ZWC insight| The heart of judgment of technology investment comes from the understanding of the industry
January 4, 2022

By the end of 2021, technology investment has gradually become a popular trend.

Under the background of the industrial Internet, as the most influential driving force of the future incremental economy, technological innovation has become a consensus in the market. In ZWC Partner (hereinafter referred to as ZWC), we always believe that the essence of innovative value investment is to assess whether innovative technology and its underlying model can truly improve efficiency, change the industry structure, and bring about value creation.

Lately, Yu Xiaolu, a partner of ZWC, was invited to participate in the 36Kr WISE 2021 China Industry Investment Summit. Revolving around “How to invest in Hardcore Technology”, she had in-depth exchanges with several other roundtable forum guests.

In the face of a gradually more robust technology investment trend, focusing on topics such as how to ensure iterate perception of technology investment, how to treat the relationship between technology and scenes, etc., Yu Xiaolu, a partner of ZWC, shared her ideas based on her own industry knowledge and investment experience.

  • Investment in the science and technology actually comes from the industry and is then used as a tool to promote industrial innovation, thus empowering the industry. The heart of judgment of technology investment is based on the understanding of the industry.
  • It is not only about whether we recognize a certain technology domain, but also whether it is really needed by the industry, or whether it really plays a role in promoting the development and transformation of the industry. We should also consider whether it has a certain impact on the industry chain, and whether the fund cycle matches the industry cycle.
  • Facing entrepreneurs, investors should serve as windows. On the one hand, they should help entrepreneurs to release their pressure. On the other hand, they can be the source of external information, capabilities and needs.
  • Based on the positive perceptions of the society, entrepreneurs, and investors, we will certainly be able to steer the development of the entire technology industry in the right direction.

The speeches of the round table forum are as follows:

Question 1: What is a way to systematically improve personal and organizational perception of investment in the technology industry?

Yu Xiaolu, ZWC: First of all, technology investment is different from Internet investment. Investment in the Internet means a huge amount of time in thinking about business models and assessing the team and people. But in technology investment, we pay more attention to the perception of the industry than the business model. The investment in the technology comes from and then goes to the industry. The core lies in the perception of the industry.

We have also spent a lot of time communicating with people working in the forefront of the industry, so as to obtain first-hand industry information and then iterate our own perception. In this process, we continue to refine our knowledge and theoretical framework. In general, whether we want to judge the current investment or predict the future trend, we should focus on the industry,

Secondly, our Venture Partner mechanism. These Venture Partners are veterans or gurus in their industries, such as Tencent, Amazon AWS, and some car manufacturers. We have relatively in-depth strategic cooperation with them to obtain first-hand experience and news about what is going on and what will happen in the industry.  This provides the basis and support for us to make strategic investment decisions.

Our decision-making process also well reflects the significance and value of the partner mechanism. . For example, on projects in the technology industry, partners who focus on this direction will have a stronger say. At the same time, we will also regard the opinions of Venture Partners with insights and industry backgrounds in this direction as a reference for our decision-making.

Thirdly, sharing within the organization. Each IC member may focus on a different direction. But the way to ensure the same perception of each member is a daunting test for any organization. By learning from the industry, and then sharing the knowledge internally, we let these knowledge systems pass on within the organization.

Question 2: In technology investment, are we creating technology with scenarios or the other way around?

Yu Xiaolu, ZWC: First of all, technological innovation, especially innovative breakthrough, is available in the event, but not impossible. Around 2015, there was a round of innovation in AI technology, known as the deep neural network model. Some institutions were lucky to have caught up with the investment window period. ZWC also invested in several unicorn companies during that time.

Now let’s review the way to seize these opportunities in the long history of investment. If we look at the application scenarios, technology is just a tool to solve certain problems in the application industry. Viewing technology as a tool is to see technology as an industry rather than technology itself. “Coming from and then going to the industry” means that when using technical tools, we need to clearly understand the business logic, industry cycle, and growth momentum of the industry, and clarify the position of technological change in the industry chain. 

For example, I invested in Horizon Robotics in 2015. Before investing, I evaluated the direction.  AI, deep learning, and chips were definitely correct, but this was not the whole. The most important thing was that Horizon Robotics was going to develop autonomous driving and empower the automobile industry. The automobile industry still needs time. Then how many about autonomous driving? Can we wait for the funds to make a profit? If the answer is yes, then we can wait.

To sum up, there is no problem with the algorithm + chip model, and the chip architecture of domain specific software architecture, or the future of autonomous driving. The rest is to judge whether it is feasible to make it a Tier 2. Do car makers agree? Does the cycle of our fund match? These judgments are not only about the recognition of the technological direction, but also whether it really plays a role in promoting the industrial development, whether it has a certain influence on the industry chain and whether it is what this industry needs. These are the core factors we should consider when assessing technology projects.

Question 3: How to gain the favor of technology entrepreneurs?

Yu Xiaolu, ZWC: In fact, many founders, especially those of companies in the technology industry, have received less capital’s attention in the initial period for a long time. This is a long and arduous process.

Downstream enterprises of these companies are giants in mature industries, such as the mobile phone and automobile industries. Founders would find it hard to communicate. We should be a window for them. On the one hand,

Many entrepreneurs have also mentioned this point of view, hoping they can meet investors who understand them. Those investors are not only familiar with the industry, with no need to get to know the details but understand the pain spot of the industry. When they have known how the business is operating, they won’t ask why some target has not been achieved. Although, based on professionalism, investors will always remind us of problems, but in many cases, they tend to understand why things turned out to be like this and help them to improve and upgrade. When entrepreneurs are under great psychological pressure in the face of setbacks and difficulties, and when they have needs but do not know where to find solutions, investors can be their good partners, which is also an element that many founders will care about.

In addition, ZWC has put a lot of post-investment value-added services forward..  For example, this year, we invested in the mainline technology, namely autonomous driving companies, and mainly engaged in mainline logistics. When we knew that this company was engaged in trunk logistics and port logistics, before we talked about investing or not, we introduced to them information about port resources and trunk logistics company for it, which was recognized by the other party and became the leading investor of that round. From then on, we have maintained a close relationship.

In short, this is a matter of putting yourself into others’ shoes. The founders are very lonely when starting a business, and we need to understand and trust each other .

Question 4: What is your opinion about science and technology for good?

Yu Xiaolu, ZWC: In fact, many industries may not always be good for the public at the beginning, and even, the ultimate goal of some industries is not good at all. Then why can’t we be more inclusive towards the technology industry? I believe that based on the positive perception of our society, entrepreneurs, and investors, we will certainly be able to guide the development of the entire technology industry in the right direction.

As has been mentioned, technology is a tool, and we will also use this tool in a direction that is ultimately good for mankind. For example, I used to invest in clean technology. Think about it. In the past ten or twenty years, how many people have paid attention to clean technology? Is the clean tech for the public good? Yes. Has it made the most profits over the past ten or twenty years? Definitely not. Now that the country is vigorously promoting carbon neutrality. It is a good opportunity. We should devote ourselves to carbon neutrality, ensuring science and technology for good can truly serve the country, society, and people.

“Achieving high-level technological self-reliance and self-reliance” is the key to technological innovation and development. It is time for the hardcore technology to  thrive and prosper. ZWC Partner will also pay close attention to the field of hardcore technology in a long run, adhere to the concept of value innovation, and continuously promote technological innovation and industrial upgrading.