Multiple venture capital firms establish early-stage funds, triggering a trend of "institutional angel investing"

　　They are in action. Perhaps a small step hints at a major transformation in the industry.
　　Tongchuang Venture Capital has established a Dream Factory, and its first early-stage fund has been fully raised.
　　Dacheng Capital's first early-stage fund is currently being raised, with an expected completion date of late March this year.
　　Shenzhen Venture Capital and the Shenzhen Municipal Government are planning to cooperate on launching an early-stage fund.
　　They have unanimously moved upstream. Former venture capital heroes are showing a warmer, more angelic image. Institutions are becoming more angel-like.
　　Angels are also transforming. Xu Xiaoping, an angel investor from New Oriental, partnered with Sequoia Capital in December last year to establish Zhenge Fund's second phase. This is one of the most well-known recent examples of angels moving towards institutionalization.
　　While thousands of PE firms are vying for multiples in late-stage projects or Pre-IPO, the most sensitive nerves in the industry have shifted their focus. Perhaps foresight leads to success and longevity.
　　This will be a tremendous movement, reflecting the industry elite's reflection on professionalization and their expectations for the overall entrepreneurial environment of society.
　　Institutionalization of Angels
　　Early stage refers to companies that have already been established, may have slight profits, or may not yet have broken even.
　　Zheng Weihua's schedule is packed, but when the reporter met him, he had a relaxed smile on his face. He also gave Tongchuang Venture Capital's early-stage fund a poetic name: Dream Factory.
　　This is a plan to invest in startups and even do angel investing. Zheng Weihua said that they will first observe the investment performance of the first fund and continue to do so in the future.
　　Tongchuang Venture Capital's first early-stage fund has been fully raised, with a total amount close to 300 million yuan. Zhongguancun and the Ministry of Science and Technology are the main investors, while other GPs are mostly from Tongchuang Venture Capital's previous clients. The fund's term is 7+2, while Tongchuang Venture Capital's previous funds, which mainly focused on growth-stage projects, had terms of 5+2.
　　TMT, biomedicine, communications, and new materials will be the four industries that this early-stage fund will focus on.
　　The fund, with a size close to 300 million yuan, did not take too long to raise. Last year, Zheng Weihua's idea for an early-stage fund began to take shape, and at the end of the year, he began cooperating with Zhongguancun and the Ministry of Science and Technology to apply for funds.
　　Although teams from various regions such as Shanghai and Beijing will join the new early-stage fund, Zheng Weihua still recruited some people to strengthen investment capabilities. Among the new recruits, there are people from Tencent, two returnees with PhDs in chemical engineering and new materials from the United States, and Lin Jun, the current vice president of the company. "We still plan to recruit more people," said Zheng Weihua.
　　“I've looked at many projects.” After the establishment of the fund, Zheng Weihua himself has also looked at many early-stage projects, and has invested in three projects so far, two of which are early-stage projects and one is an angel investment.
　　Early stage refers to companies that have already been established, may have slight profits, or may not yet have broken even. The angel investment was for a team, "5 million yuan accounted for 30% of the equity."
　　Tongchuang Venture Capital's definition of "early stage" is similar to that of Dacheng Capital. These are two industry pioneers located in Shenzhen. Shao Hongxia, a partner at Dacheng Capital, told the reporter of "Caijing Zhoubao": "Our definition of early stage is that the possibility of listing within three years is low, but it should have huge development potential. Finance is not the most important indicator; we will also invest in companies that have not yet broken even in early-stage projects."
　　Dacheng, which manages funds exceeding 10 billion yuan, has also established its first fund focusing on early-stage projects. The fund is currently being raised, with an expected size of approximately 200 million yuan. "We hope to create a boutique fund, so we will control the scale," Shao Hongxia said, adding that although LPs are enthusiastic, Dacheng has no intention of expanding the scale.
　　The Shanghai Municipal Government is the main investor in this fund, "The government invested 50 million yuan." Shao Hongxia introduced. Due to the government's guidance, there may be some bias in investment projects, but national investment coverage will be maintained.
　　Friday is Dacheng's casual day, and employees are no longer confined to the dullness of dark suits. Shao Hongxia, wearing a red casual blazer, said: "We expect the average investment per project to be around 10 million yuan."
　　By the end of March this year, the fundraising for this early-stage fund will be completed. However, two years ago, Dacheng had already begun to lay the groundwork for the early-stage fund. Gradually, many people were recruited, including returnees with PhDs in biomedicine and new materials from the United States, and teams with expertise in the industry were poached from companies such as BYD and Huawei.
　　Shenzhen Innovation Investment Group Co., Ltd., abbreviated as Shenzhen Venture Capital, is a leading venture capital firm in Shenzhen. Sun Dongsheng, its vice president, told the reporter of "Caijing Zhoubao" that Shenzhen Venture Capital is expected to cooperate with the Shenzhen Municipal Government to establish an early-stage fund this year. The size of the fund is currently uncertain, but it will be evenly distributed across multiple industries.
　　Regarding the trend of institutionalization of angels, veteran angel investor Xue Manzi does not believe that this will lead to fierce competition. He said: "There are still too few people participating in angel investment in China!"
　　Angel Institutionalization
　　Among angel investors, Xu Xiaoping is a latecomer, but his operating methods differ from those of traditional angel investors.
