition, technological innovation projects can generally provide detailed information on related technical products. Investors need to have a deep understanding of technology and products in order to determine its feasibility and commercial value. Scientific research can help investors better understand the principles, characteristics and application scenarios of technologies and products, so as to better evaluate their commercial value.
"I think that in the era of scientific and technological innovation, our culture has nurtured the hard-working qualities of entrepreneurs, and the current foundation for technological innovation is very good," the investor mentioned in this speech. From the perspective of Digital Planet (ID: digital-planet), emerging investors have found an investment model that is both teaching and learning in the interaction with many scientists. In the words of this investor: "When I see a very good It’s very exciting that I can help the founders and realize value in the process.” This new mutual empowerment model requires investors to have a certain scientific background, so that it can help projects avoid detours and even speed up in the vertical field.
"It's hard for us to call ourselves mentors and coaches. We are more like the founder's training partner. For projects, the advantage of investment institutions is that they have seen many projects and cover a wide range of projects. The real meaning of this training partner is to help projects reduce Mistakes, because we firmly believe that 'the master fights, and those who make fewer mistakes can have the last laugh'." Zheng Zhen said to the digital planet (ID: digital-planet).
Galileo Capital has created a good template for investment institutions, and has exported considerable experience in exploring the relationship and win-win between scientists and investors. From this perspective, China's investment industry should be more tolerant and encourage innovation and entrepreneurship with an open mind. Enterprises such as OpenAI are outstanding representatives in the field of artificial intelligence, and their research results in the fields of general artificial intelligence, machine learning, and natural language processing have attracted widespread attention worldwide. If China's primary investment market can be more inclusive, then similar technology idealistic founders may also appear in China.
04
Coping Strategies and Future Prospects in Recession
At the macro level, the current world economy still faces challenges and uncertainties. The epidemic, trade, energy and other factors have successively "severely hit" the nerves of ordinary people. For investment institutions, they are also facing the "darkest moment".
Although people are relatively optimistic about the long-term outlook for the future, in the current economic environment, there have been considerable adjustments in investment and entrepreneurship. Specifically, Digital Planet (ID: digital-planet) has summarized the following aspects:
First, the era of "third-rate players" getting money is basically over, and the funds will only be allocated to top players in the industry; second, as the guiding funds in certain regions become more mature, the venture capital structure will change. Cities are on the rise; third, as LPs mature, GPs that "play shotgun" and "management fee priority" are being cleared by the market.
Under the new conditions, GP is forced to make more practical changes. "There is an old saying in the circle that a group of people in the secondary market can be crazy, but a single person in the primary market can be crazy." From the perspective of Digital Planet (ID: digital-planet), the relevant funds established around 2015 during the climax of "mass entrepreneurship and innovation" have already completed their life cycle. Survivor bias always exists in the primary market, which makes us hallucinate that dozens of times and hundreds of times are staged every day, and the popularity of the market does not mean that every LP participating in it can obtain excess returns. Nowadays, As the industry returns to rationality, most of the speculative participants in the primary market are being eliminated by the market.
Even though the sea is turbulent, the deep sea is always calm. Although the environment is changing, it has not had a great impact on Galileo Capital, a fund that focuses on early-stage investment. On the contrary, it will increase its efforts in " Underwater" excavation project, Galileo Capital is currently actively expanding its team to continuously improve the organization's own judgment and insight.
Ending: The fluctuation of the economic cycle is a challenge and a touchstone: "During the downturn of the cycle is the time to experience excellent founders. There is no ebb tide and we don't know who is not wearing underwear. Only when the ebb tide is good money drives out bad money. The cycle; I believe that as long as the founder can be as cautious as the beginning, just like the beginning, continue to stick to the original intention, and take every step in a solid manner to succeed."
Big opportunities can only be bred at the bottom of the cycle, so for excellent founders, now may be the best time to start a business.