A good vote is worse than a good retreat! Station B and its investors who left the market first

Investment is metaphysics, and withdrawal too

Unsurprisingly, station B broke. But don’t forget, even with its current share price of $97, this is still a rare "ten times bull stock" for many years if you buy $1 when it goes public in March 2018, it will be The book return is $9.9.

This is far from the historical high of this company. In February of this year, the stock price of Station B was as high as $157 per share. Compared with the same period in 2019, the annual increase was close to 800%. Even in terms of its market value, which is now "down by one-third", it is still almost 2.5 times that of the long-video head platform iQiyi.

This is an interesting phenomenon. Among the new economy companies, especially those with platform characteristics, the steepest growth curve is often born after the company goes public, that is, in the secondary market stage. For example, Facebook, Tencent, NetEase, etc. are all stocks that have achieved a hundredfold growth. Station B is a more extreme performer.

For example, its D round of financing was completed in May 2017, with a post-investment valuation of US$1.7 billion, and its market value after 10 months was only US$3.2 billion-an an increase of less than twice. After its listing, when its stock price rose most violently, its single-day increase exceeded 40% (November 30, 2020).

However, just before Station B is about to usher in the steepest Kline, a group of investors who have accompanied the company for four or five years has left the market. 36氪According to public information and interviews, since December 2018, IDG Capital, CMC Capital, Legend Capital, Qiming Venture Capital, etc.-B stands as the most critical investor in the primary market-began to gradually retreat Station B stocks accounted for less than 5% in March 2019. Among them, CMC Capital used to be the largest external institutional shareholder of Station B with 12.8% of the shares, and Legend is the fourth-largest shareholder of Station B, but now they have almost all withdrawn.

For early-stage investment funds, this is certainly understandable.

On the one hand, primary market institutions have to face the pressure of fund renewal, such as CMC, which can take as long as five years from when it invests in station B to exit. The CMC itself focuses on a stable and highly certain investment approach to provide long-term sustainable investment returns. Therefore, if an institution chooses to exit at a time it deems appropriate, it may not only be a matter of ability, but may also be determined by the nature of the institution. Strategy.

On the other hand, station B is clearly a case of "excess returns", and the fund helms should also exit due to DPI (Distributed to Paid-in Capital) considerations.

According to 36 krypton, this is also related to the will of station B. At that time, Station B hoped to introduce more strategic investors such as Tencent and Alibaba, and therefore also hoped that financial investors would vacate their shares. Therefore, most of its early investors withdrew on a large scale around Christmas 2018. The final result is that currently, only Zhengxingu capital accounts for the largest proportion of financial institutions, close to 5%.

Although investors should earn money in the circle of ability, in the face of such an increase in value, who can't care about it?

"I think no one will regret it in terms of mentality. A case (within one year) is 10 times, 50 times or 100 times the return, the income difference will be huge." A station B investor said to 36 krypton. If they persist for another year, the book return that Station B can bring will be 10 times greater.

Over the past two decades since the emergence of China’s investment industry, people’s focus has often only fallen on the story of "investing in"-where most legends and even myths have been born. The last step in "raising investment management retreat"-how to withdraw, when to withdraw, but it did not get the attention it deserves. An LP who has invested in a number of well-known funds publicly stated that domestic institutions that consciously carry out exit management and plan exits in advance even "do not reach 5%." This means that most institutions do not know how to withdraw.

A good vote may be better than a good retreat.

Left, left

On the evening of December 31, 2019, a New Year's Eve party called "The Last Night of 2019" is underway. World of Warcraft, Game of Thrones, League of Legends... This four-hour evening will completely break the B station.

This is the key demarcation point for station B. Two days later, the stock price of Station B jumped, rising 12.51% in a single day, and then rose by 5.39% on January 3, and the market value once exceeded 7.15 billion US dollars-the share price of B station rose by more than 1 billion US dollars in just two days. Since then, the stock price of Station B has been opened all the way.

But most of the financial investors at Station B have missed this feast.

When listing in the United States at station B, the top five institutional shareholders were: CMC Capital with 12.8%, Zhengxingu Capital with 9%, in Capital with 7.6%, Legend Capital with 5.9%, and Tencent, which holds only 5.2%. Among them, IDG Capital is the earliest institutional investor in Station B, CMC Capital was once the largest institutional shareholder of Station B, and Station B is also the largest investment project in the TMT field of Legend Capital.

