Leo的恒河沙

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"In order to raise funds, I promise LP triple return investment" - Huxiu.com#

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Now I am cooperating with the local investment promotion department to help them identify projects. I will take action on projects worth investing in. The government can choose to co-invest or provide corresponding policy subsidies and other support. ⤴️ ^f8436764

Identifying projects and then investing in them seems to be a good model.

Scientist Entrepreneurship ⤴️ ^f9d603ec

This is a phenomenon of the recovery of the Kondratieff wave.

For most companies, the most attractive are first-tier funds, which have a very strong endorsement effect. The second is state-owned assets. Pure financial investment institutions are ranked last. Currently, most active Solo GPs in the market are financial investors. ⤴️ ^cc2518ac

When your resources do not become resources, they will prioritize you the lowest. ⤴️ ^fc05d6fe

This article introduces the Solo GP investment model, the story of an investor who resigned from a stable job to become a Solo GP, and shares his investment experience and thoughts.

1. High degree of freedom: Solo GPs work through all stages of fundraising, management, and exit, with fast decision-making speed and lightweight structure, allowing them to focus on investment work.

2. Resource advantages: Solo GPs can leverage personal resource advantages, such as government cooperation and incubators, to build their own brand.

3. Return investment commitment: In order to raise funds, Solo GPs need to promise triple return investment, but they can achieve rapid capital inflow through incubating high-quality projects.

4. Facing challenges: Solo GPs need to face the differences in demands between LPs and project parties, as well as competition pressure in the market.

5. Replicable model: The Solo GP model can create an early-stage science and technology innovation fund + base model, attracting more LPs and high-net-worth individuals to express interest.

"If VC 1.0 was dominated by classic large institutions, and VC 2.0 was about talented individuals from large institutions going solo, then VC 3.0 will be the era of Solo GPs."

A few days ago, an investor said this on a social media platform, and even asserted that Solo GPs will become the ultimate form of VC practitioners.

Whether this view is correct or not is not the focus of this article, but the Solo GP model is worth discussing.

The so-called Solo GP usually refers to a small GP organization formed by one or several investors with fundraising and project sourcing capabilities. Basically, one person is a team, working through all stages of fundraising, management, and exit, with at most a few interns or analysts responsible for paper work. The obvious advantage of a streamlined organizational structure is being small and profitable, with fast decision-making speed and lightweight structure.

Currently, this model is popular in the domestic primary market in the Yangtze River Delta region, and Solo GPs have appeared in the potential cooperation institution lists of more than one FA practitioner.

By chance, I met S, who had just become a Solo GP. His career experience is interesting. Before resigning and starting his own business, he worked in the investment promotion department of a development zone in a city in the Yangtze River Delta, and later worked as an investor in a city investment company, mainly investing in semiconductors and new energy vehicles. From a secular perspective, this was definitely a "high cost-performance" stable job. However, at the age of 40, he chose to leave the "system" and become a Solo GP.

Now he manages an early-stage fund for new materials, with a scale of about 100 million RMB, including investment from local government funds and private entrepreneurs. Currently, the fund has invested in six or seven projects, and some projects have achieved a return of 5 times.

Recently, Xiaofanzhuo had a conversation with S, trying to understand the survival rules of Solo GPs and the real situation they are facing from his career experience and mindset changes.

The following is S's self-narration, edited and organized by Xiaofanzhuo:

I. "In order to raise funds, I promise triple return investment"

I truly became a Solo GP this year. Before that, my career experience can be described as "stable".

After graduating from university in 2004, I joined a semiconductor equipment agency company in Shanghai, and we were doing the hot lithography machines in the market at that time. In 2007, I returned to Changzhou, Jiangsu and joined the investment promotion department of a local development zone, where I worked for 7 years. In 2014, I transferred to a city investment company and started to get involved in investment, becoming an investor.

Working in the investment company was essentially to cooperate with the development of the industrial park's investment promotion. We invested in industries that the industrial park developed. Due to job transfers, I changed the industrial park once and the investment direction shifted to semiconductors and new energy vehicles.

