"A few years ago, there were countless angel investors in Shenzhen who specialized in looking at early-stage projects. After the establishment of the Shenzhen Angel Fund of Funds, it attracted many first-tier early-stage investment institutions at home and abroad to settle in Shenzhen. There were a lot more angel investors, and they even started to 'grab' early-stage projects. Usually 2-3 institutions would invest together in a project, and quickly If the speed is slightly slower, the project will be missed.” Gao Gao, the managing partner of Qianhai Ark Asset Management Co., Ltd., one of the investment funds of Shenzhen Angel Fund of Funds, told reporters: “This is a good thing for entrepreneurs. It enriches the ecosystem of early innovation and is also conducive to the rapid growth of technological innovation companies.”
Recently, the Nanfang Daily research team came to Shenzhen Angel Investment Guidance Fund Management Co., Ltd. (hereinafter referred to as the "Angel Fund Management Company") to learn about the changing process of Shenzhen's early innovation ecology in recent years and the driving forces behind it.
Since the establishment of Shenzhen Venture Capital and the Hi-Tech Fair in 1999, the venture capital industry has begun to take root and grow in Shenzhen, playing an important role in incubating and promoting the transformation and upgrading of Shenzhen's industrial structure. After 2018, facing the situation that there were not enough early-stage innovations and angel investments in Shenzhen, the Shenzhen government invested to establish the Shenzhen Angel Fund of Funds in the first phase of 5 billion yuan, which was expanded to 10 billion yuan in 2020. This is another major effort by the Shenzhen government to support the leap-forward development of the venture capital industry after the government invested 100 billion yuan in guiding funds in the past five years.
Shenzhen Angel Fund of Funds focuses more on serving early-stage start-ups. According to the plan of the Shenzhen Municipal Party Committee and the Municipal Government, Shenzhen established the first phase of 5 billion yuan of angel fund of funds, which is to give full play to the decisive role of the market in resource allocation and better play the role of the government, promote the rapid development of angel investment through government system design and policy guidance, and guide social capital to invest in angel categories. The project will make up for the shortcomings of early-stage financing difficulties for enterprises, support the development of more projects, and improve the entire process innovation ecological chain of "basic research + technological research + industrialization of results + science and technology finance + talent support", injecting strong impetus into Shenzhen to accelerate the high-quality development of high-tech industries and better play its role as a demonstration and leader.
The latest data shows that if the level of angel investment in various regions is evaluated based on the internationally accepted ratio of angel investment amount to local GDP, Beijing has the highest level, while Shenzhen has been showing a significant upward trend since 2019 and is basically on the same level as Shanghai.
Planning: Gan Xueming Qu Guangning Writing: Nanfang Daily reporter Li Ronghua
Upgraded version of "Building a Nest to Attract Phoenix" to undertake the transformation of the world's leading basic scientific research results
On March 24, 2018, the Shenzhen Angel Fund of Funds held an unveiling and signing ceremony. Key leaders of the Shenzhen Municipal Party Committee and Municipal Government attended and the first batch of sub-funds were unveiled.
The reporter learned that as early as August to November 2017, the Shenzhen financial regulatory department formed a special research team to conduct research on well-known venture capital institutions in Shenzhen and Beijing with the theme of how to accelerate the development of angel investment in Shenzhen, and formed the "Request for Instructions on Issues Related to the Establishment of the First Angel Investment Fund of Funds." After the executive meeting of the Shenzhen Municipal Government reviewed and approved the establishment of an angel investment fund of funds, the "Interim Implementation Measures for the Shenzhen Angel Investment Guidance Fund" (hereinafter referred to as the "Interim Measures") were promulgated.
During this survey, Xu Xiangdong, deputy general manager of the Angel Fund Management Company, told reporters that the establishment of the Angel Fund of Funds was not an isolated event, but one of a series of major deployments in Shenzhen to promote the "speed adjustment and shifting" of the industrial structure. Looking back on that year, Shenzhen launched a number of major initiatives related to technological innovation. In addition to the establishment of angel parent funds, it also included the listing of major laboratories such as Pengcheng Laboratory and Shenzhen Bay Laboratory.
This is related to the transformation and upgrading trend of Shenzhen and even China. In recent years, China has transformed from a big country in science and technology to a powerful country in science and technology, and source innovation and basic innovation are imminent. Tang Jie, former deputy mayor of Shenzhen and professor at the School of Economics and Management of Harbin Institute of Technology (Shenzhen), once analyzed that over the past 40 years of reform and opening up, Shenzhen’s advantage is market product innovation, and its industrial chain and business environment are second to none in the country. However, its shortcomings are weak basic research capabilities. Basic research is the source of major innovation, and basic science must leapfrog to industrial technology. The industrial chain is the basis for innovation growth and must form a spatial accumulation effect.
