This is the third post in our series: Meet China’s Midas, where we will talk to a mix of Chinese investors who have made successful investments in China’s growing tech space. Stay tuned over the coming one month as we talk to Chinese investors from Beijing to Shanghai about what it take to be a Midas in China. You can follow our updates at @technodechina for new stories in the series.
If there was a vote for the most shopworn cliche of the year, the term”Capital Winter” would win hands-down. Pardon the cliche, but the numbers do say that the for most VCs in China, most have turned dormant versions of their previous selves. However, Innovation Angel, a 1 billion RMB early stage fund is one exception to the rule, and in the past year has adopted a more aggressive strategy, as the database ITjuzi found. Trailing not far behind IDG with 34 investments, Innovation Angel was the second most active fund in 2016.
Here are just a few of the noteworthy investments Innovation Angel has made this past year and earlier:
- Meituan: Innovation Angel was one of the first backers of Meituan, now merged with Dianping.com to form the largest the on demand services provider in the nation.
- Tuniu: A leading package tour vendor in China, Tuniu went public in mid 2014.
- Moji: One of the most popular weather apps in China, this company also makes smart air quality detectors.
- Liwushuo: a shopping guide platform targeted at the post09’s generation, giving tips and ideas on chic items to buy
- Microfunplus: a mobile game developer publishing hits like Bingo Crush. The company recently listed on the New Three board.
The logic behind the firm’s counter intuitive behavior is beautifully simple. When the entrepreneurism and funding fever cools down, the ones left standing are those who have proved they deserve attention. As Innovation Angel’s founding partner Lin Sen puts it, a flagging capital environment forms a natural selection mechanism, and after startups have been naturally screened, then it’s time to make your moves.
We were lucky enough to have him share his insights on some FAQs:
Q: Why is Innovation Angel so actively investing this year given the current climate?
A: We believe that the atmosphere last year was not beneficial, there was a lot of hot money in pursuit of projects. All this cash has altered the mindset of entrepreneurs, and made them impatient and impetuous, and even the less exciting ones got investment. But VC circles had never been deceived, good companies are hard to come by, and the situation last years was not healthy.
After the frenzy last year, entrepreneurs remaining today look at things in a more balanced way, and that they stood the test of time and hardship, that proves they have certain qualities. Only when companies survive during scanty times will they have opportunities to really grow and hone their skills. As investors, this is our opportunity to score, and when we give them support when money is in shorter supply relatively speaking, they appreciate it more.
Q: You’ve been an entrepreneur yourself, coming from their ranks, what kind of suggestions would you give them?
A: Firstly, it’s time to go back to the basics. Theres no steering around the essence of business–turning a profit, providing value to your clients and to society.
This is obviously essential to any enterprise, but so many entrepreneurs have let that out of sight. Now there’s what’s called a “2VC” mindset, the root of all evil. All that concerns them is the next round of funding and how to get there. They hear all these legendary funding success stories and that really misleads them.
They’ve heard endless funding success tales, and these ideas mislead them.That also goes for certain less experienced VCs –they don’t get business either, and their mindless frenzy of investments stoke the fires of restlessness, but by now that’s letting up.
So now’s the time to go back to the basics, to examine the business plan, is this something that create value to your customers and can make you money?
Secondly, as with all cycles there are wet and dry seasons, and if you can grasp an opportunity during the low tide, that is what establishes you in the industry.
So for now, put away all the the useless chatter about valuations. We’ve found that those who are constantly obsessing over valuation can never make it.Forget about valuation and other fluff and focus on what’s real.Does a high or low valuation make that much a difference on a day to day basis ? Survival comes first, if you can flesh out your team, enhance your execution skills and survive, then there’s a possibility of a future. Sometimes a high valuation is a burden, they have to remember that, this burden will mess with your mind.
Refocus on what really matters, their business, their ideals, goals what they’ve devoted, as opposed to their personal fortune will increase.
Last but not least, winter is a time to rally your troops. When everyone is making a dash, they need to take time to slow down and rethink their strategy. One of the things the low tide give you is breathing time to build a strong team, inject fresh blood strengthen their inner construct, without being distracted. Don’t waste your time on talking big to impress others. It’s should be about internal communication for future designs.
Last year, there were some companies that had a difficult time raising money last year, but we invested in them nevertheless because we believed they had a firm foundation. Hudongba, for instance, weathered the hard time s pretty well by going back to the basics,and later got back Tencent as part of the Dual 100 plan (an initiative to invest 10 billion RMB in 100 startups).
Q：What’s your take on all the hype over bike sharing?
A: Its another phenomenal thing, but there will only be one or two eventual victors. It’s not something our firm is particularly interested in, we want to help more startups, not one or two each year. Here, the race track won’t accommodate too much competition. I think the regulation complications of bike sharing are no less than car hailing. There are still plenty of other things worthy of invstment, but some prefer to ride the tide, and aren’t thinking for themselves.Our principle is to only invest in things we understand that way we can offer our own wisdom.
Q: Which do you think will be the biggest opportunity in the next 5 year?
There are all kinds of opportunities in AI, so many problems that need to be solved, China is in a favored position here in that we have a comprehensive and complete set of mobile data that shadows all other nations. BAT, the mobile service providers, and apps each have solid and vast data sets and there are infinite possibilities with that. Data, not algorithm, is what will open doors to AI.