What is the most ideal firm for the STAR Market? | iAsk Top Leaders
It’s been two years since we last spoke with Andrew Yan.
Within the short past two years, the changes in the Chinese business world have been eye-opening. Shared bicycles are no longer worshipped; the blockchain sector has cooled down rapidly; Huawei has been blocked by the United States……There are black swans as well as gray rhinos; sectors are still swamped; new comers rise up swiftly; old leaders fall down quickly; industry reshuffle continues; business is still ongoing; everything is full of uncertainties.
The anxiety, unsettlement and challenges brought about by uncertainties bother entrepreneurs, self-starters and investors, in that there is no law to survive eternally for entrepreneurship or investing. Business is full of countless dramas. Onlookers cannot see through its essence. Even if they understand at the beginning, it's hard to forecast the ending. For Andrew Yan, who is considered immensely successful and prestigious as a first-tier venture capitalist in China, he still hasn't found the sufficient conditions for successful investments after 25 years. Neither has Warren Buffett, who has been exploring for 60 years.
"What is the hardest thing in the world? It should be making money in a sustainable way." Entrepreneurship and investing never end. All players attempt to find the most sustainable way to survive and create wealth as quickly as possible.
Andrew Yan was one of the earliest venture capitalists in China with extraordinary investment experience. He invested in Shanda and made Tianqiao Chen the youngest richest man in China; during the financial crisis, Andrew Yan invested in 58.com against the adverse situation and saved the day……SAIF Partners under Andrew Yan's leadership currently manages RMB funds of nearly 50 billion yuan and USD funds of 4 billion dollars. During his 25 years of investment career, he has invested in over 400 companies. Andrew Yan went through both a wild growth era by exploring alone and a blooming time with fierce competitions. His insights on investment serve as abundant resources for this era and future participants.
The loneliness in a chaotic era or the hustle in a flourishing time?
"We were considered as shell companies by most people. Even if we claimed that we were venture capitalists, they wouldn't understand. We said we were wealthy, but people couldn't tell either. Back then, we just walked around with backpacks."
This is Andrew Yan's recollection of the domestic venture capital industry in the early 1990s.
In 1994, Andrew Yan joined AIG Asian Infrastructure Fund as Managing Director of the North Asia and Greater China region and became a venture capitalist. At that time, China's venture capital sector was still in its infancy. IDG VC was only an internally founded one-year-old investment department in China. The investment market was almost vacant with few competitions. Andrew Yan felt lonely for real. Back then, Chinese people considered VCs as "shell companies", or even unreliable "fraudulent firms". In that era, it was simple to tell if a person was rich or not. "First and foremost, if this person places a GSM mobile phone on the desk, that means he has a high social status and is wealthy."
In 1998, Mr. Siwei Cheng, known as the "Father of Venture Capital in China", submitted the "Proposal on learning from foreign experience and developing China's venture capital Industry as soon as possible", which was later regard as the first proposal to trigger a new peak in the high-tech industry. Venture capital officially ushered in a fast development period in China afterwards.
In 2005, Shanda and other projects made Softbank Asian Infrastructure Fund (SASIF) under the Andrew Yan's leadership the most profitable VC in the world, with an annual return of 90%. In the same year, Andrew Yan independently founded SAIF Partners outside of SASIF and kickstarted his own investment career, setting off a trend of independence in China's VC industry.
The explorations alone in the chaotic era came with the loneliness of working single-handedly. Nowadays, the bloom of the industry creates the hustle of rushing up in crowds. Based on data from an industry consulting platform Crunchbase, the total amount of venture capital investment reached a record high of USD 93.8 billion in the first ten months of last year, taking the lead globally.
Gloria Ai: Do you prefer the explorations alone in the chaotic era, or the flourishing competitions in this era?
Andrew Yan: I don't really have a preference, since each era has its own features. Back then, there were fewer competitions, so you would feel a sense of loneliness. Nowadays, VC has become a trend. To date, there are more than 130 million PEs and VCs registered in the Asset Management Association of China (AMAC), with over RMB 8 trillion under management, scaling up to the next level.
