As the founder of the company, I don't accept investment from industrial capital.

Some time ago, an article briefly went viral in my WeChat Moments. At the beginning of the article, it mentioned a company that was conducting a financing roadshow. The founder clearly stated, "In this round of financing, we definitely don't want money from industrial investors."

To be honest, this attitude really subverted my perception. In the past, whether from public investment and financing information or from conversations with investors, industrial investment has always been a high - frequency term. Some LPs have even said that they only want to invest in industrial capital.

So, I continued to inquire along this line and found that the above - mentioned attitude is not an isolated case. It can even be said that a certain "consensus" has been reached in the startup circle. For example, Wen Yi, an FA in the healthcare field, told me that among the projects she is currently in charge of, there are founders who said, "We don't want money from industrial capital and don't want to meet CVCs either." Several other hard - tech entrepreneurs also said bluntly, "We won't consider industrial capital unless it's necessary."

Interestingly, while I was writing this article, a founder sent me a BP. I casually asked, "What type of institutions do you prefer?" He replied with two words: "Financial investors."

So, has industrial capital really lost its appeal?

"Don't consider industrial capital unless it's necessary"

Chen Rui is the founder of a hard - tech company. Its business is part of the humanoid robot industry chain, which is one of the hottest sectors in the primary market at present. Therefore, there are quite a few institutions approaching them actively.

As the one in control, Chen Rui has prioritized potential partners. Unfortunately, industrial capital is ranked relatively low.

When talking about the reasons, he admitted that one of them is the fear of losing control of the company. "Industrial capital often tends to strive for more say. If there are disagreements on key decisions (such as the company's development direction or product path), the situation becomes a dilemma: if you don't listen to them, they'll be unhappy; if you do, it's likely to go against the original intention of the founding team, and you'll end up becoming a professional manager. If it comes to that, it's better to find a job."

"Actually, it's much better in popular industries. Industrial investors usually don't attach so many terms. For non - star projects in non - star sectors, when you're about to take money from industrial funds, you have to be prepared to lose control of the company," said Han Chao, a hard - tech entrepreneur.

Besides the concern of "losing control," being "forced to accept a lower valuation" frequently is also an important reason why founders are reluctant to cooperate with industrial investors nowadays.

Compared with financial investment institutions, one of the advantages of industrial capital is that it can bring orders and channel resources for actual business growth and market expansion. However, there's no free lunch. All resources come with a price. In the investment process, it's common for industrial capital to convert resources into cash and lower the valuation. Wen Yi said that once when matching a project with an industrial investor, the investor directly said, "We'll give orders, but the valuation will be pushed very low."

Another early - stage investor also mentioned that when a company he incubated was raising funds in a certain round, they had already negotiated a valuation of 3 billion yuan. Then a well - known industrial investor came in and directly lowered it to 2 billion yuan. "Fortunately, they gave orders before the investment and deepened cooperation after the investment. It was still worth it in the end."

However, through communication, I found that it's not as easy as expected to get orders through investment. There are quite a few companies that cooperate with industrial investors for the sake of "accessing industrial resources" but don't get any valuable empowerment after the investment. "If there are no orders, you'll definitely be disappointed. If you're unlucky enough to encounter technology theft, it'll be truly despairing."

After seeing many similar examples around, people have become disillusioned with the so - called industrial empowerment. Han Chao said that when communicating with his peers, he found that they seem to have reached a tacit agreement: don't consider industrial capital unless it's necessary.

"Financial investors in the guise of industrial investors"

Is industrial capital really so untrustworthy? Not really. In reality, there are also companies that have achieved significant growth thanks to industrial investment.

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

According to Jinli Co., Ltd.'s prospectus, BYD became the company's largest customer that year, contributing 50.53% of its revenue. As a result, the company's operating income increased from 130 million yuan in 2020 to 580 million yuan in 2021, with an annual growth rate of up to 346%. It can be said that Jinli Co., Ltd.'s development owes a great deal to its close cooperation with BYD.

There are many similar cases. Combining the complaints of some founders about industrial capital during communication, it's not difficult to see that what people resist is not industrial capital itself, but those institutions that only use the name of "industrial empowerment" to lower the valuation but fail to fulfill their resource commitments. In the words of investor Zhang Xu, they are "financial investors in the guise of industrial investors."

