Investment is metaphysics, and withdrawal is even more so.
Wen | Zhuo Wen
Edit | Liu Jing
Unsurprisingly, station B broke. But don’t forget, even with its current share price of $97, this is still a rare “ten times bull stock” for many years-if you buy $1 when it goes public in March 2018, it will be The book return is $9.9.
This is far from the historical high of this company. In February of this year, the stock price of Station B was as high as $157 per share. Compared with the same period in 2019, the annual increase was close to 800%. Even in terms of its market value, which is now “dropped by one-third”, it is still almost 2.5 times that of iQiyi, a long-video head platform.
This is an interesting phenomenon. Among the new economy companies, especially those with platform characteristics, the steepest growth curve is often born after the company goes public, that is, in the secondary market stage. For example, Facebook, Tencent, NetEase, etc. are all stocks that have achieved a hundredfold growth. Station B is a more extreme performer.
For example, its D round of financing was completed in May 2017, with a post-investment valuation of US$1.7 billion, and its market capitalization after 10 months was only US$3.2 billion-an increase of less than twice. After its listing, when its stock price rose most violently, its single-day increase exceeded 40% (November 30, 2020).
After the second half of 2020, the stock price of Station B has risen steeply
Data source: wind database, sorting out drawings:
However, Just before the steepest K-line at station B, a group of investors who had accompanied the company for four or five years left the market. 36According to public information and interviews, since 2018 12 months later, IDG Capital, CMC strong>Capital, Legend Capital, Qiming Venture Capital, etc.——BStanding on the most critical investor in the primary market—— began to gradually clear outB Station stock, in 2019 year 3Monthly, the shareholding has been lower than 5%. Among them, CMC Capital used to be the largest external institutional shareholder of Station B with 12.8% of the shares, and Legend is the fourth largest shareholder of Station B, but now they have almost all withdrawn.
For early-stage investment funds, this is certainly understandable. On the one hand, primary market institutions have to face the pressure of fund renewal, such as CMC, which can take as long as five years from when it invests in station B to exit. On the other hand, station B is clearly a case of “excess returns”, and the fund helms should also exit due to DPI (Distributed to Paid in Capital) considerations.
It is also understood that this is also related to the will of station B. At that time, Station B hoped to introduce more strategic investors such as Tencent and Alibaba, and therefore also hoped that financial investors would vacate their shares. Therefore, most of its early investors withdrew on a large scale around Christmas 2018. The final result is that currently only Zhengxingu capital accounts for the largest proportion of financial institutions, close to 5%.
Although investors should earn money in the circle of ability, in the face of such an increase in value, who can’t care about it?
“I think no one will not regret it in terms of mentality. A case (within a year) is 10 times, 50 times or 100 times the return, the difference in income will be huge.” One B station investors said to 36 krypton. If they persist for another year, the book return that Station B can bring will be 10 times greater.
For more than 20 years since the Chinese investment industry has emerged, people’s focus has often only been on the story of “investing in”-where the most legends and even myths have been born. The last step in “raising investment management retreat”-how to withdraw, when to withdraw, but it has not received the attention it deserves. An LP who has invested in a number of well-known funds said publicly that domestic institutions that consciously manage exits and plan exits in advance do not even reach 5%. This means that most institutions do not know how to withdraw.
A good vote may be better than a good retreat.
Leaving and staying
On the evening of December 31, 2019, a New Year’s Eve party called “The Last Night of 2019” is going on. World of Warcraft, Game of Thrones, League of Legends… This four-hour evening will completely break the B station.
This is the key demarcation point for station B. Two days later, the stock price of Station B jumped, rising 12.51% in a single day, and then rose by 5.39% on January 3, and the market value once exceeded 7.15 billion US dollars-the share price of B station rose by more than 1 billion US dollars in just two days. Since then, the stock price of station B has been opened and listed.
But most The financial investors of B have missed this feast.
When listing in the US at station B, the top five institutional shareholders were: 12.8% of CMC Capital, 9% of Zhengxingu Capital, 7.6% of IDG Capital, and 5.9% of Legend Capital, and Tencent, which holds only 5.2%. Among them, IDG Capital is the earliest institutional investor in Station B, CMC Capital was once the largest institutional shareholder of Station B, and Station B is also the largest investment project in the TMT field of Legend Capital.
But in 2019 after the listing of Station B, no matter whether these financial investors exited actively or passively, the overall result is: except for Zhengxingu Capital, all financial institutions are no longer the major shareholders of Station B (accounting for 5% or more of shares). It is understood that Zhengxingu Capital currently accounts for the largest proportion, and its shareholding has also fallen below 5%.
The blue part indicates that the institution’s shareholding is less than 5%
Data source: wind database, sorting out drawings:
Unfortunately, before 2019, when more financial investors left the market, the stock price of Station B was relatively stable. The opening price of station B was 9.80 US dollars when it was listed, and the stock price has been running smoothly in the range of 10-20 US dollars for the following year, and its closing price on the last day of the end of the year was 18.62 US dollars. And in 2020 is a year of complete outbreak: the multi-layered reasons such as the out-of-circle, the onlineization caused by the epidemic, and the “large water release” of the US dollar have triggered a stimulus for the stock price of station B to skyrocket.
