(Chinese Version)

The past year had been a capital winter as the public called it. The investment market always picks the fittest and eliminate the weak. Investment is more like gambling, which requires an extremely sensitive and alarming touch to discover investment potential that’s hard to trace. Through IDG Capital’s 2016 Annual Review, we might get a glimpse what the capital market in 2016 was like. Was it shrinking, or was it a time when risks and opportunities both existed?

IDG Capital’s 2016 Annual Review reviews the firm’s success and accomplishment in the year of 2016:

In 2016, IDG Capital harvested three IPOs, two IPO approvals (G-bits is listed to date), 14 merger and acquisition exits, and had 26 companies valued at over $1 billion (not including investments made before 2006) and 110 companies completing next round financing.

IDG Capital entered the VC sector in China in 1992 as the earliest foreign investment foundation that entered the Chinese market. Besides VC, IDG Capital also reaches into different phases of investment, including PE and M&A. It has started to build an industrial platform with great potential. IDG Capital now manages over ten RMB and U.S dollar foundations.

In the past year, IDG Capital had had great achievements in many areas.

Three IPOs

The most eye-catching move from last year would definitely be Meitu’s listing in the HK Stock Exchange. Meitu’s IPO had been the biggest IPO since the launch of Shenzhen-Hong Kong Stock Connect, making Meitu the biggest Internet company listed on HK Stock Exchange following Tencent.

Furthermore, Zhouheiya went public on HK Stock Exchange and TopScore became listed on the A-share. Gaming company G-bits received its A-share listing approval in 2016 and successfully went public on January 4th 2017. According to statistics, IDG Capital boasted three IPOs and two IPO approvals in 2016.

Besides these major venture capital events, IDG Capital also had over 110 new financings among the companies it invested in the cold capital winter in 2016.

According to iResearch’s unicorn company chart, IDG-backed companies account for 13.33% of the unicorn companies that were invested during A or B round and then grew to become a unicorn. That makes IDG Capital the leading foundation in terms of the quantity. There are 26 companies from IDG Capital’s investments in the past decade that have become unicorns with a valuation over $1 billion. In 2016, another 15 companies joined the unicorn club.

Focusing on the AI, consumption upgrade and entertainment sector

IDG Capital shows its preference of investing in the AI, consumption upgrade and entertainment sector in the IDG VIEW 2016 INVESTMENT TENDENCY report and explains the investment logic behind this idea.

• AI

In the AI sector, 10 startups received a new round of financing: SenseTime and Zoox had entered the unicorn club; Rokid achieved a valuation of $450 million with its portable AI, Rokid Pepple winning two awards at the 2017 CES.

IDG Capital has the following reasons for favoring the AI sector:

1. Hardware: Whether it’s chips, the system, or the storage, all of their development has met the basic demand posed by the AI sector;

2. Algorithm: Universities have all made AI courses such as machine learning compulsory, which means there is a ready talent pool for this sector;

3. Data: There are enough data from businesses and the general public, making data analysis feasible;

• Consumption upgrade

In the consumption upgrade sector, 14 companies completed a new round of financing. Mogujie’s valuation hit $3 billion after upgrading to Meili Inc. Chinese furniture brand Zaozuo, glasses fashion brand Inmix, fashion man’s wear brand Magmode all chose to go offline in 2016. Now we can pretty much see these brands everywhere offline, whether it’s in big shopping malls or convenience stores in Beijing.

IDG believes there are three investment opportunities in e-commerce under the consumption upgrade tendency:

1. New brands might appear. As the young generation gather more consumption power, brands that satisfy the young generation’s needs will appear.

2. New channel brands might appear. The west’s consumption structure is mainly based on the select shops, which is still new in China. In the future there would be more channel brands in China and brands like Watsons and Sephora etc. would appear both online and offline.

3. Craftsmanship. Middle class consumers pursue cost-effective and quality products, that’s why craftsmanship will rise.

• The greater entertainment sector

In the greater entertainment sector, 12 companies had successfully entered the next round. Meitu, with 1.1 billion users around the world, became listed on HK Stock Exchange, becoming the biggest IPO on HK Stock Exchange following Tencent. Xiamen-based gaming company G-bits, whose HQ sits facing to Meitu, also went public in the new year with its net profit reaching ￥600 million in 2016. Besides that, Bilibili, which IDG thinks highly of, is the mainstream platform for ACGN lovers. In 2016, Bilibili even had Shanghai Basketball Team advertising for the platform.

IDG has its own thinking and judgment on the greater entertainment sector:

The changes in the greater entertainment sector can be divided into two directions: Approach-based cases like Bilibili that makes use of real-time bulletin interaction; Content-based cases that include the making of new content and new communication methods. For VR/AR industry, the hardware must be mature first for the content to catch up. The first hot markets will very likely be the console market and offline brick-and-mortar experience stores. As the mainstream starts to gradually accept subculture, e-sports will gain greater momentum.

Investments in other fields

• If we look further into specific sectors, we would find that IDG Capital also has quite many investments in areas such as the cultural, sports, real estate, tourism sectors etc.
• In early 2016, Wanda Group acquired Legendary Pictures, breaking the record of the biggest acquisition case in overseas acquisition of the cultural industry.
• Investing in OL Groupe, teaming up with European clubs, and becoming the first one to bring domestic-and-foreign-backed operation model to the youth training system in China.
• The New Beijing Center is 300m high and covers an area of 720,000㎡, towering Beijing as another landmark of the capital.
• Beijing Water Town had 935,100 visitors in the first half of the year, a year-on-year growth of almost 100%, making the tourist attraction another classic text-book example for tourism real estate following Wu Town.

It’s apparent that IDG Capital was not under the influence of the capital winter. The Internet industry is highly reliant on the capital, and therefore no matter how satisfying this review looks, we can’t ignore the fact that there were also lots of failures behind.

For entrepreneurs, every step they make counts besides utilizing the capital well. Everyone knows in the capital market there is only a thin line between hope and death.

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[The article is published and edited with authorization from the author @Zhang Na, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.