Zhang Xu is currently the investment director of the strategic investment department of a listed company. In his opinion, to judge whether an industrial capital has the ability of "industrial empowerment," the first thing to look at is its core KPI.

Take the listed company he works for as an example. The strategic investment department doesn't look for projects on its own. Instead, it decides on investments based on the needs put forward by the collaborative departments. The invested companies either need to be synergistic with the group's main business or meet the strategic needs of patent layout or channel expansion - the ultimate goal is always to serve the overall business empowerment of the group. However, he also mentioned that some companies' investment departments also include DPI in their important assessment indicators. "It's not uncommon for them to promise resources that they can't actually deliver in order to make money."

This leads to the topic of organizational structure. To some extent, the "position" of industrial capital (CVC) within the group determines its authority and status. If it only exists as a subordinate department of the group, it will be difficult to mobilize the supply chain or procurement departments to honor the commitments of the investment department.

An investor shared with me his experience working at a real - estate CVC. At that time, they took a fancy to a project. The other party clearly stated that they would only accept the investment if they were included in the group's supply chain system. The investment team itself agreed with this requirement, but in the end, the cooperation didn't succeed because the head of the business department disagreed. Similar situations happened several times. As a result, despite having strong industrial resources, this CVC has never developed well.

Of course, there are also positive examples. A founder told me that the market generally has a high recognition of Xiaomi's industrial investment, so the companies it invests in have a greater chance of entering the supply chain; Goertek is even more assertive, "Once invested, you have to find a way to use it."

"The key lies in whether the group's senior management really attaches importance to the investment sector. If it's directly managed by the CEO or co - founder, the investment department will have more say; if the investment department is on the periphery, it will be very difficult to achieve anything," said the above - mentioned founder.

"Some industrial capital is hard to refuse"

Although most founders have expressed their resistance to industrial capital, they also admit that it's really hard to refuse the funds from some industrial investors.

For example, some leading industrial investors or "chain - master enterprises" are typical cases of "even if they don't give orders, we still want their financing." Because having their investment is like getting an endorsement for the next round of financing. Entrepreneurs understand that "although founders may know that they can't get actual resources from industrial capital, other investors don't."

This mentality also reflects the current primary market's "preference" for industrial capital.

Currently, hard - tech investment has become the main theme of the primary market. Hard - tech companies usually have high technological barriers, long R & D cycles, and complex commercialization paths. For financial investors without relevant industry backgrounds, this virtually raises the investment threshold.

Against this background, "investing following industrial capital" is becoming the safest investment strategy for many financial investment institutions. In people's general perception, the closer to the industry, the more in - depth the project reserves and project channels, and it also means that the judgment on future technological trends is more likely to be accurate.

Not only in terms of investment, but also from the perspective of fundraising, industrial capital has become the preferred partner for many institutions. An investor from a local industrial investment platform told me that during the fundraising process, he regards industrial listed companies as the top - priority cooperation partners. "This is very important for some local government funds that don't have an advantage in industrial competitiveness. Introducing listed companies is like sending a signal to enterprises - cooperating with us means not only establishing a connection with a local urban investment platform in a lower - tier city but also getting access to more extensive market - oriented resources."

The negative examples around and the market's admiration for industrial capital are like two opposite forces, making many founders fall into the dilemma of "not wanting to take it but having to take it."

However, the market environment has always been complex. Instead of being caught in a dilemma, it's better to return to rationality. For entrepreneurs, don't blindly believe in the "empowerment myth" because of the halo, and don't deny all industrial capital because of a few failed cases. The important thing is to clearly recognize your own needs, rationally distinguish partners, and always focus on strengthening your internal strength.

After all, the capital market will have its ups and downs, and industrial narratives will change. No matter whether it's a financial investor or industrial capital sitting across from you, the most fundamental question that founders ultimately have to answer is: Why are we becoming strong?

The answer is always in the hands of entrepreneurs themselves.

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

This article is from the WeChat official account "China Venture Capital". Author: Wang Manhua. Republished by 36Kr with permission.