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:

1. offering high prices to win projects, which leads to corporate valuation bubbles;

2. lowering investment standards and ignoring business risks for the purpose of listing;

3. 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