Venture Capital in China: My Reflections (2015-2023)
Introduction:
I am Celia C, embarking on a thrilling journey in the world of venture capital. Join me as I share my observations and experiences in this dynamic industry, spanning the years 2015 to 2023.
Setting the Stage:
My past years were deeply engaged with the covid-era, where I served as a founding team member of a newly established fund of funds, with the mission to navigate the exciting landscape of venture capital in China — guided by the expertise of the fund’s founder, who boasts two decades of experience in Sino-US investments, the team aimed to identify promising investment opportunities in VC funds. Prior to that role, I had the privilege of working at GGV Capital, where I made my mark as the first graduate to join the firm. During my tenure, I played a pivotal role in sourcing deals, executing investments, and managing post-investment projects. Notable successes include Soul APP, China’s fastest-growing social platform, AiKuCun, one of the country’s largest inventory distribution platforms, and 73hours, a leading entry-luxury women’s shoe brand later acquired by Belle Group.
Observations and Challenges:
The venture capital landscape underwent significant changes during my time in the industry. Skyrocketing valuations, intense competition, and a unique phenomenon emerged: unlisted companies commanding higher valuations than their publicly traded counterparts. These developments challenged the efficacy of VC as an asset allocation tool. While VC traditionally pursued business models characterized by low investment, high leverage, and high gross margins, the emergence of large-scale companies fitting this mold remained elusive. Instead, we witnessed a trend of VC funds investing in sectors with lower gross margins, linear growth based on unit economics, and a focus on scaling through financing — a trajectory resembling private equity. Sectors that gained attention included entertainment and sharing economy in 2016, new retail in 2017, grocery delivery in 2018, online consumer brands in 2019, supply chain innovation in 2020, enterprise services in 2021, green energy in 2022, and Chinese companies going global, while USD VC in China almost disappeared in 2023.
Navigating the New Terrain:
Faced with these shifting dynamics, the traditional VC approach appeared to waver, prompting crucial questions. Where do opportunities lie for the 1990s generation? How should VC invest, manage, and adapt to meet the expectations of this asset class?
In pursuit of answers, I embarked on a professional transition, shifting from the GP (product) side to the LP (funding) side. This change presented me with a broader perspective, enabling me to explore high-potential industries beyond the realms of technology, media, and telecommunications (TMT). Healthcare, frontier technologies, and enterprise services became new frontiers for my analysis. This shift provided me with valuable insights into the fundamental essence of the VC industry: the ideal cycles and industries in which VC can thrive as an asset allocation tool. Through my experiences on the GP side, I gained firsthand knowledge of the investment process, allowing me to empathize with GPs and understand the intricacies of project evaluation and decision-making. My LP experiences, on the other hand, exposed me to a myriad of industries beyond the confines of the internet, enriching my understanding of the strengths and limitations of GP strategies as investment products.
The Ever-Changing Landscape:
Venture capital in China is a relatively young industry, with less than two decades of history. The Chinese market enjoyed unique advantages, including relaxed regulations, a vast domestic market, and rapid infrastructure development. These factors fueled the emergence of legendary success stories. However, as we stand at the present juncture, we face unprecedented challenges. Geopolitical dynamics are in constant flux, the demographic dividend is waning, and the COVID-19 pandemic has further exacerbated the political and economic landscape. In such a volatile environment, both LPs and GPs grapple with new realities and uncertainties. The path forward becomes an intricate puzzle to solve.
Seeking Insights and Growth:
Driven by a desire to learn and grow, I yearn to connect with fellow industry professionals, whether they are trailblazing entrepreneurs or visionary fund managers. I approach industry divisions and perceptions with an open mind, recognizing that experience alone may restrict our understanding. Innovation, the core of venture capital, thrives on uncharted ideas and courageous endeavors. Engaging in vibrant discussions with practitioners from diverse sectors unlocks fresh perspectives and fuels our collective growth.
Conclusion:
In these tumultuous times, I, as a member of the post-90s generation, have come to appreciate the significance of the people around us. Their support and camaraderie prove more valuable than lofty aspirations. Quoting Benazir Bhutto, “It is not that I chose this life; this life chose me.” As we navigate the currents of time, the only way forward is to embrace the challenges, shoulder the burdens, and embark on the arduous but rewarding journey ahead.