PE reshuffle heats up angel investment, M&A in venture capital industry is just beginning

　　The profound revolution in the capital market has led to a gradual decline in the price-to-earnings ratio of IPOs, and the macroeconomic downturn has caused the performance of SMEs to change drastically. PE investment in high-priced PRE-IPO projects has cooled rapidly. However, capital chases profit, and this time, they have smelled the money-making scent of angel investment.
　　Last Saturday, the first China Angel Investor Conference of 2012 was held in Beijing. The enthusiastic attendance of nearly a thousand people formed a stark contrast to the prevailing "winter" atmosphere in the PE industry, with frequent reports of bad news. Famous angel investor Xue Manzi, known as the "Old顽童", gave an opening speech titled "Welcoming the Spring of China's Angel Investment." However, throughout the forum interviews, the most striking impression for reporters was that, with the impending reshuffle of the PE industry, more LP capital is seeking new outlets, hoping to "switch" to excellent angel investors or angel investment institutions.
　　At the bustling forum, in addition to angel investors, angel investment institutions, VC institutions, and entrepreneurs urgently seeking funds from across the country, reporters also noticed a considerable proportion of high-net-worth individuals.
　　In the Q&A sessions of various forums, wealthy individuals with substantial funds inquired with their preferred angel investors about the possibility of entrusting them with millions of idle funds for investment management. However, angel investors generally declined.
　　"I use my own money, so I'm not under pressure. I don't use other people's money; it's too stressful." Xue Manzi replied without hesitation when asked about the reason for the refusal.
　　The underlying reason why wealthy individuals hope to "bet" on angel investors is that, as both domestic and international capital markets have undergone large-scale adjustments, the domestic PE/VC industry has entered an adjustment period, and the industry "winter" is becoming increasingly apparent, with investment returns declining rapidly.
　　Research data shows that PE fundraising, investment, and exit activities in the first quarter of 2012 declined both year-on-year and quarter-on-quarter. During the quarter, 28 PE funds investable in mainland China completed fundraising, with a total amount of US$29.45 billion, less than a quarter of the same period last year and a decrease of 6.8% compared to the last quarter of last year, almost returning to the level of the first quarter of 2010. This is the second consecutive quarter that the number and amount of PE funds have declined.
　　VC institutions that invest relatively early-stage projects also performed poorly in the first quarter, with fundraising plummeting. 29 new funds were raised, with an additional US$9.58 billion of capital investable in mainland China, representing year-on-year decreases of 66.7% and 83.8%, respectively.
　　In the first quarter, the average book return of PE industry exits on the SME board and the Growth Enterprise Market was 3.79 times and 2.91 times, respectively. The average book return of VC industry exits on the Growth Enterprise Market and the SME board was 5.70 times and 4.07 times, respectively.
　　Compared to the cold hard numbers, the comments from industry insiders seem to better reflect the current "difficult situation" of the PE/VC industry. "To be honest, the PE business is getting harder and harder to make a living from. In the next three years, there will be a major industry reshuffle, eliminating a large number of PE firms. Let's return to rationality; PE is just a regular job with slightly higher pay."
　　At the beginning of this year, Bao Yue, president of Silicon Valley Paradise, stated in an exclusive interview with this reporter that mergers and acquisitions in the venture capital industry will truly begin this year.
　　Cai Dajian, chairman of Gao Te Jia Investment, said, "The PE reshuffle will definitely come, it will last a long time, and the pain will be intense. The only thing I don't know is when it will truly begin, because that will also mark a turning point for the secondary market."
　　Compared to the complete and streamlined system of angel investment to mid- and late-stage venture capital in the United States, China's angel investment is currently underdeveloped. Angel investors constitute the main body of the angel investment group; loose angel investment teams such as angel investment alliances and institutionalized angel investment funds are still not active enough, and the entire investment ecosystem is not seamlessly connected. Based on this phenomenon, how to seek close cooperation between angel investment and PE/VC has become the most discussed topic at the forum.
　　In this regard, Yan Yan, partner of SoftBank China Venture Capital, said, "As a VC investing in projects, having an angel investor is a plus, but not a necessary factor. We focus more on the business model and management team." He further stated, "I think the biggest advantage of a good angel investor entering a project is that they eliminate a lot of risk. Therefore, a large institutional investor is willing to pay more. From this perspective, I urge VCs/PEs to view risk control from this perspective."
　　Gan Jianping, managing director of Qiming Venture Partners, which is known for its early-stage investments, agrees with Yan Yan's view, stating that the greatest help angel investors provide is in judging people. "That is, if an angel investor holds more than 50% of a company's shares, or a very high proportion, from our VC perspective, it's more about judging the angel investor."