There are ten and thousands of sectors, and the capital bubble has burst. The Chinese culture favors fast-food culture, which spawns the desire to make quick money. Regarding how to maintain the investment focus in the impetuous fast-food culture, Andrew Yan analyzed and simplified the answer from two aspects. "Firstly, it depends on the business, i.e. what the business is about; secondly, it's about people, namely, who runs the business. Successful entrepreneurs do share something in common, such as diligence, professionalism, and personality."
Investment depends on business. What business is worth investing? The innovation of business patterns can be put in practice in a quick manner, hence making it easier to lead a trend with followers and obtain capital investments. However, developing a technology takes years of efforts and tends to be less known by the general public. Deeply experienced in the field of original technology investment, Andrew Yan is fully aware of its essence, "Truly innovative technology takes patience. Among the numerous technology firms in China, few can innovate from scratch. Most of them innovate by extending applications based on the technology."
It takes ten years to sharpen a sword: investing in hidden champions?
Need to pull through loneliness to see the results.
Andrew Yan just had such an experience. Among the first companies to go public on the STAR Market, a company named Appotronics is one of them. This is a company dedicated to laser display technology and product innovation research. In 2019, the company became a "big name in the tech industry" overnight for presenting the laser projection shows at the Shenzhen sub-venue of the 2019 Spring Festival Gala and the "Lantern Festival Night" at the Palace Museum. Rumor has it that the company masters a "futuristic technology".
Before the laser projection shows for the Spring Festival Gala and the "Lantern Festival Night" in the Forbidden City, Appotronics was also a "hidden champion", defined by German management expert Hermann Simon, which refers to top industry leaders well known or even widely acknowledged within the industry, yet less known by the general public.
Before becoming a "hidden champion", Appotronics spent a decade sharpening its technology and kept a low profile.
"Appotronics is a company with truly original technology. It mainly provides new solutions for the display field with laser fluorescence display technology. The key components are: optical engines for laser display and laser sources. Few companies around the world are capable of providing such laser sources. It takes a long time to develop, improve, and apply the technology. It's been almost ten years since we invested in this company."
iAsk (iask-media.com) noticed that Appotronics' operating income reached RMB 355 million, RMB 806 million and RMB 1.386 billion in 2016, 2017 and 2018 respectively, with the compound growth rate as high as 97.58% in the past three years. The net profit attributable to the parent company amounted to RMB 13 million, RMB 105 million, and RMB 177 million, with a substantial growth rate in the past three years.
There is never a shortage of smart entrepreneurs in the world. Even if an entrepreneur takes advantage of the right timing, right platform and right people, they cannot succeed if there is no market demand for the product. Andrew Yan repeatedly emphasizes that for companies that invest in hardcore technologies, it is crucial to develop market-driven technologies rather than imaginary ones.
To date, more than 15,000 sets of laser display devices based on the ALPD® laser display technology independently developed by Appotronics have been installed domestically, breaking through the monopoly of foreign enterprises in core display technology. Moreover, Appotronics' technology is also widely applied in various fields, such as laser TV, engineering laser projection and so on.
As a company established 13 years ago, Appotronics has endured a long period of development. Since Andrew Yan invested in Appotronics in 2009, he has also gone through 10 years with the company. From Andrew Yan's point of view, the preferential policies and Appotronics' performances have exceeded his expectations. "I expected to wait longer, but 5G was developed earlier than expected. In addition, the establishment of the STAR Market and going public among the first batch were also beyond our expectations."
Gloria Ai: If Appotronics is a relatively successful case, can such investment experience be replicated?
Andrew Yan: I think Appotronics is a typical example of companies with hardcore technology that are successful in China. From the perspective of a venture capitalist, especially in China, investors used to focus on investing in business pattern innovations. Now the investment focus is shifting towards truly hardcore technologies. Appotronics is a good example.
Only the right person is worth a long wait?
On July 22, 2019, Appotronics officially became listed on the STAR Market. Founder Yi Li, who has always kept a low profile, showed up at the Shanghai Stock Exchange. Yi Li is considered a typical outstanding entrepreneur in Andrew Yan's mind.
In 2006, Dr. Yi Li founded Appotronics. Three years later, Andrew Yan met with Yi Li in Hong Kong. "He left a good impression on me. He has sharp business acumen and nice personality. We have been getting along well for so many years."
Andrew Yan said that if Yi Li chose to start another business in the future, he would definitely invest in Dr. Li's business again.
