2005.08.15 Value Science & Wealth Views:
As early as 2000, venture capital enjoyed vigorous development in China. At that time, inspired by the gratifying situation of the NASDAQ and the global growth enterprise market, Shenzhen Stock Exchange prepared to launch the growth enterprise market. Shortly, four or five hundred Venture Capital companies emerged in China and raised about 450 billion, one-third of which were located in Shenzhen. These companies were ready to do something big in full swing. However, due to the bursting of the dot-com bubble and the fact that there were very few real winners in the global growth enterprise market except the United States and Israel, domestic venture capital market then slowed down the development.
Growth Criteria are Pioneering the New Era of Chinese VC
As early as 2000, venture capital enjoyed vigorous development in China. At that time, inspired by the gratifying situation of the NASDAQ and the global growth enterprise market, Shenzhen Stock Exchange prepared to launch the growth enterprise market. Shortly, four or five hundred Venture Capital companies emerged in China and raised about 450 billion, one-third of which were located in Shenzhen. These companies were ready to do something big in full swing. However, due to the bursting of the dot-com bubble and the fact that there were very few real winners in the global growth enterprise market except the United States and Israel, domestic venture capital market then slowed down the development. Zhang Wei believes that growth is the criterion for venture capital to choose investment targets. Venture capital mainly invests in some unlisted or unacquired companies with high growth potential, and actively participates in the entrepreneurial process of invested enterprises, making up for the lack of entrepreneurial management experience in these companies and helping them actively control risks. After the invested enterprise become mature, venture capital can realize relatively high capital growth income through equity transfer. Therefore, Zhang Wei holds that the invested enterprise should possess three characteristics. First, it is best to be in an upswing period in the industry and have a larger development space; second, it takes a key position in the industrial value chain in terms of products and services; third, it has not yet been listed or acquired at an premium from a financing perspective.
In August 2005, Zhang Wei published an article Growth criteria are pioneering the new era of Chinese VC in the magazine Value Science & Wealth, elaborating on how to guide venture capital through growth standards. The original text is presented in the following.
Rewritten by: Yang Yang, 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