<Science and Technology Innovation Board Daily> (Shanghai, Reporter: Chen Xiayi)
Without an introduction, one would not anticipate that the soft-spoken, gentle and calm lady being interviewed would be a financier, but as the saying goes: “don’t judge a book by its cover”. The interviewee, Ms Xiong Yanpin, a former Goldman Sachs investment banker, is actually the co-founder of V Fund, an investment management firm.
In late 2015, Ms Xiong, together with four former Goldman Sachs colleagues, founded V Fund together. As a mid to late-stage investment firm, V fund currently manages over 6 billion RMB in funds, and within 5 years, V Fund has invested over 4 billion RMB. They have invested in 24 projects and 7 of them have been publicly listed, with an impressive IPO rate of 30% which is expected to increase to over 50% within the next year. Notable projects include Contemporary Amperex Technology, Farasis, Yunda Express, Zhongke Aerospace, YunTongXun, and GeekPlus, among other leading enterprises in the industry.
To Ms Xiong, V Fund’s advantage lies in its ability to focus. Since its establishment, V Fund has been focusing on China’s industrial transformation and upgrading, together with investments in innovative technology. Furthermore, the partners have years of experience in capital operation under their belts, especially in the advanced manufacturing field, thus are very familiar with the capital operation of the technological innovation industry.
Farasis Technology, a company invested in by V Fund, has been successfully listed on the Sci-tech Innovation Board, while another company they have invested in has been accepted by the Board. In the next year, 6-8 companies they have invested in will continue to apply to the Sci-Tech Innovation Board. At the event, Xiong Yanpin, a partner of V Fund, accepted an exclusive interview with a reporter from the Science and Technology Innovation Board Daily and discussed topics such as V Fund’s investment style, strengths and investment logic in-depth.
24 Projects in five years, with a doubling in DPI: Pre-IPO Prospect Evaluation
Since the founding of V Fund less than 5 years ago, it has invested in 24 projects, with 7 that have been publicly listed. Among them, the DPI (Distribution to Paid-In) of the first phase of the fund has more than doubled. As compared to other firms that invest multiple times in a year, V Fund’s investment strategy is more cautious and stable, thus ensuring better performance.
"V Fund is more inclined to invest in mid-to-late stage projects. Unlike early-stage investors, we do not invest in dozens or hundreds of projects in each cycle.” Ms Xiong explained to the Science and Technology Innovation Board Daily.
The lower number of investments not only relates to the stages of investments but also reflects V Fund’s strict control over their projects, while the higher and faster IPO rate shows the brilliance and accuracy in the judgment of V Fund’s team.
According to Ms Xiong, when V Fund’s investment team chooses their projects, they prefer to invest in leading companies in various subfields in the industrial technology field. At the same time, they will use their professional judgment to assess the company’s prospects and listing possibilities, besides thinking about the possibilities for the team to provide industrial resources to the company.
Furthermore, she stated that for many projects, their funding rounds determine whether they can be successfully publicly listed. To reduce the chances of failure, V Fund manages its exit strategy and assesses the prospects of a public listing of the company while considering whether to invest in the company. All these assessments are based on the industry situation and in-depth study and judgment of the company’s fundamental situation.
Former Goldman Sachs Bankers, Skilled at Spotting Technology “Unicorns”
"We have many years of experience in the capital market. At the same time, we have accumulated much experience in the industry and have accurate judgments." Ms Xiong told the reporter of "Science Innovation Board Daily" that when they founded V Fund, there were many opportunities and directions for investments, but they decided to focus on investing in China’s industrial transformation and upgrading, together with innovative technology. This decision is largely due to their experiences in investment banking. According to her, when the founding team of V Fund came together to analyze their resources, industry experience and project experience gained at Goldman Sachs, they realized that half of the nearly 120 IPOs and mergers and acquisitions they did at Goldman Sachs were concentrated on the industrial technology track. These past experiences and resources, together with their knowledge of the advanced manufacturing industry, have greatly assisted with their ability to lead and manage V Fund.