At that time, we did a project that now seems very impressive - Ideal Car. It was early 2016, and they were not the "Ideal" they are today. They only had a few pages of PPT, but we invested in them and helped them build factories and supply chains in Changzhou, including later meetings with investors, in which we were fully involved.

From 2015 to early 2023, I have been doing investment in the industrial park. The idea of resigning and starting my own business emerged last year.

When you reach a certain position, you have to face many tasks unrelated to your main job, and you have to take on more responsibilities. When the risks and rewards are not proportional, you feel that it is better to go solo. More importantly, when you reach the age of 40, you feel that time is more precious. If you don't "strive" at this time, you may not have the opportunity later. For me, this is the last chance.

With the idea of starting a business, I started preparations.

The first thing is to determine the direction. Based on my past career experience, semiconductors, new energy, and new materials are undoubtedly the fields I am most familiar with. However, from a practical perspective, semiconductors, new energy vehicles, and lithium batteries are all very capital-intensive, and my small fund cannot enter these fields. Therefore, I set my sights on upstream new materials.

Choosing to invest in new materials also has an important reason. The industrial layout of Changzhou in the field of new energy vehicles is already very complete. Companies like Ideal Car and BYD are in Changzhou. In terms of power batteries, CATL, Zhongchuang Xinhang, and Honeycomb Energy are also located here or have their headquarters in Changzhou.

With the presence of these leading companies, it naturally attracts a group of upstream supporting enterprises, and I can fully explore high-quality projects from them. However, the field of new materials is broad, so I decided to focus on battery materials and semiconductor materials.

In short, it is all based on the industrial advantages of Changzhou.

After setting the direction, the next step is to find funding. In the past six months, I have contacted about thirty to forty LPs and finally confirmed about ten. In September of this year, the first phase of the fund completed its first closing with a scale of 100 million RMB. The LPs include state-owned assets and local private entrepreneurs.

Obtaining funds from state-owned assets is not easy. Especially for a personal GP like me who has just started a business, in order to raise funds, I naturally have to pay a higher price than others. For example, for return investment, large institutions may require a return ratio of 1.2 to 1.5, but I have to promise double return. If it is still considered difficult, I can increase the return ratio to triple.

The reason I dare to make such a guarantee is because I do have a certain number of project reserves in the local area. When we were doing the mother fund, we cooperated with a well-known semiconductor vertical organization and invested in nearly ten of their funds, acting as an LP while participating in direct investment.

During the cooperation, we found that compound semiconductors may be a future development direction, so we did some project investments and introductions in this direction.

Not modestly speaking, I am currently familiar with or have participated in most of the investment projects that our industrial park finds attractive.

II. "Find excellent eggs and hatch them into chicks"

Regarding how to operate the first phase of the fund, I have a clear plan.

First, at the investment level, I will divide the 100 million funds into two parts: a small portion will be invested in companies that can generate visible profits. These companies often have clear expectations of future listings, which are the cornerstone of fund performance. The majority of the remaining funds will be invested in early-stage underwater projects, and I will mainly lead the investments. The shareholding ratio will be around 5% to 10%, and I will require entry into the company's board of directors. These projects will serve as the "breakthrough points" of the fund's performance.

Investing in early-stage underwater projects is like "finding excellent eggs and hatching them into chicks". So where do I find excellent eggs?

Currently, most of the Yangtze River Delta region is engaged in technology investment promotion, and the job of investment promotion personnel is to discover underwater projects in related industries. However, there is a problem - these projects usually require financing, but government funds cannot invest in angel rounds alone. They choose to co-invest, and this is where market-oriented angel investors are needed.

Now I am cooperating with the local investment promotion department to help them identify projects. I will take action on projects worth investing in. The government can choose to co-invest or provide corresponding policy subsidies and other support.

When selecting projects, I mainly focus on two points: first, the advanced nature of the technology, such as entrepreneurial projects by university professors and scientists; second, people who have been deeply involved in the industry for a long time and are doing forward-looking directions.

