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
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