With over a decade of investment experience in technology and consumption, ZWC Partners (ZWC) invested in Cyclone, Datong Insurance, eWebao, and many other spotlighted projects in the latest 12 months. Propelling such advancement is ZWC Partner Michael Yao, known for keen insight and responsiveness in his blood. But watchwords prevailing in the man’s exclusive interview by 21st Century Business Herald are 3Ps: planning in the long run, patience and prudence.
“ZWC has unswerving faith in the potential of innovation on China’s market despite mounting uncertainties in the external environment in recent years, including fluctuations on capital market, national or international. China is entering a new stage of high-quality and sustainable growth. Predictably the tide of digitization and intelligence is injecting fresh vigor to industrial upgrading and industrialization of emerging and cutting-edge technologies will materialize under the guide of the innovation-driven development strategy,” said Yao.
He added, ZWC will continue to stand in the forefront of industries with logic straightened out and awareness internalized. Upholding the “technology+industry” philosophy in investment, the firm plans to make a foray into tech-driven enterprise services, new consumption and hard technology. Aspiring for knowing industries better than other institutional investors, ZWC follows the direction of industrial reform in its quest for the best scenarios for application of technology and stands by entrepreneurs on the way ahead.
Founded in 2015, ZWC is now a dual-currency fund platform focusing on early-stage and long term investments. Finalizing new round of USD fund raising in earlier last May, the fund’s Asset Under Management (AUM) to date has exceeded RMB 10 billion. Apparently ZWC is slated for new round of RMB fund raising soon.
With all the “ammunition” on hand, ZWC needs to determine an appropriate strategy and path for next move. During the interview, Michael shed light on the ZWC law of industrial investment, projected trends for investing in consumption, enterprise services and other fields concerned, and offered investment guide with “altruism” at the core of ZWC investment philosophy.
Industrial investment takes time to come to fruition
Over the past decade or so, China’s new economy advanced in great strides on the track of mobile Internet following the “Internet+” thread and focusing on transformation of business models. But in recent years, as the user population dividend receded, it has been unanimously agreed that China’s VC market is entering the second half of game–integration with traditional industries. Taking concrete action in fueling tech innovation and industrial upgrading, ZWC allots funds for AI, autonomous driving and chip & semiconductor among other projects.
Michael anticipated more odds for a surge of technical reform and digitization in vertical industries and more “technology+industry” investment opportunities arising out of economic growth driven by greater productivity.
“At the industrial side, many new growth trends have emerged,” said Michael. As manufacturing is heading towards automation and intelligent application, industrial upgrading enters a new development stage of integration of hard/soft power integration. Robotics prevailing in industrial production, logistics and warehousing, for instance, features active perception and automatic identification. It’s a crossover of hardware, e.g., laser radar, and software typified by algorithms and deep learning, elevating value added in the robotic industry.
As an epitome of the tendency, new energy vehicle (NEV) entails leapfrog advancements across power system, engine system, etc., with features of autonomous driving and connected infotainment. Apart from higher average transaction value (ATV) and broader market, relevant trends also up the ante and drive entrepreneurs to contend for software and hardware instead of business model and manufacturing capacity in prior stage.
“Industrial investors, individual or institutional, keep abreast of industrial reform and accelerate breaking new ground in industrial awareness, so as to further communication with more engaged in the industry. It is unwise to make investment decisions with resort to data models alone. Instead, industrial investors are advised to dig deep and exploit innovative forces conducive for enhancing industrial productivity,” added Michael.
For enterprise services in particular, Michael listed major considerations for seeking quality investment targets. Room for application in market comes in the first place. China’s current enterprise service market is characterized by great appetite for customization among large enterprises, lack of spending and awareness among small- and micro-sized enterprises and lower ATV than the U.S. market. To broaden customer base and consequently expand market size, enterprise services objectively need to take root in larger industries and unveil universal products. With such insight, ZWC invests in e-signature solution provider Fadada and Cyclone specialized in office automation.
External factors also count in spurring development of the industry. Enterprise services boil down to a prolonged competition, and external stimulants serve as an important catalyst to relevant projects. For example, external environment has sparked a wave of new needs in recent years, online banking services, contactless contracting and faster penetration of OA software, to name a few. Driven by such force majeure, breakthroughs are made in many enterprise service projects regardless the resistance of high migration cost and reluctance to change user habit.