　　Xue Manzi told the reporter of "Caijing Zhoubao" that he has been invited to serve as the chairman of the investment decision-making committee of an early-stage fund, but not as a partner. He believes that among angel investors, Xu Xiaoping is the most typical representative of institutionalized operations.
　　Among angel investors, Xu Xiaoping is a latecomer, but his operating methods differ from those of traditional angel investors.
　　According to an insider at New Oriental, Xu Xiaoping now only holds shares in New Oriental and has completely withdrawn. In 2009, Xu Xiaoping transformed into an angel investor. In 2011, he took a step towards angel institutionalization by establishing Zhenge Fund, with funding from the founders and shareholders of New Oriental. Later, Xu Xiaoping also brought in Wang Qiang from New Oriental to cooperate with him in managing the fund.
　　Traditional angel investors do not establish fund products; they are usually independent individual investors, such as Xue Manzi.
　　In December last year, Xu Xiaoping, together with Sequoia Capital, held a high-profile launch ceremony for the second phase of Zhenge Fund in Beijing. The original Zhenge Fund invested 15.3 million yuan, and Sequoia Capital invested 14.7 million yuan. The current general manager of Zhenge Fund is Fang Aizhi, the daughter of Fang Fenglei. Fang Fenglei is the current chairman of Goldman Sachs Gao Hua Securities Co., Ltd. and chairman of Hopu Investment.
　　However, Xu Xiaoping is not the first person in China to operate angel institutionalization. Li Kaifu's Innovation Works is better known.
　　Innovation Works was founded in September 2009. Unlike most investment institutions, Innovation Works provides not only funding but also entrepreneurial training and assistance with company incubation for entrepreneurs.
　　Cai Wensheng in Xiamen also created the 4399 Entrepreneurship Park. Unlike Innovation Works, the 4399 Entrepreneurship Park focuses on the internet industry. Startup teams or individuals joining the park can receive funding support, including office space, administrative and operational personnel, and can also participate in the park's entrepreneurial training.
　　The launch of 4399 was about two years later than Innovation Works, in August 2011. That year, another significant event in the venture capital circle was the establishment of startup cafes.
　　It started in Beijing's Zhongguancun, with cafes focused on startups and investment emerging. The most famous of these is undoubtedly Garage Coffee, which was visited by Guo Shuqing this year. These cafes aim to provide startups with an open office environment, making it easier for teams to find partners or angel investors. Here, a 12 yuan coffee buys you a whole day's seating.
　　Survival Necessity
　　Fierce downstream competition and increasingly high project costs are major reasons for venture capital's shift towards early-stage investments.
　　The 'angelization' of downstream PEs is due to increasingly fierce cost competition driving them to seek opportunities upstream, while the institutionalization of angel investment is a natural response to market demand.
　　No one understands the changes and crises in the downstream market better than Zheng Weihua and Shao Hongxia. Project costs are gradually rising; Zheng Weihua says he now tries to keep them between 8 and 10 times. Shao Hongxia says that depending on the industry and company growth, project costs vary, but generally, they are controlled around 10 times.
　　Sun Dongsheng told reporters that due to the influx of numerous investment institutions into the venture capital market, competition is fierce and somewhat disorderly.
　　Statistics show that in February 2012, there were only 13 exit transactions in China's venture capital and private equity investment market, a new low. The average book return multiple for IPO exits in February was 3.98. The strongest performer was Shangli Investment's successful exit from Hualu Baina, with a book return multiple of 16.2; all others performed below average.
　　Shao Hongxia frankly admits that fierce downstream competition and increasingly high project costs are major reasons for venture capital's shift towards early-stage investments. Zheng Weihua believes that in addition to downstream competition, the strong entrepreneurial atmosphere nationwide and the needs of small businesses are also driving forces.
　　Another reason for the shift towards early-stage investments by firms like Dacheng, Tongchuang Weiye, and Shenzhen Venture Capital is government support. Shao Hongxia and Zheng Weihua both indicate that local governments and national ministries are actively promoting the development of small businesses and creating a better entrepreneurial environment.
　　Before its upcoming collaboration with the Shenzhen municipal government on an early-stage fund, Shenzhen Venture Capital launched an early-stage fund several years ago, "with a scale of 80 million yuan." Sun Dongsheng told the reporter of "LiCai ZhouBao".
　　The investment has already been completed, but when asked about the exit, Sun Dongsheng laughed and said, "Early-stage projects aren't that easy!"
　　Zheng Weihua also said: "The risk is greater; there might be mergers and acquisitions, IPOs, or it might simply fail." He analyzed that early-stage projects are different from growth-stage projects: "Investing in growth-stage projects seeks certainty, while investing in early-stage projects seeks the possibility of high returns."
　　Shao Hongxia deeply understands the high returns of early-stage projects. Dacheng's current highest-returning investments, such as Tongzhou Electronics and He'ertai, were all early-stage investments.
　　“Compared to mid-to-late-stage projects, the costs of early-stage projects are also easier to control,” said Shao Hongxia.
　　Both Zheng Weihua and Shao Hongxia believe that investing in early-stage projects better reflects an institution's understanding of the industry and its professional capabilities. They both emphasize the importance of the team when evaluating projects. Unlike growth-stage projects, they believe that financial factors are no longer the most important evaluation criteria; industry, business model, and especially the entrepreneurial team are more crucial.
　　Sun Dongsheng also believes that after entering the upstream market, investment institutions will "face a test of experience."