Ich, der Gründer der Firma, nehme kein Geld von Industriekapital an.

Some time ago, an article briefly set my friend list on social media on fire. At the beginning of the article, a company was mentioned that was just participating in a financing roadshow. The founder made it clear: "In this round of financing, we definitely don't want to accept the money from industry investors."

To be honest, this attitude really surprised my expectations. Because in the past, industry investment, both from public financing information and from conversations with investors, was a common topic. Some limited partners (LP) have even stated that they only want to invest in industry capital.

So I further explored based on this clue and found that the above - mentioned attitude is not an exception. One could even say that there is a certain "consensus" in the startup scene. For example, Wen Yi, a financing consultant in the healthcare field, told me that in one of the projects she is currently handling, the founder said: "We don't want to accept money from industry investors and we also don't want to have conversations with corporate venture capital (CVC)." Some other founders of high - tech companies have also openly said: "We only consider cooperation with industry investors in absolutely necessary cases."

Interestingly, while I was writing this article, a founder sent me a business plan (BP). Then I spontaneously asked him: What kind of investors do you prefer? He only gave me two words back: "Financial investors."

Does that mean that industry capital is no longer so attractive?

"Consider industry capital only in absolutely necessary cases"

Chen Rui is the founder of a high - tech company whose business is part of the value chain of humanoid robots, one of the hottest segments in the primary market. Therefore, he has quite a few investors who approach him actively.

As the person in the position of power, Chen Rui has ranked the potential partners in a priority list. Unfortunately, he has placed the industry investors far down on the list.

When he talked about the reasons, he admitted that one of his concerns is losing control of the company. "Industry investors tend to claim more influence. When there are differences in important decisions (e.g., company development or product path), the situation will be difficult: If you don't listen to them, they will be unhappy; if you listen to them, you may go against the original goals of the founding team and finally become just an employee. In such a case, it would be better to look for a job."

"Actually, the situation in popular industries is much better. Industry investors usually don't set so many conditions. For less - well - known projects in less - popular segments, one has to be prepared to lose control of the company if one wants to accept the money from industry funds." said Han Chao, a founder of a high - tech company.

Besides the concern about "losing control", the frequent "undervaluing of the company's value" is also an important reason why founders nowadays reject cooperation with industry investors.

Compared with financial investors, industry capital has the advantage that it can actually bring business growth and market expansion through orders and sales channels. But there is no free lunch. All resources have their price. When it comes to investment, it is common for industry investors to convert the resources into cash and undervalue the company's value. Wen Yi told that in a project she brokered, the investor directly said: "We will give orders, but the company's value will be very low."

Another early - stage investor also mentioned that in one of the companies he founded, in a financing round, the company's value was initially negotiated at 3 billion yuan. Then a well - known industry investor came in and directly pushed the value down to 2 billion yuan. "Fortunately, the investor gave orders before the investment and deepened the cooperation after the investment. When you add everything up, it was still worthwhile."

But in the conversations, I found that it's not as easy as one thinks to get orders through investments. There are quite a few companies that have joined forces with industry investors because of the "connection to industry resources", but have not received valuable support after the investment. "Naturally, one will be disappointed without orders. And if unfortunately one meets someone who steals the technology, it will really be hopeless."

After seeing so many similar examples, one has lost the illusion of the so - called industry support. Han Chao said that in conversations with colleagues, he found that everyone now has a certain understanding: Consider industry capital only in absolutely necessary cases.

"Financial investors in the guise of industry investors"

Is industry capital really so unreliable? That's not entirely true. In reality, there are also companies that have achieved remarkable growth through the participation of industry investors.

Take the example of BYD's investment in Jinli Co., Ltd., the market leader in the lithium - ion battery separator industry. In October 2021, Jinli Co., Ltd. successfully received an investment of 80 million yuan from BYD. BYD's participation not only provided financial support for Jinli Co., Ltd., but also brought a large number of orders.

According to Jinli Co., Ltd.'s prospectus, BYD became the company's largest customer that year and contributed 50.53% of the turnover. As a result, the company's turnover increased from 130 million yuan in 2020 to 580 million yuan in 2021, which corresponds to an annual growth rate of 346%. One can say that Jinli Co., Ltd.'s development has greatly benefited from the close cooperation with BYD.