To stand out of the fierce market competition, Michael suggested, enterprise service projects are supposed to be essentially user-friendly with requirements generalized while strengthening tech strength and deepening industrial understanding for widening the gap in soft power. With a view to becoming literally indispensable operating platforms by taking root in vertical industries, entwining with user/business flow and gaining experience and tech capabilities through interaction with industry users, enterprise service software renders should erect a technical barrier for sustainability.
The craze is fading, and it’s time for increasing investment in consumption
Consumption is another concern of ZWC investment. The fund’s investment portfolio includes Hefu Noodle, Honlife, Poem Mirror etc.
“Consumption is a long race. With no user population dividend, we’d better keep watch on two variates,” said Yao.
Firstly, with bounty of material properties contained in new consumer goods, consumers are more demanding on market segments and hereby raise more requirements regarding product functionality. By targeting key user group and meeting specific requirements thereof, lots of startups have blazed a new trail in the competition with market titans. Oral care in vogue has sprouted outstanding enterprises in recent years.
Beside functionality, new consumer brands use their best endeavor to cater to health needs of consumers. Labeled sugar-free, calorie-free, low-fat, high-fiber, etc., the brands hype up in the extreme. Honlife, one of ZWC portfolio companies, precisely satisfies health demand of the younger generation with neotype meal replacements. In addition, a marked increase in the technology in new consumer goods results in an increment of material properties thereof.
Each generation has their own belief. Owing to a generation gap in consumption, products are endowed with new spiritual connotation. Against the backdrop of the rise of ACGN, art/designer toy and “three niche cosplay cultures” among other brand categories are springing and spiritually accommodating the Gen Z population, the new backbone of consumption.
The fundamentals remain even though the wave of consumer financing has ebbed. For ensuring continuity of research and analysis on new consumers and channels, ZWC co-founded the ZWC-Focus Consumption Institute with Focus Media. ZWC has unswerving faith in breaking the bottleneck in consumption investment with effort on institutionalization and staffing.
“Last year, we were relatively conservative, but greater importance will be ascribed to investing in consumption this year.” Michael proclaimed projects on consumer goods approved in the latest three months has outnumbered the total of last year.
He said, since the frenzy of investment in consumer market has waned, project estimation returns to reason, which is indicative of a great opportunity for increasing investment in this realm. ZWC has cast its eyes on consumer goods companies with great prospects for long-term development, fair valuation and mighty product power.
And for well-established firms in a slide, odds are very much in their favor. They will eventually make their presence felt on the market with greater share. “We maintain permanent contact with potential companies, which may become our portfolio companies later this year,” said Yao.
Win-win cooperation revolving around “altruism” investment
Speaking of ZWC core investment philosophy, Michael made frequent reference to “altruism”. Steering investment philosophy with “altruism”, ZWC team takes to heart whether entrepreneurs and startups can exhibit and embody “altruism” in their consistent contribution to consumers, society and the whole world, which differs the commonplace from the extraordinary.
“Altruism” is not merely reflected in ZWC selection of investment targets and entrepreneurs. Michael added, “Entrepreneurship is inherent in ZWC. We see a tight bond with industrial investors and remarkable entrepreneurs. We share with these business leaders our means, along with entrepreneurial experience and industrial resources. Selflessly we take delight in becoming closely intertwined with entrepreneurs of new generation.”
Advocating altruistic investment philosophy, ZWC gives financial support to portfolio companies while preceding post-investment value-added services regarding human resources, organizational development, brand marketing, fund raising, etc.
“Before investing portfolio companies, we refer clients and senior executives to them. ZWC shares all resources available without reservation even before we take a share in a company. I trust the company will be willing to partner with us after realizing our value in the process. It’s definitely win-win cooperation,” said Yao.
Whilst escorting portfolio companies in their development, ZWC spares no effort to practice the “altruism” and empower the firms with its own industrial resources. To be specific, ZWC originates a “120-day post-investment program” that applies to all projects invested. It refers to intensive output of resources, connection and internalization in all facets of business development within a particular span of time. For example, ZWC assigns its own recruitment and organizational development team to involve in staffing of portfolio companies.
Besides, industrial contributors in the ZWC ecosystem may impart their insight and experience gained in years to entrepreneurs via “Altruism School” or any other channels. Seizing this opportunity, portfolio companies can leverage a whole body of resources in the ZWC ecosystem. Focus Media is just a case in point. With a cozy relationship with ZWC, it can offer professional advice and assistance in branding and advertising to ZWC’s portfolio companies.