2018.06.04 Noah Private Wealth Management Views:
When you truly understand a company，you should go straight to make an overweight investment in it.
Zhang Wei, Chairman of CoStone Capital
Zhang Wei, born in the late 1960s, stepped into the field of PE at the beginning of the 21st century and later founded CoStone Capital, one of the earliest venture capital firms in China. After 17-years’ development, CoStone has grown into a company with a total asset valuation of over 50 billion RMB. It has established over 60 funds and invested in more than 100 companies in total, among which 49 (44.5%) of them managed to enter into circulation or exit, and 28 (24.5%) of them succeeded in being listed through IPO or RTO.
In Shenzhen where PE flourishes, CoStone Capital occupies a leading position in this field in terms of either the exit ratio or the proportion of invested companies to be listed. That is why Zhang Wei and CoStone Capital are favored by many important VC prizes every year. More importantly, Zhang Wei has been listed in the Forbes list of China Best Venture Capitalists for three consecutive years.
His success relies on his philosophical thinking of three inherent problems: what does investment mean? Why we make such an investment decision? How to invest?
For the first question, Zhang Wei answers that investment means shooting the arrow at the target in the high value area.
He stresses that when you truly understand a company，you should go straight to make an overweight investment in it.
Since it was founded in 2001, CoStone Capital has only invested in a hundred companies or so, which is absolutely a small number compared with that of other PE firms. According to the statistics, CoStone’s average investment amount reached 40 million RMB in 2012, while that number of other VC firms was merely 10 million RMB or so. In 2016, CoStone’s average investment amount soared to 100 million RMB, and 70% of the portfolios received more than 50 million RMB investment.
Thus, it can be seen that CoStone makes a focused investment, which means it never waste its competitive forces on any non-strategic opportunities.
And Zhang Wei concluded his investment philosophy as grasp the main points and shoot the arrow at the target in the high value area. He neither puts his focus on everything nor blindly follows those overheated investment themes. Instead, Zhang Wei makes a focused investment, that is, making overweight investments in the companies he holds an optimistic attitude and even establishing a closer relationship with the invested companies through holdings.
When investing in Hubei Huitian New Materials Stock Co., LTD. (300041.SZ), CoStone found that this company had more than 300 shareholders, exceeding the 200 limited by China Securities Regulatory Commission (CSRC). Therefore, Zhang Wei decided to make a one-time purchase of all the stocks owned by those 300 shareholders and then resold them to 27 managers of the company to optimize the corporate governance structure. He even took over as the CEO of that company.
Zhang Wei said: “The key is that when you truly understand a company，you should go straight to make an overweight investment in it. In this way, you can establish a close relationship with the entrepreneurs, because you are holding over 20% of the shares, not just of single digits.”
In 2009, Hubei Huitian New Materials Stock Co., LTD. became one of the first companies being listed in the Growth Enterprise Market (GEM) of Shenzhen Stock Exchange. And Zhang Wei was awarded dozens of times for his investment in it.
This is part of the exclusive interview on Zhang Wei by Excellent Investors, a Chinese talk show where outstanding domestic investors will be invited to share their opinions and thoughts. For the full transcript, please refer to http://stonevc.com/news_view.aspx?Fid=t2:4:2&Id=698&TypeId=4&IsActiveTarget=True
Here is the interview video clip: https://new.qq.com/omn/20180531/20180531A1PD1Q.html
Rewritten by: Xu Xinru, Edited by: Du Zhixin, Li Yunzhen
The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.
Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.
Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.
Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.
These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.
For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.
So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.
At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across