Interestingly, after the founder set a development strategy for the company, he shifted his focus to R&D. Based on Andrew Yan's analysis, "Dr. Yi Li has a technology background. He leads the development of technology for the company, while entrusting experience management team with daily operations. After Lianming Bo served as CEO of the company, he enhanced production and sales. Overall, the technology team is in well collaboration with the management team."
Lianming Bo served as Deputy Director of the Department of Trade and Economics of Shaanxi College of Finance and Economics, Chief Accountant of Shenzhen Airlines, CEO and Chairman of Shenzhen China Star Optoelectronics Technology Co., Ltd (CSOT), CEO of TCL Multimedia Technology Holdings Limited. In March 2018, he joined Appotronics as Partner and CEO.
Even if you invest in the right business and choose the right person, you still need to be patient. Andrew Yan frankly stated that for technology companies, more often than not, General Partners have patience, but fund investors do not. "On the one hand, General Partners spot promising technology firms that might make a difference in the future, so they intend to invest. On the other hand, most Limited Partners cannot wait. They might request for withdrawal of funding when their family runs into trouble. What if they cannot withdraw their money?"
Fortunately, Andrew Yan waited till it happened, and Appotronics made it.
There is an unspoken law in the investment sector, called the Power Law, where the return on investment is inversely proportional to the ranking of the invested company raised to a certain power. If you invested in quality firms such as Facebook or Alibaba, the return on investment would be the sum of the returns from all other invested companies. Yet, betting on investing in a right sector and a right company is similar to looking for a needle in a haystack. Venture capitalists are like walkers holding a lamp at night; the visions described by countless entrepreneurs resemble the starry sky; some firms vanish swiftly like dazzling meteors, yet some stand out with accumulated hard work despite being imperceptible before. Investors need sharp business acumen to mine gold out of sand and support the invested companies with abundant capital so as to achieve a win-win situation.
Even so, Andrew Yan insists that investing is the best profession. He still enjoys it after 25 years of industry experience. "Every day I can learn something new. Every day, I can meet with interesting and smart people." In addition, "people provide you with so much money, which means they trust you. Moreover, when you first start operating a fund, you can only deploy other people's money without earning a penny yourself. Later on, you can obtain a share after helping others make a fortune. This is a fair business."
Gloria Ai: What advice would you offer for companies listed on the STAR Market?
Andrew Yan: There will definitely be two kinds of enterprises on the STAR Market. The first type has hardcore technologies and makes profits, an example being Appotronics, which is equipped with both promising technology and market profitability. As far as I know, Appotronics should be among the top on the STAR Market among the companies with hardcore technologies and leading profitability. However, there are also other companies with sound technologies that are unable to make a profit within the short term. Therefore, investors are faced with a dilemma. For example, if a company has hardcore technology but cannot earn a profit within ten years, should investors fund the company?
Gloria Ai: Would you invest or not?
Andrew Yan: From the perspective of an investor, as a General Partner, I have patience. Yet, the investors behind my back might not be as patient. My fund only allows seven years to generate returns. If a company cannot make a profit within ten years, my stock value might plummet. How can I make such investments? Even if I have patience for it, my investors do not.
Gloria Ai: So you still hope that there would be more companies with strong technology and outstanding profitability on the STAR Market, just like Appotronics?
Andrew Yan: This would be the most ideal.
iAsk Media offers in-depth coverage, distribution, and brand-building services for founders in both China inbound and outbound markets. Over the past five years, iAsk Media has published over 1300 pieces of founder-focused original text and audio content, and produced over 120 premium video dialogues with leading entrepreneurs and investors.
iAsk Capital further supports founders by complementing media, brand-building, and marketing solutions with a wide range of investment and advisory services, from growth capital and direct equity investment to fundraising, asset management, and M&A support. To date, iAsk Capital has completed investments in some of China’s fastest growing ventures, including Bytedance, Himalaya, Movietime, and Horizon Robotics.
Gloria Ai is the founder of iAsk Media and the founding manager of iAsk Capital, and a former venture partner at the Softbank Asia Infrastructure Fund. She serves as the international brand ambassador to her hometown of Huangshan, and was Forbes 30 Under 30 in the Media, Marketing & Advertising category. She is a graduate of Harvard Kennedy School and Peking University. Prior to founding iAsk, she served as a financial news correspondent for China Central Television in New York.