iAsk : What do you have to experience on the way to Buffet?
Wang Chaoyong has a lot of labels on him, a child prodigy, financier, godfather of venture capital investment. But the one he likes the best is the label of founder after he left the well-recognized global investment banks like JP Morgan and Standard & Poor's and founded ChinaEquity. Now is the chairman & CEO of ChinaEquity.
Over the past 18 years, ChinaEquity has been a backbone behind Baidu and Sohu. However, if you pay a closer look, you can’t find ChinaEquity behind enterprises which are more headmost. Having been engaged in financing for 30 years, is Wang Chaoyong afraid of headmost? Gloria Ai, founder of iAsk Media, interviewed Wang Chaoyong seeking for answers.
How does the godfather think of "qualified"?
Wang Chaoyong, who has been an investor over 30 years, comments himself as "a professional, qualified, long-term and persistent investor". In China's investment industry, there are very few people who started from Wall Street, had more than 30 years of experience and started their own businesses.
What is a qualified investment agency?
The most important criterion for investing is time. If an agency can survive for more than 10 years, without extinction, without elimination and still survives, it can be basically said that this agency can occupy a place in this industry.
First of all, in today's venture capital investment world with constant changes, tens of thousands of agencies are desperately running forward, if you don't have the stamina, if you are not competitive, you would probably have been eliminated long before. Secondly, whether there is enough reward for investors. If you can survive for more than 10 years, which means that your rewards for investors are satisfactory. Otherwise, investors will not continue to give you the money, and you will not be able to raise money for sustaining. ChinaEquity founded by Wang Chaoyong is nearly 20 years old, so it can be counted as qualified.
What are eligible investors?
Eligible investors should be positioned like this: in the tide of economic reform in China, those who support a number of entrepreneurs with capital investment and help them to realize their ideals and to create wealth, tax revenues and employment opportunities for society. "Investment is the best choice in my life," Wang said. "it is my favorite occupation and the career I have pursued throughout my life. "
Investment must be a combination of success and failure, and there must be a rule of 20/80 in the world of investment. In the investment circle, 80% of the profits and returns will be transferred by 20% of the good agencies or projects. As a leading VC, you must aim at the 20% area or projects. The failure rate of each fund should be too high. The best combination could be two failures in the 10 projects, and two very successful ones in the remaining eight, and the rest are regular ones.
Investment has certain rules. It is also a matter of contingency, sometimes even luck is more important. The investment godfather also has regrets and bad investment experiences. When ChinaEquity was firstly founded, the scope of investment had to be limited to Beijing due to lack of capital fund. Therefore, ChinaEquity invested in Baidu and Sohu but didn't invest in Alibaba in Hangzhou nor Tencent in Shenzhen. As a consequence, everyone knows what happens next. Later, ChinaEquity missed the emerging Internet areas such as e-commerce and group-buying. Although it avoided making loss in the fierce competition among thousands of group-buying platforms, it also missed good projects like Meituan and Dianping.
Less investment in headmost companies, does Wang Chaoyong fall behind or become more cautious?
Comparing to some new investment agencies, ChinaEquity can be regarded as an predecessor investment agency. ChinaEquity used to be successful in the invested projects, such as Baidu, but now it seems that they are not investing in the headmost companies. we are not seeing ChinaEquity behind sharing-bicycle, O2O and the group buying platforms. So does Wang Chaoyong fall behind the times or become more cautious? In the face of such questioning, Wang said, "I become more rational. After the scale becomes lager, more of my considerations are given to the value of the whole company."
Unlike ordinary fund management companies, ChinaEquity is objected to build a capital platform, to create an investment holding platform similar to Mr. Warren Buffett's Berkshire Hathaway. It took 18 years for Wang Chaoyong to build two listed companies. The innovative business is worth $24 billion in the new OTC Market, and the PE business is worth $15 billion in A-share market, which add up to about $40 billion in market value. From this point of view, in China's PE and VC industry, according to the GP value, ChinaEquity should be in the top three.
ChinaEquity’s company strategy is positioned at both headmost companies as well as small and medium-sized, high-tech and robust growth companies. ChinaEquity has invested in a lot of headmost companies, such as MissPao (shared gyms) and 'future life', Chu orange, Liu peach and Pan apple (each fruit representing the name of the three successful business tycoons). ChinaEquity also invested in the online drug platform 111.com founded by YHD.com’s co-founder Yu Gang, a unicorn. When ChinaEquity invested in Aston Martin, its value was less than $100 million at the time, and it is now valued at more than $5 billion.
