In 2019, the landing of the science and technology board and the comprehensive registration system reform of the capital market made the Chinese equity market usher in the fourth major change. This change will make the equity market usher in the golden period of development.
Text/As Associate Dean of the Financial Research Institute, and as Managing Director of Capital Zhang Aoping
In March 1985, the “Decision on the Reform of the Science and Technology System” document was officially issued. The document stated: “For high-tech development work with rapid changes and high risks, venture capital can be established to support it.” 6 months Later, the State Council formally approved the establishment of China’s first high-tech venture capital company, China New Technology Venture Capital Company (Zhongchuang), which marked the birth of China’s equity market.
Since its development in 1985, the total capital management of China’s equity market has exceeded 10 trillion. The development of China’s equity market for nearly 35 years has experienced the Chinese Internet era (1999-2004); the A-share share-trading reform, the GEM officially landed (2005-2009); the mobile Internet and the “mass entrepreneurship, the public Innovations (2010-2018) These three major changes, each major change has brought new historic opportunities for entrepreneurs and investors. In 2019, the landing of the science and technology board and the comprehensive registration system reform of the capital market made the Chinese equity market usher in the fourth major change. This change will make the equity market usher in the golden period of development.
Historical Opportunities for Entrepreneurship and Investment in One or Three Major Changes
1, China’s Internet Golden Age (1999-2004)
In 1985, after the State Council officially approved the establishment of China’s first high-tech venture capital company, China New Technology Venture Capital Co., Ltd. (Zhongchuang), a large number of government-invested venture capital institutions were born. However, at that time, there was no smooth exit channel in China’s capital market. There was no IPO and M&A exit path for equity investment, and a large number of venture capital institutions began to invest in mature industries and enterprises in order to ensure continuous operation, and even invested in real estate at that time. And the securities market.
In 1999, the US Internet bubble burst and the Nasdaq stock index fell after reaching a high of 5,132. But in the bubble, China has ushered in a golden age of booming Internet. The companies that survived the financing at that time have mostly become giants in the future. For example, in October 1999, the first $5 million angel investment in Ali, such as Goldman Sachs, Fidelity Investments, Singapore Government Technology Development Fund, etc.Baba, in January of the following year, once again won the second round of financing of Softbank’s $20 million; in September 2000, Baidu received a $1.5 million investment from IDG Capital. In 2005, Baidu officially went public, and IDG received about 100 times of revenue. These successful investment cases have made the Chinese equity investment market gradually clear the development direction and strengthened the confidence of development. During this period, excellent entrepreneurs with clear equity financing awareness emerged.
2, A share share split reform, GEM officially landed (2005-2009)
On April 29, 2005, China’s capital market ushered in a major change – “share reform and full circulation”. In 2006, the A-share IPO was restarted, and Tongzhou Electronics became the first enterprise to be listed on the whole circulation. This marked the first truly successful IPO exit of China’s domestic venture capital in the domestic capital market.
In this big change, local venture capitalists such as Shenzhen Venture Capital and Dachen Venture Capital are the biggest beneficiaries of the full circulation of share reform. In 2005, Baidu, Focus Media, Suntech Power and other companies listed on the US stock market Nasdaq, the increase in overseas listing and exit success cases, promoted the development of domestic venture capital from the other end.
In the same year, Xu Xin founded today’s Capital Group, Zhang Lei founded Gaochun Capital, and Shen Nanpeng founded the Sequoia Capital China Fund. Today, many well-known investment institutions are born in 2005, which opened their dreams. Investment career. On October 30, 2009, the GEM market, which belongs to China’s innovative private enterprise docking capital development, was formally established. The first batch of 28 companies went public. Overnight, hundreds of local venture capital institutions emerged in Shenzhen.
3. The era of mobile Internet and “mass entrepreneurship, innovation” (2010-2018)
In 2010, China’s mobile Internet boom hit. Since its establishment in 2005, Sequoia Capital China Fund has invested in well-known Internet and mobile Internet companies such as Le Bee Network, Vipshop, Alibaba, Jingdong, Jumeiyou, Jiuxian, etc., starting from 2010, accompanied by In the wave of mobile Internet listings, Sequoia Capital received high returns during this period; Jingwei China also made early investments in well-known mobile Internet companies such as Momo, Cheetah Mobile, Fast, and Meiyou during this period, 2014 On the 12th of December, Momo brought more than 20 times return to Jingwei.