But in 2019 after the listing of Station B, regardless of whether these financial investors withdrew actively or passively, the overall result is: except for Zhengxingu Capital, all financial institutions are no longer the major shareholders of Station B (accounting for 5% of the shares). the above). According to 36Kr, Zhengxingu Capital currently accounts for the largest share, and its shareholding has also fallen below 5%.

Regrettably, before 2019, when more financial investors left the market, the stock price of Station B was relatively stable. The opening price of station B was 9.80 US dollars when it was listed, and the stock price has been running smoothly in the range of 10-20 US dollars for the following year, and its closing price on the last day of the end of the year was 18.62 US dollars. And in 2020 is a year of a complete outbreak: the multi-layered reasons such as the out-of-circle, the salinization caused by the epidemic, and the "large water release" of the US dollar have triggered a surge in the stock price of B station.

CMC Capital reduced its holdings by nearly 2.4 million shares from March 2018 to February 2019. Based on the average stock price of US$12 during the period, this reduction only yielded US$30 million. Since then, it will almost completely withdraw until the first half of 2020. Calculated by 36Kr from February 2019 to June 2020 in the range of US$15-45 for the share price of Station B, CMC has a floating profit of US$400 million to US$1.2 billion. But if CMC continues to hold for another six months, the floating profit will double.

Obviously, it is the strategic investors who make more profits later to enter the market. Tencent, which has increased its position in the secondary market after the B round of investment, currently holds nearly 43.75 million shares of station B, with a shareholding ratio of 12.4%. According to the current stock price of station B, Tencent's holdings have a market value of more than 4.2 billion US dollars. Tencent alone subscribed for 25.06 million newly issued shares of station B in October 2018, and this investment made a profit of US$2.1 billion, which was a profit of nearly 7 times. In September 2019, Alibaba bought more than 23 million shares. Based on today's stock price, Alibaba's book floating profit also exceeded 2 billion US dollars.

In the valley of the heart of C+ round investment, due to few exits, the investment floating in station B has so far exceeded 30 times for investment after the C round, such a multiple is amazing.

To some extent, the reason why Zhengxingu will become the largest financial shareholder of station B is also related to the genes of this investment institution. Its founder, Lin Lijun, was the founder of China Universal, one of the largest public offering funds, and has extensive experience in the secondary market.

The neglected exit mechanism

If the essence of investment is to buy low and sell high, then exit is undoubtedly a key link in determining the success or failure of an investment. But for a long time, compared with the obsession with "investing in", investors seem to be much more indifferent to exit.

"We have already invested in GPs. At present, two-thirds of the exits are not very satisfactory." Zhu Weihao, the founding partner of Jiahao Investment and partner of Jiadao Private Capital, once disclosed on a public occasion that they had invested dozens of GPs. Most of them did not pay much attention to exit management in the first 5 years.

"Many VCs and early-stage investments in China have accumulated a large number of funds in the project and have not withdrawn from the project. The days before it were too good, and now it is about to start paying back. The current situation forces them to take the initiative to withdraw from management."

More than one fund partner mentioned to 36Kr that when the mobile wave was the most maddening, many institutions (especially in the early stages) almost ignored the withdrawal. “It was not until some projects were integrated into very late rounds because of frequent shots. I realize that I can refund a portion of the amount first to make DPI look better."

Zhu Xiaohu may be a positive example. To some extent, Zhu Xiaohu's withdrawal in the ofo case was beyond criticism from a commercial point of view, and even wise. As smart as Zhu Xiaohu, he almost stepped on the company's last highlight and left. Soon after Jinshajiang Ventures withdrew, Ofo immediately fell into a rupture of the capital chain or even bankruptcy.

Even if it is important to be aware of the withdrawal, it is still not easy to grasp when and how to withdraw.

There are too many embarrassing cases in history. For example, Tencent, IDG Capital and Li Zekai did not know how many times they would mention the "premature withdrawal". Another example is Warburg Pincus’s investment in AsiaInfo in the early years. After the latter went public, Warburg Pincus did not withdraw in time, and AsiaInfo’s business transformation was delayed. As a result, Warburg Pincus eventually had to sell it at a low price.

This is a common situation in all exits: either one step early or one step late.

Nowadays, this matter has become more complicated: in the past, first-tier investors basically accompany the company to the IPO, even if the merits are complete, the usual practice is to start the reduction after the lock-up period ends. But if more companies move to the secondary market after the main Shenglang starts, the old method is obviously facing failure.

"Internet platform-based enterprises are scarce assets, especially transaction-based platforms and content-based platforms, both of which are friends of the time, and have the effect of being strong, even the winner takes all." Zhengxingu Capital partner Ye Chunyan analyzed that these leading companies far exceed the growth cycle of ordinary companies and cannot predict the future with a steady growth rate.

