2011.12.30 Costone Capital Views:
In retrospect of 2011, the venture capital industry in China has experienced a fruitful year. The fundraising, investment amount, and investment quantity have reached a new high, which fully demonstrate the Chinese economy's viability and the vitality of the venture capital industry.
The statistics by the end of November in 2011 shows the attractiveness of the venture capital industry:
· Domestic venture capital firms have raised more than 60 billion US dollars.
· More than 500 funds have been newly established.
· The total investment amount has exceeded 35 billion US dollars.
· The investment case has exceeded 2000.
· The number of active investment institutions has reached more than 4000.
However, the venture capital market was not peaceful in 2011. Due to the impact of the economic crisis, the US capital market was sluggish. Meanwhile, the Chinese Concept Stock suffered a comprehensive setback in the foreign capital market, which seriously affected venture capital institutions' exit. According to Zero2IPO Research, only 61 of Chinese companies went public successfully in early November, combined with $12.764 billion and less than the scale of issued IPOs and fundraising during 2011. This has a huge impact on the return of venture capital institutions, and it also brings great pressure to relatively weaker institutions.
In this context, the valuation and performance of post-IPO overseas were also disappointing. Based on our observation and judgment, there will be a trend that the delisting Chinese companies in foreign countries will choose to be listed in China again. Many outstanding Chinese firms are listed in Hong Kong, Singapore, Germany, the UK, and the United States. Among them, the capital markets in Singapore, Germany, and the UK tend to be marginalized due to the low market valuation.
In Hong Kong and the United States, many Chinese enterprises are also valued low in the foreign market because of industrial property. These Chinese enterprises listed in the secondary market are normally valued close to or lower than the primary market valuation, and partial enterprises are valued lower than a net asset. Once such enterprise delists in Hong Kong or the US market and lists in China, it will become the proper venture capital investment.
Another big issue in the venture capital industry happened on 8 Dec 2011. The general office of the National Development and Reform Commission issued a notice on promoting a private equity firm's development. The notice states five norms and requirements for domestic PE firms in five aspects: PE firm set-up, fundraising and investment field, risk management, regulatory institution, information disclosure, record management, and industry self-discipline. It proposes the standard to national PE firms to provide policy support for the VC industry's healthy development. It is also the first national rule for domestic PE firms viewed as an important milestone representing the large and disciplined Chinese VC in the future will gain a strong 'credit endorsement' to a certain extent.
Although we faced many negative factors in 2011, the Chinese capital market is still a 'paradise' for VC institutions compared to the global market. The statistics show that more than 548 firms are being listed on the worldwide scale in early November, of which 324 were Chinese companies accounting for 59 percent of the total. Of 324 Chinese firms, 263 of them went to the public in China, accounting for 81 percent, and the remaining 61 firms went to the public in foreign countries accounting for 19 percent. Based on our analysis, we predict the golden time of the capital market in China will arrive in the next 5 to 10 years, and there will be more than 300 firms going to the public in China each year. Therefore, we are full of confidence in the future development of the VC industry in China.
From the government's perspective, the financial industry is coming to the era of capital along with a series of policies being released last year. The arrival of full license in the financial market enables financial institutions specialized in some fields to enter other fields, so there is almost no difference between public placement and private placement. Since last year, the public offering fund is granted to enter the private offering fund. It is good news for asset managers because of the increasing variety of financial products will increase customer demand. Meanwhile, the financial market will enter the fully competitive market gradually. From the customer's perspective, they can invest in more diversified asset allocation varies in terms, riskiness, return, and asset investment. From the perspective of asset allocation, the increasing product range has always been a goal of venture capital firms, and CoStone is also extending to other investment fields. Last year, we began to attempt the real estate fund and fixed income fund because we believe this is a good time for future development.
From the market perspective, the brokerage and insurance have their own advantage heading into the private placement: brokerage is easier to exit, a commercial bank is easier to obtain a customer. This is an open market that everyone can participate in and play expertise to enlarge the market capacity. There is not such a big competitive pressure even if many institutions enter the private placement because the market is big enough, and they will develop more financial products and provide more products and services for customers after coming in.
The above context is an excerpt of Wei’s interview published on Securities Times. Please refer to original transcript: http://epaper.stcn.com/paper/zqsb/page/1/2011-12-30/A006/3681325191307058.pdf
Rewritten by: Siyuan, 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