In 2014, the horn of “Volkswagen Entrepreneurship and Innovation” blew on China’s 9.6 million square kilometers of land, and the entrepreneurial and investment markets were ignited in an instant. The equity investment industry has begun to accelerate its development with thousands of entrepreneurs who have embarked on a dream-seeking journey. The era of “global venture capital” has also come.
In 2015, the total equity investment was 525.5 billion yuan. By 2017, the annual investment amount exceeded the trillion scale, reaching 121.1 billion yuan. At the same time, the number of A-share IPOs peaked in 2017, with 438 generations of history.new highs. Local venture capital, such as Shenzhen Venture Capital, Dachen, Yida, Junlian, Xinzhongli, Tongchuang Weiye, and Oriental Fuhai, have once again ushered in a new wave of rapid development opportunities.
But in 2018, with the new regulations of Assets Management, the IPO review of A-shares, the violent thunder of listed companies, the break-up of overseas listings, and the changes in the market environment, the equity market has fallen from a feverish moment in the past three years. The freezing point, the fundraising end and the investment side began a sharp decline.
Second, the capital market comprehensive registration system reform is coming, the equity market is ushering in a new round of gold development period
Reviewing the history of China’s equity market development, it is not difficult to find that every institutional change in the capital market will bring new historical opportunities to the equity market, such as the share-trading reform in 2005 and the GEM in 2009. In 2013, the New Third Board was expanded to the whole country. In 2019, the science and technology board opened the era of registration, which can be described as a major change in the development of China’s capital market for nearly 30 years. At the same time, other sectors of A-shares are also rapidly advancing the registration system reform. Within two to three years, China’s capital market will usher in a comprehensive era of registration, which will bring new opportunities for entrepreneurship and investment.
First of all, for investment, the era of long-term value investment is officially coming. The scarcity of A-share listed companies under the registration system will be broken, the valuation boundary of the first- and second-tier markets will cease to exist, the valuation spread will gradually shrink, and even the upside down, the enterprise listing will no longer be the end of investment, and the listing will also It does not mean that an exit can be achieved.
For example, in the 2018 Hong Kong stocks listed in the Hong Kong stock market, due to the registration system of Hong Kong stocks, listed companies do not have the scarcity of quantity, coupled with the poor overall market environment of Hong Kong stock market in 2018, Xiaomi listed after the break, the last round of investment They are currently at a loss. Therefore, in the era of registration, investment institutions should judge whether enterprises can have long-term value creation ability from a longer-term perspective, whether they can achieve continuous growth of enterprise value, and the short-term cross-market arbitrage Pre-IPO investment model will completely fail. . Only by looking at the value of the company with a longer-term perspective, to achieve long-term investment, long-term investment to “accompany” the growth of the enterprise, you can earn “time compound interest.”
Secondly, for enterprises, if enterprises want to achieve capitalization, financing, and listing development in the era of registration, the focus will be on how to achieve market-oriented value, and let investment institutions recognize the market value of the enterprise itself. In addition, it is more important to have the ability to create long-term value before it can continue to develop in the capital market.
If the company adopts the “copy mode” in terms of product technology, business model and service capability, it will quickly bring products or services to market and occupy the market, but there is no core value barrier and no long-term value creation capability. It will eventually be eliminated by the capital market. The other category, if it is a technology innovation enterprise, truly has “hard technology”, and scientific research products can be commercialized, accepted by the market, and have continuous research and development capabilities; if it is a consumer service enterprise, Increasing the long-term true satisfaction of people’s use of products or services in clothing, food, housing, transportation or services, and continuously improving the efficiency of production and use of products, such enterprises with core value barriers and long-term value creation Equity financing can be realized in the primary market, and IPO development can be achieved through the registration system.
In 2020, China’s equity market will usher in the 35th year of development. With the comprehensive registration system reform of the capital market, the investment and financing logic of the equity market will be completely changed, and the short-term arbitrage model will cease to exist. Both investment and investment will return to long-term value sources. The Chinese equity market after returning to the original source will also usher in a new stage of gold development.