Xu Xiangdong analyzed that for Shenzhen, how to transform from a catcher to a leader in the global technological innovation competition of the fourth industrial revolution, the focus is to achieve major breakthroughs in the two major fields of IT (information technology) and BT (biotechnology). Pengcheng Laboratory and Shenzhen Bay Laboratory focus on IT and BT respectively. In the transition from basic science to industrial technology, a technology transformation platform and a capital support system are also needed. Shenzhen Angel Fund of Funds is an important role in the technology transformation platform and capital support system.
"Establishing laboratories and angel parent funds is a new way of 'building a nest to attract phoenixes.' In the early days, Shenzhen's investment promotion was to develop 'three to one supplement' enterprises. Now Shenzhen must undertake the world's leading basic scientific research results and create a world-leading platform for the conversion rate of scientific research results." Xu Xiangdong said.
In order to send a strong signal to the industry that Shenzhen supports the development of angel investment, taking into account the actual demand for funds by enterprises in the seed and start-up stages and the ability of angel investment institutions to digest funds in the past one or two years, the scale of the first phase of the Shenzhen Angel Fund of Funds is set at 5 billion yuan, all of which comes from fiscal funds. In June 2020, the Shenzhen Guidance Fund’s subscribed capital contribution to the angel fund of funds increased from 5 billion yuan to 10 billion yuan.
Leveraging the value of Shenzhen Angel Fund of Funds requires an advanced and efficient management structure and a professional and responsible core team. The angel fund of funds management company is 60% owned by Shenzhen Investment Holdings, a Fortune 500 state-owned enterprise, and 40% is held by Shenzhen Venture Capital, the "leading local venture capital institution" in China. Moreover, Yao Xiaoxiong, the former vice president of Shenzhen Venture Capital, currently serves as the chairman of the Angel Fund Management Company, and its core team is all professional venture capital professionals.
Contribution up to 40%, leveraging over 60% of social capital
Shenzhen Angel Fund of Funds focuses on the three core businesses of "sub-fund investment, direct investment, and ecological operation" and proposes to establish a good mechanism, build a good team, consolidate good party building, gather good institutions, invest in good projects, and create a good ecosystem to create a new benchmark for angel investment in my country.
In the early days of its establishment, Shenzhen Angel Fund of Funds was not only the largest angel investment government guidance fund in China at that time, but also formulated preferential policies that were difficult to match elsewhere: in terms of investment ratio, Shenzhen Angel Fund of Funds can contribute up to 40% to a single sub-fund; in terms of investment projects, sub-funds are required to be 100%. Invest in early-stage projects to fully focus on the incubation and development of enterprises in the seed and start-up stages; in terms of profit-sharing mechanism, after each partner recovers all paid-in capital contributions and the sub-fund meets certain conditions, the Shenzhen Angel Fund of Funds will transfer all proceeds from investments in projects in Shenzhen to the sub-fund management agency and other investors of the sub-fund.
At the same time, as early as its establishment, Shenzhen Angel Fund of Funds combined the "Interim Measures" as the basic management system, and has successively introduced and improved more than 60 systems throughout the entire process, achieving full coverage of corporate governance and business levels before, during and after investment, and determined "government guidance" The sixteen-character principle of "market operation, leverage amplification, and promotion of innovation" is to make full use of the government's institutional design and policy guidance advantages, and through market-oriented operation mechanisms, leverage no less than 60% of social capital with an investment ratio of no more than 40%, and exert the capital leverage amplification effect.
"With an investment ratio of up to 40%, and if the conditions are right, you can get all the benefits. Such preferential policies are very attractive to social capital." Gao Gao, managing partner of Qianhai Ark, analyzed.
In 2018, 16 high-quality local venture capital institutions took the lead in signing contracts with Shenzhen Angel Fund of Funds to establish the first two batches of sub-funds of Shenzhen Angel Fund of Funds. Starting from the following year, Shenzhen Angel Fund of Funds stepped up its efforts to expand overseas institutions and overseas institutions, and distributed "hero posts" widely.
"We hope to attract more good institutions to come to Shenzhen to find good projects, and more good projects to come to Shenzhen to find good institutions, so as to form a good angel investment ecosystem." Xu Xiangdong said that the market-oriented style of Shenzhen Angel Fund of Funds is relatively "radical."
On February 21, 2020, under the decision of the Shenzhen Municipal Government Investment Guidance Fund Investment Management Committee, a series of supporting systems for the Shenzhen Angel Fund of Funds were fully upgraded.
