one

strategy

Catcher: you always keep a low profile, can you introduce your investment experience first?

Liu Jun: I am a self-employed person now. I worked as the vice president of 360 in my early years. After 360 went public, I became a consultant and helped manage strategic investment.

Therefore, I am actually a novice in investment, but it is very lucky that the first angel project was put into today’s headlines. There is also Tencent Music entertainment Group, which is now valued at more than 10 billion DOLLARS. It was originally called China Music Group, which was formed by the merger of Kugou, Kuwo and Ocean Music, which I helped to promote. At that time, I invested nearly ten million dollars for 360, which has also increased by dozens of times in the past two years. There are also several angel projects, which are almost at the pre-IPO stage.

Catchers: Many investment institutions are investing in earlier and earlier rounds. How is individual angel investing different from institutional angel investing? What kind of project do you prefer?

Liu Jun: I like to invest in some unpopular projects, not so popular things. Big institutions worry about missing out on projects, but I’m an individual investor and don’t have to worry about missing out, so there’s no need to jump on the bandwagon.

Big funds tend to like deals where a single project can make $1 billion. When they look at any project, their first reaction is to see if the market size is big enough, preferably a few trillion, or at least a few hundred billion. If the market size is smaller, they just Pass. The strategy certainly makes sense for big funds at the top of the food chain, where a single bet can multiply the fund’s money back.

But for a large number of new and small funds, following this strategy in lockstep is problematic. Because there are generally no more than 10 successful projects that can run out of the big market or tuyere every year. In the early years, there were only about 20 domestic mainstream DOLLAR funds. On average, every family may invest one in one or two years. The problem is that now there are thousands of domestic funds are looking for wind, are screening projects according to the criteria of the big market. Does it work when almost everyone in the market is following the same investment strategy? It would be better to reverse course.

I analyzed the Chinese gem, small and medium-sized board, found that most of the listed company is emerged from the market, or look the threshold is very low, such as chicken, make the cake, poker, or do some small accessories company, earning a few million, tens of millions of profits can be listed, worth billions of very common, tens of billions of not a few. So a big opportunity that most people overlook is to invest in good companies in smaller markets or unpopular industries.

Catcher: What are the benefits of investing in this type of program?

Liu Jun: I understand there are 7 benefits:

1) Can get a lower price;

2) Companies in small markets tend to be close to money. I have several such projects that turned profitable after angel rounds.

3) The competition in these industries is not fierce and the survival rate of companies is high;

4) If the competition is not fierce, there is no need to burn money.

5) Less cash burning and less financing means less equity dilution, high ROE and high return on investment;

6) Willing to do unpopular industry entrepreneurs, often really love this line, or have a deeper accumulation in this line. Because the competition is not fierce, the requirements of the team ability is not so high, as long as we can stick to work for a few years, even if only one or two times every year, a few years down is also very considerable;

7) The business model of such projects is usually relatively simple, and there are many places to learn from others. It does not need too much innovation and exploration, and transformation is rarely needed. It is enough to go the whole way, and transformation is often the most painful.

In short, this kind of project after the more worry, as investors sleep at night.

Catcher: what are the problems of investing in “big market” and “tuyere” projects?

Liu Jun: “big markets” and “tuyere” tend to attract a large number of players, which will lead to several consequences:

1) There are many opportunists among entrepreneurs. Many people jump in at the sight of “Tuyere” because they think it is a good way to raise money and make money quickly. They do not really love this industry and have little accumulation in this field. For example, many people in the AI industry talk about “Deep Learning” and “Machine Learning”.

2) Hot industries, naturally expensive, but not necessarily grab;

3) Fierce competition, burning money fast, need to keep financing, a little breath will not survive;

4) The success rate is low, and most of them are lost. For example, in the battle of 100 regiments, only one American regiment survives;

5) When the competition is fierce, people tend to get hot headed and only look at their competitors. They compete for the sake of competition, but ignore whether there is a problem with the mode and the track itself. As a result, they all go to the ditch together, such as in the upper category.

