2012.11.20 CoStone Capital Views:
At the “Venture Investment: Industrial Upgrade Drivers and New Strategic Decisions Summit Forum”, CoStone Capital chairman Zhang Wei said that the venture capital industry was facing a big test and needed a more rational atmosphere.
Zhang Wei: Expecting a Rational Atmosphere for Venture Capital
At the “Venture Investment: Industrial Upgrade Drivers and New Strategic Decisions Summit Forum”, CoStone Capital chairman Zhang Wei said that the venture capital industry was facing a big test and needed a more rational atmosphere.Zhang Wei said frankly that the venture capital industry was once a mysterious industry, and the amplified halo effect may inevitably make investment institutions feel heady. With the popularity and maturity of the industry, more and more people are starting to look at venture capital institutions with rational and questioning eyes.
“After the halo effect fades, we must be alert to the negative factors in the industry that are also multiplied, which may cause harm to the development of this industry.”
Zhang Wei holds that there are three major phenomena in the fiercely competitive primary market:
offering high prices to win projects, which leads to corporate valuation bubbles;
lowering investment standards and ignoring business risks for the purpose of listing;
VCs cannot fight for legitimate rights in negotiations with companies and thus have difficulty in carrying out post-investment management.
As for the current market conditions, Zhang Wei thinks that the downturn in the secondary market is far from being passed on to the primary market. In the long run, however, there may appear inversion between the primary and secondary markets, which will become a severe test for all institutions in the industry.
Zhang Wei believes that the current “winter” of the venture capital industry is both a challenge and an opportunity. Many industries saw obviously declined performance in the first half of this year. In his view, the advantages and disadvantages of enterprises will be more evident under such an environment; and excellent enterprises must have experienced the test of the economic cycle.
“It’s time to build a rational atmosphere.” Zhang Wei said, “The sluggish economic environment is prompting investment institutions to return to rationality and refocus on the growth potential of enterprises.
Zhang Wei argues that, like other industries, it is not easy for China’s venture capital industry to carry out strategic transformation. Successful investment institutions must have been fully prepared and invested substantially in resources, capabilities, and knowledge. “Investment institutions should shift from value judgment to value creation.” While investment institutions can get remarkable returns with good value judgment capability, venture capital and M&A investments also require investment institutions to have the ability to create value and to be more involved in business operations of invested enterprises.
Rewritten by: Yang Yang, Edited by: Du Zhixin, Li Yunzhen
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