Xu Xiangdong introduced that the systems, methods, and detailed rules of the Shenzhen Angel Fund of Funds are all decisions made by the Municipal Government’s Investment Guidance Fund Investment Management Committee, but the specific business aspects such as project selection, due diligence, and agreement signing are all operated by the Angel Fund Management Company, which ensures that business personnel carry out investments professionally and efficiently through a market-oriented approach.
In terms of investment decisions, Shenzhen Angel FOF has a veto power over sub-fund investment projects, but it will only review the compliance of sub-fund investment projects, such as industry direction and development stage, and will not interfere with the sub-fund’s business decisions. In terms of management, Shenzhen Angel Fund of Funds took the lead in formulating a "horse racing mechanism" and a "dynamic management mechanism" to conduct annual assessments of sub-funds, screen sub-funds that need greater support based on the assessment results, and eliminate sub-funds whose investments do not meet expectations.
Fast-forward two years to speed up investment in the year of the epidemic
After two years of operation, Shenzhen Angel Fund of Funds has delivered a surprising answer. As of December 31, 2020, the Angel Fund Management Company has contacted more than 500 domestic and foreign investment institutions, received nearly 120 application materials, established 76 sub-funds, and made effective decisions on 50 sub-funds.
Among the 50 sub-funds, professional investment institutions include Shenzhen Venture Capital, Cornerstone Capital, Tiantu Capital, etc.; in addition, there are 11 companies with industrial backgrounds such as Hongtai Micro, AVIC International, Lenovo Ventures, Skyworth Investment, Fosun Capital, Anpeng Investment, Shengshijing Capital, Huagai Capital, and China Resources Capital; investment companies with backgrounds in university scientific research institutes include Donghai Southern University of Science and Technology, Guoke Jiahe, Lihe Science and Technology, Seven companies include Zijingang Capital, Challenger Capital, Tus Venture Capital, and Junsheng Runshi; five companies have overseas backgrounds: Guangyuan Capital, Huaying Capital, Vertex Investment, Guofu LVGEM, and Guohong Jiaxin; six companies have well-known angel investor backgrounds: Zhen Fund, Digital China, Fengrui Capital, Qingsong Fund, Hongtai Micro, and Meihua Venture Capital; and two companies have incubator backgrounds: Tus Venture Capital and China Open Institute of Technology.
In terms of investment, the cumulative effective decision-making investment of Shenzhen Angel Fund of Funds is about 5.8 billion yuan, and the actual investment amount is about 3 billion yuan; the invested sub-funds have delivered 275 projects, all of which are hard technology projects in strategic emerging industries and future industries. The growth stage is all in the angel stage, which has better realized the value pursuit of "invest early and invest small".
Xu Xiangdong introduced that about 70% of the invested projects are in Shenzhen, with a single investment amount of about 8.8 million yuan. The core team of the project is composed of academicians, scientists, doctors, returnees, etc., mainly people with scientific research background, supplemented by people with industrial background.
After the outbreak last year, because the invested companies were mainly in the research and development stage, and the industrialization process of some projects involving the field of epidemic prevention was accelerated, the development momentum of the companies was good, and the Shenzhen Angel Fund of Funds also entered the "fast lane" of investment. "The success rate of angel investment projects generally does not exceed 10%, but currently there has not been a failed project in the sub-funds invested by the Shenzhen Angel Fund of Funds. On the contrary, a number of projects have also developed well during the epidemic. 20% of the projects have received multiple financings, and the valuation of 10 projects has exceeded US$100 million, and one of them has exceeded US$300 million." Xu Xiangdong said.
Regarding investment style, Xu Xiangdong said that compared with some venture capital institutions that focus on fast forward and fast retreat, Shenzhen Angel Fund of Funds pays more attention to long-term companionship and hopes to cultivate the next "Huawei" and "Tencent".
Build an ecosystem to accompany the growth and development of established enterprises
In order to "build a nest to attract phoenixes", one of the major responsibilities of angel parent fund management companies is to "build a nest" and "build a large platform to undertake the government and face the market."
Beginning in 2018, angel parent fund management companies actively strive to cooperate with the Shenzhen Local Financial Supervision Bureau and the China Securities Investment Fund Association to establish a green channel for the registration, approval, registration and filing of Shenzhen angel fund companies and fund products, speeding up the implementation of sub-funds.
In fact, as a new thing, Shenzhen Angel Fund of Funds will also encounter questions such as "Who am I?" For example, faced with the current situation that there is no standard definition of "angel investment", Shenzhen uses the old method: "crossing the river by feeling for the stones." When angel fund management companies encounter problems, they seek professional opinions as soon as possible, adopt the opinions, and solve the problems.