There are many similar cases. Together with the complaints of some founders about industry capital in our conversations, it's not hard to see that what people reject is not industry capital itself, but the institutions that only under the name of "industry support" undervalue the company's value but cannot fulfill the promises about resources. In the words of investor Zhang Xu, they are "financial investors in the guise of industry investors."

Zhang Xu is currently the investment director of the strategic investment department of a listed company. In his opinion, to judge whether an industry investor has the ability for "industry support", one must first see what the counterparty's core KPI (Key Performance Indicator) is.

Take his own listed company as an example. The strategic investment department doesn't look for projects on its own, but decides on investments based on the requirements of the cooperation departments. The invested companies must either be synergistic with the group's core business or meet the strategic needs of the patent strategy or sales channel expansion. The fundamental goal is always to support the entire business of the group. But he also mentioned that some corporate investment departments also add DPI (Distributed to Paid - In) as an important evaluation metric. "It's not uncommon to make promises that one can't keep for profit reasons."

Here comes the question of the organizational structure. In a certain way, the position of corporate venture capital (CVC) within the group determines its powers and status. If it only exists as a department below the group, it will be difficult to get the supply chain or the purchasing department to stand up for the promises of the investment department.

An investor told me his experiences in a real - estate CVC. At that time, they were interested in a project. The counterparty made it clear that it would only accept the investment if it was included in the group's supply chain. The investment team understood this requirement, but finally the cooperation didn't happen because the head of the business department disagreed. Similar situations have occurred several times. The result is that this CVC couldn't develop properly despite having rich industry resources.

Of course, there are also positive examples. A founder told me that Xiaomi Corporate Venture Capital is considered very reliable by many. Therefore, the companies he invests in have a greater chance of being included in the supply chain. GoerTek is even more aggressive. "When you invest, you have to try to use the products."

"The key lies in whether the top management of the group really values the investment department. If the department is directly led by the management or a co - founder, it has more power. If the investment department is on the periphery, it will be difficult to achieve anything." said the above - mentioned founder.

"Some industry investors are hard to reject"

Although most founders have expressed their rejection of industry investors, they also admit that there are some industry investors whose money is hard to reject.

For example, some leading industry investors or "chain - leading companies" are typical cases where one "would like to have the financing even without orders". Because with their participation, it's almost a guarantee for the next round of financing. The companies also know: "Maybe the founder knows that one won't get actual resources from industry investors, but other investors don't know that."

This way of thinking also reflects the current "love" of the primary market for industry capital.

Currently, high - tech investment is the main theme of the primary market. High - tech companies usually have the characteristics of high technological barriers, long R & D cycles, and complex commercialization paths. For financial investors without relevant industry backgrounds, this will increase the investment threshold.

Against this background, "investing together with industry investors" has become one of the safest investment strategies for many financial investment institutions. Because in general opinion, the closer one is to the industry, the richer the project reserves and project channels are, and the more accurate the assessment of the future technology direction is.

Not only at the investment level, but also from the capital - raising perspective, industry capital is the first choice for many institutions. An investor from a regional industry investment platform told me that when raising capital, he regards listed industry companies as the most suitable partners. "This is very important for some regional government funds that don't have competitive advantages in the industry. The involvement of listed companies sends a signal to the companies: If you cooperate with us, you will not only get a connection to a city investment capital company in a smaller city, but also access to broader market resources."

The negative examples around us and the market's appreciation of industry capital are like two opposite forces that put many founders in a dilemma: They don't want to take the money, but may have to under certain circumstances.

But the market environment is always complex. Instead of being in a dilemma, it's better to use one's head. For founders, one shouldn't be blindly enchanted by the "industry support", but also shouldn't reject all industry investors because of some failed cases. The important thing is to be clear about one's own needs, rationally evaluate the partners, and always focus on strengthening one's own strengths.

Ultimately, the capital market is always changing, and the industry history also has its ups and downs. Whether it's financial investors or industry investors, the founder finally always has to answer the fundamental question: Where does our strength lie?

The answer always lies in the hands of the founders themselves.

(Wen Yi, Chen Rui, Han Chao, and Zhang Xu in this article are all pen names)

This article is from the WeChat account "China Venture Capital", author: Wang Manhua, published by 36Kr with permission.