6) As competition heats up, Chinese companies are particularly fond of “tactics” : poaching, blackening articles, reporting to the government…

7) Even if it wins in the end, it is scarred with scars: fast cash burn, fast dilution, poor ROE, high valuation on the surface, but in fact, the rate of return is only a few times; At the same time, excessive dilution leads to unreasonable ownership structure, the founding team is easy to lose control, and corporate governance is unstable, such as Uber. Even if control is retained through A and B share designs, A company with A very small team share will have no less moral hazard. In addition, there are a lot of after-effects of integration and management to get bigger by merging.

two

To observe the

Catchers: Do you vote for the founding team or the individual founders?

Liu Jun: I like contrarian investment. Most investors like a few partners like Xu Xiaoping, but I’m just the opposite. Most of the projects I have invested in have a good development. There is only one founder or one boss with a clear majority of shares among several partners. In this way, the decision-making efficiency is high, the team is not easy to split, and there are fewer conflicts and disputes.

Of course, the ability of a founder is sometimes less comprehensive than that of several people in partnership, but this can be compensated by hiring, which is a surmountable difficulty; However, a partnership of several people will inevitably lead to differences and contradictions, affecting unity and efficiency. This is a structural problem, which is not easy to overcome. In serious cases, it will lead to internal strife and failure.

Some projects are resolved by the withdrawal of some of the partners, which can have a hangover. Because those who quit walk away with a lot of equity and enjoy the benefits of not working, the rest may be psychologically unbalanced, or less motivated, or less able to vote.

Catchers: Do serial entrepreneurs have a higher probability of success than first-time entrepreneurs?

Liu Jun: It depends on whether he succeeds or fails continuously. Serial success certainly has a high success rate, and vice versa. Of course, this is not absolute, after all, most startups fail. If the founders have strong introspection ability and learning ability, and are good at summarizing experience and drawing lessons, I will consider investing even if they fail several times.

Catchers: When is a startup in such a state that you know it’s hopeless?

Liu Jun: One is the wrong track, how to transition can not find a way out; There are also founders who have problems, such as not listening to advice, not being able to face reality, or simply not being able to do it. The worst thing to do is to have some kind of disaster, such as the founder’s accident or a policy change that prevents them from doing it. Icos are the latest example.

Catchers: As an investor, what are the important things you want entrepreneurs to understand?

Liu Jun: Mainly the following points:

1) If you have too strong self-esteem, you’d better not start a business. If you want to start a business, put your self-esteem away. In the vast majority of cases, investors point out the company’s problems for your own good, even if they’re wrong, and don’t interpret this criticism as a challenge to your abilities. As long as the company is successful, the founder’s face is bigger than anyone else’s; What’s the use of face when the company collapses?

2) Don’t report bad news. One of the worst nightmares for an investor is getting good news from a founder all the time, only to find out one day that the company is dying and you don’t have time to react. Investors are not your superiors, not your parents, but your partners, we are all in the same boat. Speak up so others know how to help you. There’s no need to hide it. When a business goes wrong, it doesn’t matter how happy investors are.

3) Don’t mention the competition is a face of disdain, the result of doing the competition but ran ahead of us. Be sure to remember: the opponent’s shortcomings no matter how many, and we have nothing to do with, and we are related to the advantages of the opponent! No matter how weak the competitor is, its advantages are worth learning from.

4) You can ignore other opinions, but it’s best to listen to investors when it comes to raising money. Investors may not know the business as well as you do, but 99% of the time they have more expertise and experience than you.

Catchers: What’s the difference between a successful startup and a mediocre startup in terms of culture? A lot of people talk about entrepreneurship, but more often than not, people are fearless and desperate. What do you think?