Firstly, V Fund has an impressive network of connections and extensive project resources, allowing them to seek and capture “unicorns”.
A good example is the acquisition of the Zijian Electronics project. V Fund is heavily involved in the battery industry, with a particular focus on lithium batteries. Through extensive research, V Fund has found that consumer-grade wearable micro-lithium battery devices have the potential for explosive growth in the future, and Zijian Electronics is the leading company in the industry. After zeroing in on the project, V Fund utilized the extensive network of its partners to turn potential into reality. Ms Xiong stated that since V Fund’s investment in Zijian Electronics, it has assisted in various aspects such as business, capital and financing, making it a key company that is to be listed.
Secondly, V Fund’s advantage lies in the fact that they have an existing investment layout. They can work with other strategic investors to carry out joint investments and introduce industry resources, government resources and investor resources through their invested projects, thus gaining access to investment opportunities at the same valuation as strategic investors.
In the artificial intelligence and machine vision sectors, V Fund has invested in Horizon Robotics and Megvii technology and have predicted that semantic recognition will be the next big thing of artificial intelligence. While working with strategic investors to scan the NLP industry map, they discovered Emotibot.
Thirdly, V Fund’s advantage lies in their post-investment management. In addition to bringing industrial resources to the invested companies, V Fund is excellent at carrying out capital planning for the invested companies. Once V Fund decides to invest in a company, it will formulate a relatively complete listing plan for the invested company and will also match them with appropriate investment banks and other tripartite intermediaries to help the company go public at a faster speed through these supporting services.
Farasis Technology, which has just been listed on the Science and Technology Innovation Board, is a typical example. Since Farasis was first established in the United States, V Fund assisted with the overseas asset return and reorganization of Farasis before it returned to China for its IPO. V Fund had also connected Farasis with professional investment banks, designed its IPO strategy and participated in the entire process.
Ms Xiong had revealed that the competition for Farasis was extremely fierce. In the competition of investment groups dominated by state-owned capital, V Fund used a full range of professional services to seize the company’s scarce investment quota and became one of the few private investment firms that received a share in the company.
Selecting Leading Companies with High Value-Adding Potential
When investing, V Fund opts to be prudent and stable. The field of new energy vehicles best reflects V Fund’s investment strategy and Contemporary Amperex Technology is undoubtedly their most dazzling investment.
Around 2017, a new energy vehicle fund was established. After analyzing the overall industrial chain of new energy vehicles, V Fund’s investment team came to the opinion that vehicle companies that focus on the c-segment not only require large amounts of capital but also have extremely high risks, with a low probability of success. Thus, they avoided investing in this industry.
V Fund believes that investments in core components have greater stability compared to whole vehicles, as market demand, rather than the popularity of individual brands, are the key to the success of the companies.
From the perspective of parts and components, because batteries account for 60% of the cost of new energy vehicles, and cathode materials account for about 30%-40% of battery costs, it is the segment with the highest added value in the automotive industry chain. Therefore, V Fund invested in Contemporary Amperex Technology which was one of the industry leaders at the time, and Farasis Technology, which has recently been listed on the Science and Technology Innovation Board.
V Fund is also involved in the field of hard and core technology, including Biren, a GPU start-up founded by a team of elite Chinese scientists, chip design software EDA, automotive smart driving chip companies, 5G mobile phone RF chip prediction and cloud RF chip, among others.
When asked whether V Fund avoids investing in multiple companies in a single subfield, Ms Xiong believes that from the perspective of a financial investor, fund managers aim to maximize the value of their investors’ investments, thus the fact that companies that they have invested in are in a state of competition is not a worry for them.
She believes that the new energy vehicles market is a trillion-dollar market, which is sufficient to support 2-3 competitive companies. This opinion is based on the concentration rates of previous automotive industry chains and auto-component supply chains and is supported by financial analysis.
"If an industry does not have much room for growth, for example, the market size of the entire industry is only 5 billion RMB, and a leading company already holds 70-80% of the market share, we will not try to get a second company involved, as that limits the space for imagination." Ms Xiong added.