The article is from WeChat public account: 投 中 网 (ID: China-Venture) , author: Taohui Dong, of: Oriental IC
In a reasonable venture capital ecosystem, there should be differences, not gaps, between RMB funds and USD funds.
Although no one has spoken publicly, it is well known that the investment industry has long had a chain of scorn.
US dollar funds and RMB funds are often compared naturally.
Using the standards of the US dollar fund, the investment method of the RMB fund is too “Low” and too unpursuited. I especially like to invest in some traditional industry companies that are not sexy and have nothing to do with changing the world. The US dollar fund is more like the hero of the American blockbuster to save the world. It favors “find something that can change the world” and is more willing to take risks to gamble on opportunities with huge returns in the future.
“There is no food without a dollar fund, and it has become more obvious in the past two years.” At the end of November 2019, at the Hongtai Fund Annual Conference, Hongtai Fund founder Sheng Xitai Xiang Hong was present Thai Fund employees and LPs said that no matter how difficult it is for Hong Thai to raise US dollar funds.
These remarks sparked a new discussion between the US dollar fund and the RMB fund.
Implement the IPO test, go your separate ways
2019 is a big IPO year. As of the end of November, more than 30 Chinese stocks have gone public in the United States, and another 25 companies have submitted prospectuses, which does not include companies that have already submitted their forms in secret.
Among them, there are many well-known names in the market, including Neo-Ox, Gathering, Who to Learn from, Douyu, Netease Youdao, Fangduodu, Qingke Apartment, Litchi FM, Eggshell Apartment, Financial One Account, etc.Higher internet companies. These companies were born in the wave of mobile Internet entrepreneurship, and have received investment from hundreds of VC / PE.
This IPO boom in 2019 is more like a summary and examination of the last round of mobile internet opportunities. In this examination room, a large number of candidates for US dollar funds appeared, but there were very few RMB funds. Among the only few RMB funds, most were RMB funds managed by GPs with a background of USD funds.
Where did the RMB fund go? They are taking another exam. The Science and Technology Innovation Board, which opened in July 2019, has so far passed 150 companies’ approval. Opening the list of shareholders of these companies, you can see almost all RMB funds.
The division between RMB funds and USD funds has existed since venture capital started its development in China 20 years ago. Since at least around 2015, RMB funds have felt deeply that they have found nothing on the Internet circuit, the biggest investment opportunity in the past decade, and are actively seeking transformation to catch up with US dollar funds.
Now that 2019 is coming to an end, at least in terms of IPO projects, RMB funds and USD funds still look like two parallel lines. The Internet track is still dominated by the dollar fund.
The reason for this can be partly attributed to policy factors. After all, RMB funds investing in overseas listed companies involve outbound funds; but more fundamentally, I am afraid that the underlying investment concepts are quite different.
If you are neutral, there should be a difference, not a gap, between the RMB fund and the USD fund. The US dollar fund has an advantage on the Internet track, while the RMB fund is better at manufacturing related industries and hard technology. But in China, the original dollar funds are raising RMB funds, and the opposite situation is rare, and it is an objective fact.
It is difficult to raise funds domestically, but easy overseas?
It is difficult to raise funds for two years, making this winter of RMB funds extremely cold. Even if the science and technology board and the favorable registration system are good, it has not been able to reverse the avalanche-like downward trend of fundraising.
Even for head institutions, fundraising has become more difficult. The trend of LPs warming themselves up has brought many small and medium-sized organizations to a crisis of survival. Shocking assertions such as “90% of VC / PE will die” are repeated from industry leaders to the media.
The plight of domestic fund-raising has forced some renminbi fund GPs to try to raise funds overseas, but what is waiting for them is a basin of cold water.
RealIn the world, local GPs that started with RMB funds have long tried to raise US dollar funds, but so far, they have achieved very little. Looking at the market, institutions that can raise US dollar funds are either old US dollar funds such as Sequoia or new institutions created by a new generation of investors with a background of US dollar funds. The number of GPs in the background of RMB funds is very small.
A few days ago, at the “10 Questions in Investment” seminar hosted by China Investment Network, an institutional partner pointed directly at the “contempt chain” problem: “ RMB funds, no matter how long they are established, their performance is as good as It ’s not easy to pull the US dollar. But in turn, the US dollar fund, no matter the old or new, asks the RMB’s LP to speak better when it comes to money. “
Why is it so difficult for RMB funds to enter the international asset management system? Liao Yifan, a consultant partner of Light Dust Capital and a former pension fund in Canada, told China Investment Network that “the investment logic and language system of RMB and USD are different.”
Liao Yifan said that the US dollar LP will not easily invest in a fund, and investing in a new fund will require a lot of manpower and material resources. The inspection of GP is very careful. It will not only look at the performance of the fund, but also look deeply at every profitable project. How to cast it. It is impossible for a RMB fund to raise funds with only one mouth. As for many renminbi funds, because of their relationship to take projects and shares, their investment research capabilities are relatively weak, and it is even more difficult for them to be accepted by US dollar LPs. In contrast, RMB funds still lack experience in dealing with professional and mature LPs.