Nowadays, many people are "questioning" scientist entrepreneurship, saying that they are not good at management or business. This situation does exist, but for me personally, investment is about investing in entrepreneurs' strengths. I will tell the invested companies that at this stage, they only need to focus on developing their products and fully utilize their strengths, and I will assist in completing other trivial work.

In fact, I have also cooperated with the local government on a technology tree incubator project. The government provides the infrastructure and carries out decoration and layout according to my requirements, allowing high-quality scientific entrepreneurial teams to have a place to land. At the same time, we will help companies with government relations, financial management, production site selection, human resources, and follow-up financing, and even handle trivial matters such as factory renovation and environmental impact assessment.

For the government, incubators are the business formats they need, which can support them in better completing investment promotion tasks. From my own perspective, the incubator not only provides natural advantages for post-investment management of the fund but also serves as a platform to showcase and promote the fund's invested projects to the government and the outside world, truly forming the model of fund + base.

Currently, the fund has invested in six or seven projects, and I have been deeply involved in three or four of them, from receiving government subsidies to landing, building factories, achieving production capacity, and subsequent financing. I have been following up throughout the process. One of the companies invested about 100 million RMB last year, and now the next round of financing has been completed, with a valuation of 500 million RMB.

As a first-phase fund, the exit strategy tends to be conservative. The investment cycle of each project is about 3 to 5 years. Basically, after every other round or every two rounds, a large portion of the funds will be exited, leaving only a small portion. When it is time to exit, we will seek the opinions of LPs on whether to continue holding.

III. "When your resources do not become resources, they will prioritize you the lowest"

There is indeed a psychological gap from preparation to actually going solo.

Especially at the fundraising level. Before officially leaving, I contacted many LPs one after another. At that time, I felt that the communication was already quite smooth. However, when I officially started fundraising in March this year, the actual difficulty exceeded my imagination, and there were changes among some LPs.

Their hesitation reasons mainly focused on two points: one type is due to tightened budgets and they are not willing to invest easily; the other type hopes that I can invest in relatively mature projects that can quickly show results, such as Pre-IPO rounds. However, for me, the difficulty of funding is very high.

In my initial plan, the first fund would mainly rely on the "circle of acquaintances" and cooperate with LPs with strong trust relationships. After achieving results, I would introduce state-owned assets and listed companies. Now I have to prioritize the LPs of the second-phase fund.

After contacting so many projects, I deeply understand the disadvantages of being a Solo GP. For most companies, the most attractive are first-tier funds, which have a very strong endorsement effect. The second is state-owned assets. Pure financial investment institutions are ranked last. Currently, most active Solo GPs in the market are financial investors.

When communicating with founders, I emphasize my advantages in government cooperation, but the problem is that some people don't need this. I once met a founder who directly said, "Fund A can invest in our project, but you cannot invest. I don't have any quota to allocate to you."

When your resources do not become resources, they will prioritize you the lowest.

My current anxiety mainly comes from LPs and project parties.

Personally, as a Solo GP, I still hope to build my own brand. I hope that this fund will have a very distinctive personal style.

Currently, the first-phase fund has about 10 LPs, and each LP has different demands. How to operate more market-orientedly and "isolate" between LPs and projects without violating the demands of LPs is the issue I am currently thinking about.

Doing early-stage investment can almost be said to be a matter of life and death. I have invested in so many projects in the past and witnessed various types of failures. You can't imagine why they failed. Therefore, when making investment decisions now, I also consider whether the project can develop according to my expectations.

However, overall, I still enjoy the state of being a Solo GP. Now I basically go out to see three or four projects every week, and the rest of the time is spent in the office of the factory dealing with fund and incubator work. On weekends, I go out for coffee and exchange ideas with industry professionals.

The actual workload is no different from before, but it is relatively free, and I am doing things that I want to do.

Currently, I am preparing for the next phase of the fund. With the first-phase fund as a sample, I am more determined to adopt the model of "early-stage science and technology innovation fund + base". Now, some government-owned assets LPs and high-net-worth individuals have expressed interest in contributing.

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