What warnings can Xuehu Capital of short-selling Ruixun Capital give PE / VC?

Editor’s note: This article comes from the WeChat public account “Investment Network” (ID: China-Venture) , author: Dongli Han.

This time, the whole world knows that Snow Lake Capital is low-key

I heard an investor say something like this before, and I was very convinced that investment practitioners have two types of survival methods, one is standing on the water, widely competing and cooperating with peers, and trying to make the market available The resources are used by oneself in order to achieve continuous success through the cycle; the other is to survive underwater, the so-called predators, most of the time, the market does not perceive its existence, when people see It is often the moment when it bites off its prey.

Snow Lake Capital, which suddenly became famous, naturally belongs to the latter. Prior to this, I could only hear occasionally that they had made cornerstone investments in the IPOs of Haidilao and Huaxing. They were very young and claimed to be under Zhang Lei. A limited number of reports will point out its low-key style. But as soon as this happened, the whole world knew that Xuehu Capital was low-key.

The capital market is like this. Since entering the market, it is necessary to grab fruit from other people ’s pockets. Unfortunately, it was obviously prepared to pull the trigger underwater, but it was dug out and turned into a duel. Like being drawn into a certain camp. So Xuezi, the CEO of Ma Ziming, immediately came forward to express his position. He first said that Jiacang iQiyi has a good future, and he stated that “don’t pay attention to the unjustified harassment of short-selling institutions”, and immediately cut with “short-selling institutions”. The main point of the second statement is that it is optimistic about the Chinese stock market, and several of the adverbs used are very strong. For example below:

  • This is definitely an extremely rare event and absolutely cannot represent the overall situation of the entire Chinese stock market. In this incident, the audit agency effectively stopped this behavior, which is very gratifying for market participants. This is a great progress, indicating that regardless of the current market mechanism, market efficiency has actually improved. .

    First state that Ruixing can’t represent the overall situation of the Chinese stocks, let alone progress and positive energy. But this sentence is neither heartfelt, nor rigorous, nor scientific, and even slightly cunning. For example, Ma Ziming actually devoted the credit for revealing Ruixing to the auditing agency, and said nothing about shorting throughout the text.

    Why not say this?Strict, can be compared with its investment research, the original saying is “we have zero tolerance for any defective company fraud. According to our research, if there are defects in the fundamentals of the business, as long as there is a little clue. , We will not regard it as an investment object. “-The key to this assertion is the hard work. According to his statement, for example, investing in iQiyi means that after a long-term research, people and business The model has been fully grasped, and the fundamentals can be tracked for a long time to determine that it is “very unlikely.” If a company needs to undergo such intensive research before it can reach a “relative conclusion”, then the sudden shift to the Chinese stock market and its ability to express its views suddenly appear to be more serious than conclusions.

    In addition to Xuehu ’s standpoint and position, another topic that Ma Ziming talked about is actually more publicly valuable, which is to judge this point by investing in enterprise research. The original saying goes like this:

    • We buy iQiyi ’s stock, trust in management is an important point, and at the same time, we are long-term optimistic about iQiyi ’s business model and growth . In addition to Gong Yu, we have also done a very deep research on fundamentals.

      So you can see that for the hedge fund, Xuehu, when they talk about a company ’s point of view, knowledge comes first, business model comes second, and fundamentals come first. Three. In fact, this is also a logical line of investment in the primary market, but it is also this secondary market peer with a similar way of thinking that sounds the whistle of the Chinese stock market.

      We are only discussing a very small question here: What warning does this whistle sound for PE / VC investment?

      In the case of Ruixing, many people believe that there is a problem with the exit link for investment institutions. The argument is that Ruixing ’s stocks have had a very good market performance and there is a lot of profitable space to set up. Taken, but missed one by one. From the logic of the stock market, if the high point cannot be sold, this conclusion is correct. But this is not the case for primary market investment.

      Let ’s take a look at the elements. First of all, without any direct evidence to support, no fund can be regarded as a collusion of corporate fraud, then a premise can be drawn from this discussion: after the listing of Ruixing, these funds are recognized for their business Growth rate. A relatively special factor is that Ruixing received a round of financing from July 2018 to May 2019 IPO, only a short period of less than one year, which is an unprecedented situation for all funds participating in it. ——The growth cycle of the company is completely incompatible with the investment cycle of the fund. The exit in this case is a problem with no experience at all;

      Going back to the case itself, if the early-stage company you invested in took a short time to go public, and achieved high business data after listingRapid growth, then whether it is a VC or PE, to continue to hold shares is an understandable or even reasonable choice. Therefore, it is obviously inappropriate to regard “exit” as a mistake made by the investment fund in the case of Ruixing.

      So looking back, which part of the problem is the problem? From the aforementioned inferences, it is clear that the problematic link is “wrongly endorsed the fictitious business data of this company”.

      After all, as far as known information is concerned, Ruixing ’s business fraud is actually after listing, in the primary market financing process, with the participation of Dazheng, Yuyue, Junlian and GIC, there is no evidence. The proof also has the problem of false data, so at least for now it should be considered that these investment funds have not made fatal mistakes in the investment process.

      After completing the investment and the company landing on the open market, an equity investment fund, or a shareholder, failed to judge the fraud of the company ’s performance. As far as the team structure of most local institutions is concerned, it is an unavoidable risk. , How many funds have the ability and strategy to track the fundamentals of the company very thoroughly after the company is listed? What we are seeing now is an extremely erroneous enterprise demonstration, a collective failure of PE / VC in the stock market, the greater the impact of the case, the more the points of reflection should be cleared, otherwise it will be made accordingly The response may even go wrong and miss the true high-growth enterprise.

      What are the real warnings for PE / VC by Xuehu Whistle? The conclusion must be “Building your own secondary market capabilities as soon as possible.” For institutional managers in the primary market, find the most suitable secondary market solution path and use reasonable methods to solve the risks of real fundamental information of the enterprise. But it is not simply to blame the error on “exit and sell stocks”.