A GP partner who successfully raised USD funds in 2019 also told CIC that compared with RMB funds ‘LPs, USD funds’ LP’s due diligence is very detailed and requires more management data and observation cycles. Relatively longer.
Also, although the number of GPs in China is already very large, it far exceeds that of the United States. However, so many GPs are highly homogeneous with each other, and it is difficult to meet the needs of dollar LPs’ differentiated configuration.
Looking at a few successful cases of fundraising in 2019, all of them are characterized by focusing on investment segments. Liao Yifan believes that this is well understood, because for US dollar LPs, in the case of long-term cooperation with front-line institutions, it is not meaningful to deploy another comprehensive fund.
For the issue of raising US dollar funds, one of the top RMB fund partners in China admitted that there is still insufficient preparation, and it is necessary to further strengthen the team building of the new economy industry, and to be familiar with foreign capital markets. It’s not a dollar fund for fundraising. ”
Behind the above phenomenon, it is the RMB funds and the USD funds that have gone from style to investment logic and operation methods.To the great divide of the language system. For example, talking about favorable policies and common behaviors such as “Pre-IPO strategy” in the domestic market will make US dollar LPs feel “this is speculation.” Another example is the phenomenon that multiple funds from the same institution in China often invest in one project. The US dollar LP will be very vigilant, because there may be a conflict of interest, usually the AC (Advisory Committee) with the participation of the main LP is discussed and approved. In the fund, AC is generally superficial.
Sheng Lijun, the founder of Xuanhuai Investment, a company specializing in fund raising and second-hand share trading, told CIC that the expectation of RMB funds for enterprises is to go public, and the expectations of LPs are to sell past written results to sell the future. Fund products and get money, rarely consider the evolution of the international LP’s investment strategy and the evolution of the international PE industry.
Given that direct fundraising is too difficult, a more practical way is to use RMB funds by taking out a portion of the old fund’s asset portfolio and discounting them into new funds. This way, the US dollar LP can get 30% to 50% of the book return on the first day of entry. In other words, it is to exchange profits for cooperation.
This is also a helpless move. Sheng Lijun said that direct fundraising is also possible but very difficult. There are too many GPs to raise US dollar funds. “LP hopes that GPs will give some benefits first, and can only make profits first.”
This way, on the plus side, it also helps to build trust: US dollar LPs hope to enter a fund through second-hand share trading to transform the GP and observe the effect. Sheng Lijun believes that just like the upgrading of the manufacturing industry, the entry of the US dollar LP will also upgrade the fund. Of course, to successfully operate this model, old LPs are required to have a strong desire to transfer, not all RMB funds can do it.
Unique RMB fund ecology
Is there really a difficult gap between RMB funds and USD funds?
As we all know, venture capital is 100% imported in China. There are foreign institutions first, then local institutions, and then US dollar funds and then RMB funds. Local institutions that were established early have always been willing to use earlier foreign institutions as masters. But soon, with the direction of “localization”, RMB funds developed their own unique investment methodology and logic system, which became a force against the USD fund. According to the data of the China Investment Research Institute, the (Growth) At this stage, the scale of RMB fundraising has maintained a level that is 2 to 3 times higher than that of USD funds over the years.
Growth scale of growth fund (unit: USD 100 million, source: Investment Research Institute)
At the same time, the growth strategy of RMB funds has achieved excellent performance. In A-share IPO companies, the penetration rate of RMB funds exceeded 50%; in the science and technology board, this penetration rate is even higher, and more than 95% of the first, second and third batch of listed companies have been invested by RMB funds.
Nevertheless, it is an indisputable fact that the volume of RMB funds in the industry is extremely inconsistent with its size. For a long time, it is still the USD funds that have the right to speak. Looking at the list of shareholders of those “unicorns”, the vast majority of investment institutions are US dollar funds. Even the more controversial investment outlets, whether it is the “Thousands of Regiments” or the sharing economy, are almost all created by US dollar funds. The well-known “wind making” bosses from the public are basically from US dollar funds.
Renminbi funds often live out of the public eye and believe in “suffocating to make a fortune”. The number of IPO projects is large, but less well-known. Compared to the thrilling bet that the US dollar fund is betting on unicorns, the RMB fund seems quite flat.
So, it has also created a unique RMB fund ecology.
For example, in the venture capital industry, the “two-eight law” is regarded as an iron law, but for RMB funds, this iron law has been ineffective to some extent for a long time. As an example, after the opening of the A-share IPO exit channel after 2006, the state of the industry and the 20th place are often listed, and the “winner-take-all” phenomenon cannot be seen.
The venture capital industry also has a characteristic phenomenon: China has far more GPs than the United States. As of the end of September 2019, the private equity and venture capital registered with the China Foundation Association