CMC Capital was in 20183month—20192 It reduced its holdings by nearly 240 shares each month. Based on the average stock price of 12 US dollars during the period, this reduction only yielded 3000 US dollars. 2020 Almost completely withdrew in the first half of 2020. 36Krypton interception2019year2month——2020year6Month B station stock price 15-45 U.S. dollar interval calculation, CMC floating profit at 4< /strong>Billion —12 US$ billion. But if CMC continues to hold for another six months, the floating profit will double.
It is obvious that the strategic investors who make more profit are the later-entry strategic investors. Tencent, which has increased its position in the secondary market after the B round of investment, currently holds nearly 43.75 million shares of station B, with a shareholding ratio of 12.4%. According to the current stock price of station B, Tencent’s holdings have a market value of more than 4.2 billion US dollars. Tencent alone subscribed for 25.06 million newly issued shares of station B in October 2018, and this investment made a profit of US$2.1 billion, which was a profit of nearly 7 times. In September 2019, Alibaba bought more than 23 million shares. Based on today’s stock price, Alibaba’s book floating profit also exceeded 2 billion US dollars.
In the valley of the heart of investment in the C+ round, due to few exits, so far the investment floating profit in the B station has exceeded 30Times—— For an investment after the round of C, such a multiple is amazing.
To some extent, the reason why Zhengxingu has become the largest financial shareholder of station B is also related to the genes of this investment institution. Its founder, Lin Lijun, was the founder of China Universal, one of the largest public offering funds, and has extensive experience in the secondary market.
The neglected exit mechanism
If the essence of investment is to buy low and sell high, then exit is undoubtedly the key to determining the success or failure of an investment. But for a long time, compared with the obsession with “investing in”, investors seem to be much more indifferent to exit.
“We have already invested in GPs. At present, two-thirds of the exits are not very satisfactory.” Zhu Weihao, the founding partner of Jiahao Investment and a partner of Jiadao Private Capital, once disclosed in a public occasion that they had invested how many Ten GPs, most of them did not pay much attention to exit management in the first 5 years.
“There are a lot of VC and early investment in China. A large amount of funds have been deposited in the project and have not been withdrawn. The days before it were too good, and now they are about to pay the bills. Today’s situation is forcing them Both attach importance to active exit management.”
More than one fund partner once mentioned that when the mobile wave was the most maddening, many institutions (especially in the early stages) almost ignored exits due to frequent moves. “Until some projects are integrated into very late rounds, I realized that I can refund part of the amount firstBut for a long time, Chinese VC investors’ understanding of the financial market is not a necessary skill-and this is precisely the key to the exit link.
One of the top five US dollar VC partners once reviewed the 36 krypton, and they admitted that they had invested in some star companies with good valuations. , But the DPI is not ideal. The attribution after the resumption is: “I did not grasp the best exit timing“.
On the other hand, compared to exiting, it seems that investing is the sexier thing. This is especially true for US dollar funds-many US dollar funds have an inertia: they have invested in 100 projects and are keen to pursue one or two projects that are particularly successful, so as to get the return of the entire fund back. The exit of other mid-stream projects is relatively negative.
However, in the past two years, when the IPO barrier lake occurred, Wework IPO collapse and other incidents occurred, investors in the primary market have become more aware of exit–or the importance of understanding exit and establishing exit thinking.
In fact, VC/PE has a variety of exit methods in investment projects, including not only IPOs, but also corporate mergers and acquisitions, major shareholders or company repurchases, management buyouts, and company liquidation. The choice of different exit methods is also a test of investors’ ability to assess the situation.
In the eyes of Liao Ming, the founding managing partner of PAC, this is a capital market sense. “Not only must we pay attention to the actual situation of the company or enterprise from the micro level, but also closely follow international policies and grasp the macro trend.” Liao Ming said that in the long run, this is a key ability for how far a fund can go.
For example, in Zhengxingu, they have a special “exit committee” within them, which will regularly review the changes in the internal value and competitive advantage of the invested company, and consider the relationship between the internal value and valuation of the company. “Whether to withdraw and when to withdraw depends on the judgment of the long-term development trend of the industry; the judgment of the long-term industry demand and technological change; the analysis of the industry competition pattern, and then the judgment of the changes in the competitive advantages between different companies.” Lin Lijun said.
Generally speaking, the exit of a project within a VC/PE organization is mainly determined by the managing partner, CFO, legal affairs or middle and back office team. Factors considered include the expected rise and fall of the project, the duration of the fund (involving DPI issues), etc. On the one hand, this contains many unpredictable factors.
Therefore, every investor interviewed also pointed out that even if the so-called exit system is established, even if they know enough about the project itself, there are too many objective variables in the external world-such as international policies, Macro environment, big capital market