Liu Jun: This cannot be generalized. Successful companies may also have great cultural differences. For example, the internal culture and atmosphere of the three BAT companies are very different. I think Steve jobs put it most succinctly: “Stay hungry. Stay Foolish.” Stay hungry. Hunger to desire, ambition, to fight, to rob, never die; Make a fool of yourself to abandon your opinions, empty yourself, learn, learn, learn.

three

Way of thinking

Catchers: Was angel investing something you always wanted to do? If five years from now, you are more successful in investing, what attributes do you think will help you?

Liu Jun: Unfortunately, I have worked for more than ten years before I found that investment is my favorite and best thing. I believe it will be my last job, but not necessarily limited to angels. Some years I have made good profits in the secondary market.

I am a pure amateur in venture capital. I can’t build financial models, and I can’t understand English agreements. If there’s one thing I do slightly better than my peers, it’s that I treat myself as a partner of entrepreneurs and do everything I can to help them. From product, strategy, financing, recruitment, even to husband and wife quarrel, children go to school, help as much as possible, help PPT, agreements and even pr draft is not uncommon until midnight.

Starting a business is a very lonely, very helpless and painful thing. If the investors as shareholders do not help, then who can the entrepreneur rely on?

In addition, for angel projects, whether investors do their best to help is often decisive to the success rate of the project. Since it is an early project, there must be many deficiencies, which need to be made up by the investors. Even entrepreneurs who have been successful, or who have become very successful, are full of money in the first two years of starting a project.

Catcher: where does it show up?

Liu Jun: I helped complete most of the financing of the projects I invested in, which is equivalent to a free FA. In particular, in round A, because of the small amount of money raised, most FA are usually not willing to accept it. If they do, they will be left to A few children to practice, and the effect is naturally limited. Why do so many angel projects fail round A? The lack of financing is a big reason. This is when you help him out, make it through, the chance of survival will be much greater.

That’s why I had a higher success rate and rate of return at the angel stage than anyone I knew. It had nothing to do with vision, but simply because I loved to help, “invest in employees.” In fact, most investors are of the same level, and no one is much smarter than others, when “love to help” becomes a core competitiveness.

There is an unexpected harvest to help more, which is to accumulate a good reputation. I seldom go out to look for projects on my own initiative. They are basically introduced to me by entrepreneurs and friends I have helped, and the prices are often low.

Of course, now there are many projects, energy is limited, it is difficult to help everything as before. But the key things, like strategy, financing, etc., I will help you no matter how busy you are. Like toutiao side, actually my share has been very little dilution, but Yiming (Zhang Yiming) has been asking me to be his director.

Catcher’s note: Conversely, if your investment fails or stagnates. What do you think might be contributing factors to this dilemma?

Liu Jun: It is always possible for individual projects to fail, for different reasons, even the most powerful investors will encounter. If I fail on a large scale, either I have Alzheimer’s or something is wrong with the environment, such as a Minsky moment, for which I am always on guard.

Catcher: from the communication with you, I can feel that you are very logical. Do you have any investors or investment ideas that you personally admire? It’s what you believe inside, no matter how the outside world changes.

Liu Jun: I started from the secondary market, from Buffett, Munger to Peter Lynch, John Neff, I read books and everyone is about the same, but Soros and engage in quantitative such as Simmons that set of things, I am too stupid to learn. Among Chinese, DUAN Yongping and Zhao Danyang’s investment philosophy resonates with me. In general, I prefer to be contrarian, and most people expect me to be more vigilant.

In addition, I always believe that “good people come back to you”. If you treat others well, there is a high probability that others will treat you well. It’s not all about karma. Game theory shows that. I look at this when I judge entrepreneurs, and I’ve had a couple of projects that I was really excited about, but the founder’s style and behavior didn’t fit this principle, and I gave up on all of them. There are a lot of opportunities to make money. Some projects can make a lot of money, but they will make you uncomfortable. Let others make money.

Source: Catcher