2012.03.07 CoStone Capital Views:
CoStone Capital recently made a donation to the China Europe International Business School (CBIES) Endowment Fund, and announced that it would strengthen in-depth cooperation with the CBIES so as to explore the cooperation model between venture capital companies and research institutions. In an interview, Zhang Wei said that facing the rapid development of the venture capital industry in China, venture capital companies need all-round innovation in terms of project discovery and project exit.
CoStone Capital Zhang Wei advocates innovating the Chinese VC business model
CoStone Capital recently made a donation to the China Europe International Business School (CBIES) Endowment Fund, and announced that it would strengthen in-depth cooperation with the CBIES so as to explore the cooperation model between venture capital companies and research institutions. In an interview, Zhang Wei said that facing the rapid development of the venture capital industry in China, venture capital companies need all-round innovation in terms of project discovery and project exit.
Zhang Wei believes that based on the current market environment, venture capital companies should make corresponding adjustments in project discovery and project exit. “For example, 70% of current venture capital project exits are IPO exits, 10% are backdoor listings, and 20% are major shareholders’ repurchases or mergers and reorganizations. However, in the future, the proportion of major shareholders’ repurchases or mergers and reorganizations will see a significant increase.”
At present, most domestic market-oriented consumer goods and service companies, except for home appliances, beer, and dairy, are still in the process of shifting from decentralization to concentration and large scale, which will lead to frequent M&A opportunities. Meanwhile, the fact that private enterprises have entered a period of generational succession and corporate equity are dispersed also results in mergers and acquisitions. In the US, while the number of IPO exits venture capital industry accounts for only about 10% of all exits, the number of mergers and reorganizations accounts for nearly half. Zhang Wei believes that China’s venture capital industry is also embarking on this path.
In terms of discovering investment targets, CoStone Capital has also pulled out of the traditional model of venture capital to open up a new battlefield. The cooperation with CBIES and China Europe Development Fund is exactly a brand-new attempt. Zhang Wei pointed out that “CBIES is not only a school, but also a good platform for entrepreneurs and financiers to exchange innovative ideas.” He argues that SMEs are the investment targets of venture capital as well as the research targets of business schools, who hopes that the (CBIES) Endowment Fund can provide more opportunities for SMEs.
Rewritten by: Yang Yang, Edited by: Du Zhixin, Wei Yiyi
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