What is a headmost company? Is it the one which draws everyone’s attention? "ChinaEquity has always invested in the headmost companies, but my definition to the headmost company is not necessarily the same with the media. What we always invest are those leading technology companies," Wang said.
Disagree with the headmost theory, How to build a VC version Warren Buffett?
Break the vicious circle in which GP are working for LP. Explore the value of GP. Not every project or team is qualified for IPO.
The best example of this is Buffett's Berkshire Hathaway. There are numerous good VC agencies, but none of them is behind those companies listed in the Fortune 100, because their business model is quite different from Buffett's. Buffett also makes investments, and he ranks the second on the Fortune list and top 10 in global top 20 by market capitalization. But why we can't find such an institution in silicon valley's venture capital?
This is what Wang Chaoyong is trying to explore. When you set your goal to explore the value of GP, you'll find what you are pursuing is not the headmost project, nor a rising star project, rather you are thriving to build a valuable and expanding platform. This is why Buffett stands on the second place in the Fortune list. Which headmost company did he invest? None. But that does not prevent Berkshire from becoming one of the world's most valuable investment companies.
The best investment is an investment that doesn't need to be withdrawn. And ChinaEquity is trying to build a VC version Warren Buffett. In the past, in silicon valley, it was very possible to raise long-term fund, like 10 years or longer. But in China, it is 3+2 model, five years is the longest term, making it very bad for the long-term hold of good investment projects.
Don't look at the headmost projects in China. They held the projects for very short time. Not many could hold for more than 7 years, not to mention more than 10 years. And in China, the two most successful projects, Tencent invested by MIH and Alibaba invested by Softbank, are all held for more than 16 years, and finally generated hundreds of billions of dollars in return. This is the difference between venture capital and investment holding industry.
So it is not necessary to look for which headmost company you are going to invest. Even you are all in, and you sell it after three or five years, it doesn't work. ChinaEquity held Baidu for five years and sold it with 122 times of return. But if we hold it till today, it is worth 1000 times more. What we should explore is why China's venture capitalists invested so many good projects, but none of them became Softbank or MIH.
iAsk • Quick Q&A with Wang Chaoyong
Gloria Ai: ChinaEquity is shifting its focus from primary equity investment to build an innovative holding platform. Does it mean that it becomes harder and harder to list and delist an investment project on the market in an era that everybody is starting up something and everybody is making investment?
Wang Chaoyong: that's true. We should encourage more mergers and acquisitions and retreats, or to encourage the listed investment institutions to buy more and to form a bigger platform, allowing these investors to list or back-door list on the market, so that they are not eager to reduce their investment projects, and good projects can be held all the time.
Gloria Ai: you say that it takes more than 10 years to build a professional investment agency. Right now, 80% of VC and PE in China are no more than five years old. The scale of fund they manage is as high as $7 trillion, the number of fund managers is about 10,000. In your opinion, how many percentage is qualified, and how many percentage is unqualified?
Wang Chaoyong: 80% of them are unqualified or 80% will be at risk.
Gloria Ai: what risks?
Wang Chaoyong: there is a future survival risk or the risk of bringing loss to investors.
Gloria Ai: you think that 80% is unqualified, but they would think you are too conservative.
Wang Chaoyong: everything has to be tested by time, because if they can survive for more than 10 years, that means they are successful.
Gloria Ai: when you consider yourself as a veteran, what is your attitude towards these new investors and investment agencies?
Wang Chaoyong: I appreciate them very much, we have to learn from young people especially those in new industries, we could even invest with them.
Gloria Ai: do you think China's VC industry entered the second half? Will there be a lot of liquidation?
Wang Chaoyong: we have to wait for another three or five years. Many of these funds are now in a waiting period.
Gloria Ai: it will be clear five years from now, two to three years is a duration?
Wang Chaoyong: yes.
Gloria Ai: what kind of outcome will you expect?
Wang Chaoyong: there will be a lot of agencies that will be eliminated, just like Internet start-ups.
Gloria Ai: what and who will be remained?
Wang Chaoyong: those with certain scale, with an exit record, with fundraising ability, and those with a brand or an experienced team.
Gloria Ai: what kind of investors will stay?
Wang Chaoyong: investors with profound industrial background and investment background, or extensive network resources, more importantly, those who have very good learning ability and keep up with the times will stay.
Gloria Ai: what do you think is the future investment?
Wang Chaoyong: man who has foresight and follows the trend will win and thrive.