2020.02.28 CoStone Capital Views:
Seventy-five percent of the success of a project rely on post-investment management. Even though the importance of post-investment management has been universally acknowledged in the field, few is competent to apply. Therefore, funds should be well-positioned to create favorable conditions for enterprises.
EXCLUSIVE: CoStone Capital Tao Tao on How to Empower Enterprises Through Acquisition
Source: Beijing Finance
Acquisitions is the best way to empower enterprises, the “jewel in the crown” for private equities, as Tao Tao puts it. Its significance to corporate value makes it the core business of all private equalities. Buyout funds has been in the center in every equity in foreign markets, accounting for half of the total business. However, China still has plenty of room for buyout funds. Mature buyout funds are equipped with competent, experienced and professional managers and entrepreneurs who excel in management. Yet in China, practitioners are normally financial professionals without much experience in management and industries.
CoStone Capital believes that focused investment, with an emphasis on service, can enable acquisitions to empower enterprises. Instead of investing in as many as possible projects of popular race tracks, like most venture capitals do, CoStone found its own way. Being in business for two decades, CoStone has managed ¥50 billion ($7.721m) AuM of only 130 projects. Nearly ¥1 billion ($154.435m) was invested in every project. 70 percent of the projects received more than ¥50 million ($7.721m) and 75 percent have been in charge by professional executives. More than 10 percent of the members in management team supported the major investment plans. Most projects were led or solely invested by CoStone Capital.
Focused investment, with an emphasis on service, is one of the core investment philosophy of CoStone Capital. It makes funds necessary, possible and competent to empower enterprises.
First, necessity. Large amounts of investment offer funds motivation to deal with post-investment management. With a rare compulsory follow investment mechanism, CoStone is able to ensure managers to maintain the high consistency in the interests of them and other investors and account for corporate performance.
Second, possibility. Funds should possess enough shares to ensure their says in the enterprises, so as to motivate entrepreneurs.
Third, competency. Funds should be able to offer value-added services. To be competent is to be professional. Post-investment managerial professionals are numbered, whose wits should be kept on major projects, so as to take care every detail of the projects, rather than being sluggish.
Seventy-five percent of the success of a project rely on post-investment management. Even though the importance of post-investment management has been universally acknowledged in the field, few is competent to apply. Therefore, funds should be well-positioned to create favorable conditions for enterprises. CoStone’s post-investment management team accounts for more than a half of total employees, most of whom are interdisciplinary talents with years of experience on industrial operation and management.
Above: Excerpt of the interview with Tao Tao from Beijing Finance. Please refer to the link to view the interview in full: http://stonevc.com/news_view.aspx?TypeId=5&Id=796&Fid=t2:5:2
Rewritten by: Luo Xinying, Edited by: Du Zhixin, Wei Yiyi
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026