For example, Pinduoduo, as a dark horse in the field of e-commerce, has soared from US$71.4 on October 2 to a maximum of US$202.82 since the fourth quarter of last year. Although there has been a callback since then, its current market value has exceeded US$160 billion. It is an IPO. More than 5 times the market value that day. At present, apart from Tencent, Gao Rong and Sequoia are still the largest financial investors in Pinduoduo-holding about 7% of the shares. Based on Sequoia’s shareholding ratio, the market value of Sequoia’s stock in Pinduoduo has exceeded 10 billion U.S. dollars. Compared with the time when it went public three years ago, Sequoia’s earnings have doubled nearly six times.

An established trend is that with the gradual inseparability of the primary and secondary markets, investors in the primary market in the future must understand the secondary market better. From this perspective, it is not difficult to understand why Sequoia wants to form a second team, and Hillhouse wants to enter venture capital—funds that can make a lot of money in the capital market have to "eat more with one fish" ".

There are historical reasons for the lack of exit skills of primary market institutions.

From the background of VCers, many people come from industry rather than finance. A considerable part of the US VC comes from investment banks, but for a long time, Chinese VC investors’ understanding of the financial market is not a necessary skill-and this is precisely the key to the exit link.

There was once a top-five USD VC partner who reviewed 36Kr. They admitted that they had invested in some star companies with good valuations, but the DPI was not ideal. The attribution after the resumption was: " Not sure about the best exit timing".

On the other hand, compared to exiting, it seems that investing is the sexier thing. This is especially true for US dollar funds-many US dollar funds have inertia: they have invested in 100 projects and are keen to pursue one or two projects that are particularly successful, so as to get the return of the entire fund back. The exit of other mid-stream projects is relatively negative.

However, in the past two years, when the IPO barrier lake occurred, WeWork IPO collapse and other incidents occurred, investors in the primary market have become more aware of exit--or the importance of understanding exit and establishing exit thinking.

In fact, VC/PE has a variety of exit methods in investment projects, including not only IPOs, but also corporate mergers and acquisitions, major shareholders or company repurchases, management buyouts, and company liquidation. The choice of different exit methods is also a test of investors' ability to assess the situation.

According to Liao Ming, the founding managing partner of PAC, this is a capital market sense. "Not only must we pay attention to the actual situation of the company or enterprise from the micro-level, but also closely follow international policies and grasp the macro trend." Liao Ming said that in the long run, this is a key ability for how far a fund can go.

For example, in Zhengxingu, they have a special "exit committee" within them, which will regularly review the changes in the internal value and competitive advantage of the invested company, and consider the relationship between the internal value and valuation of the company. "Whether to withdraw and when to withdraw depends on the judgment of the long-term development trend of the industry; the judgment of the industry's long-term needs and technological changes; the analysis of the industry competition pattern, and then the judgment of the changes in the competitive advantages between different companies." Lin Lijun said to 36氪Said.

Generally speaking, the exit of a project within a VC/PE organization is mainly determined by the partner in charge, CFO, legal affairs, or middle and back-office team. The consideration factors include the expected rise and fall of the project, the duration of the fund (involving DPI issues), etc. It contains many unpredictable factors.

Therefore, every investor interviewed also pointed out to 36Kr that even if the so-called exit system is established, even if you know enough about the project itself, there are too many objective variables in the external world-such as international policies, the macro environment, and the big picture. The cold and warm capital market, etc., may make exit more difficult than investment a priori. Therefore, the timing of exit is still full of uncertainty. "It can only be said that we choose the best solution we believe to be a greater degree."

In the final analysis, exit is also a metaphysics—just like investing.

Speaking of Station B, even those institutions that have reduced their holdings shortly after listing seem to have missed a wealth opportunity to "lie down", but to paraphrase the words of Wu Shichun, the founding partner of Meihua Ventures, "Maybe the money to withdraw early It can also be used to invest in another great company." Wu Shichun said that he would not be too entangled with "exit". "The primary market investment logic is different from the secondary market. How to master the timing of exit is difficult because the market The trend is hard to predict."

Sure enough, the capital market swiftly went down again. A week ago, 45 of more than 200 Chinese concept stocks fell by more than 10%. Giants such as Alibaba, B Station, Baidu, and Pinduoduo all fell sharply, and the overnight market value of Chinese concept stocks evaporated by one trillion. The share price of Station B also fell by one-third.

At this moment, those investors who are the first to leave the market may have a lot of relief in their hearts.