In terms of connecting resources, the Angel Fund Management Company has established a coordinated development department to connect with government policies, and has begun to sort out and gather policy resources such as taxation, housing, talent, and entrepreneurship to achieve precise services for foreign companies to settle in Shenzhen; explore and establish a sound angel investment policy service system, and improve the policy environment that is conducive to the Shenzhen angel investment industry and start-up companies.
The Angel Fund of Funds Management Company has also initiated the establishment of the Shenzhen-Hong Kong-Macao Angel Investors Alliance, which currently has nearly 200 members. The alliance brings together market elements such as investment, finance, industry, incubation, and corporate services, and derives a number of enabling products such as investment financing, professional technology, achievement transformation, entrepreneurial coaching, publicity and promotion, and credit guarantees, providing a wealth of market-oriented services for the angel investment industry and the development of start-up enterprises.
In addition, the Angel Fund Management Company plans to rely on the operation of "Angel Club" and other projects to create a space hardware carrier for the entire chain of "scientific research, incubation, acceleration, and industry" to provide a "nurturing" base for start-up technology companies. Currently, the first "Angel Club" has been successfully built in the new generation information technology industrial park in Futian District.
At the same time, angel parent fund management companies use the construction of a "seed bank" as a starting point to build a high-quality project resource system by actively broadening project sources, screening and promoting high-quality projects, linking various professional resources, etc., opening up an interconnection platform between technology companies and venture capital institutions, and accelerating the effective connection between project parties and investors.
Case
Qianhai Ark: Focusing on alternative technologies for "stuck necks" and has invested in more than a dozen projects
Qianhai Ark Asset Management Co., Ltd. (hereinafter referred to as "Qianhai Ark") was co-founded by Jin Haitao and other domestic first-line investors and investment institutions. The Qianhai Fund of Funds managed by it is currently the largest commercially raised fund of funds in China, with an initial fundraising scale of 28.5 billion yuan. Shenzhen Huaize Zhongzhao Angel Fund is also managed by Qianhai Ark, with an initial scale of RMB 500 million, of which Shenzhen Angel Fund of Funds contributes 40%. The fund focuses on early technological innovation, especially "stuck" alternative technologies in key areas such as information technology, big health, new energy, and new materials.
After the epidemic was brought under control in the second half of 2020, the overall investment speed of the venture capital industry accelerated. Huaize Zhongzhao Angel Fund was established in July of that year and began investing in August. It has invested in more than 10 early-stage technology projects during the year, with an investment amount of more than 100 million yuan, most of which was invested in Shenzhen projects.
"As a government-guided fund of funds, Shenzhen Angel Fund of Funds' professional capabilities, risk control system and service concepts are definitely at the leading level in China. Few investors are as familiar with our projects as they are." Gao Gao, managing partner of Qianhai Ark, revealed that Shenzhen Angel Fund of Funds arranges dedicated investment managers for each sub-fund. They have docking almost every day and use proactive services to understand the progress of each project. "One of their investment managers has to deal with multiple sub-funds, so the workload is very heavy."
Gao Gao believes that now is the best period of opportunity for high-tech venture capital investment in China. The country and the whole society pay more attention to and accept scientific and technological innovation than before; the reform of the capital market has brought more positive incentives to investment institutions and entrepreneurs. In the large circulation system formed by innovative talents, investment institutions and entrepreneurial enterprises, thanks to the support of the Shenzhen government, Shenzhen's status as "China's Silicon Valley" has been further enhanced.
In the post-investment process, Qianhai Ark has communicated with the angel fund of funds management team many times and found that they have a lot in common. "Many of the management teams of angel FOFs come from investment institutions, so their guidance and services are in place and very professional. When we encounter any difficulties, we can come to them to quickly discuss and resolve them, and the guidance and reward policies are also very attractive. Therefore, angel FOFs encourage us to invest in earlier and more cutting-edge projects, and we will be more motivated to invest." In Gao Gao's view, Shenzhen still lacks outstanding early investment talents, but the angel investment ecosystem has been getting better recently. "A few years ago, I could count the number of investors who were looking for early-stage projects in Shenzhen on two hands. After the establishment of the Angel Fund of Funds, it attracted many domestic and foreign first-tier early-stage investment institutions to settle in Shenzhen. There were a lot more investors, and everyone even started to rush for early-stage projects. Usually 2-3 institutions would invest together in a project. If the speed is slightly slower, the project would be missed. This is a good thing for entrepreneurs, enriching the early-stage innovation ecosystem, and also conducive to the rapid growth of technological innovation enterprises."
"We are happy to see several sub-funds competing for a project, and we also hope to see multiple sub-funds jointly invest in a project. We also hope that more social capital will participate in angel investment and make the angel investment ecology better." Xu Xiangdong said.
