2019 has been a wintry time for capital but an exciting time for the adventurous.
Wu Shichun is one such adventurer.
The release of the ‘New Regulations for Asset Management’ in 2018 spelled a decrease in the number of LPs in the market who could contribute capital. ‘Challenging fund raising’ conditions in the VC market have now extended into 2019, and into an abnormally chilly VC industry.
Data from CVSource indicates an enormous reduction in VC/PE capital raisings in the first half of the year across 271 funds, a year-on-year decline of 51.69% to an aggregate of $54.438 billion USD raised, which also represents a drop of 30.17% over the same period. The VC greats could sigh and call it the darkest era in nearly 20 years in the industry.
Yet Wu Shichun still holds on to his enthusiasm in this cold winter.
Plum Ventures has almost kept the same investment pace in the first half of 2019 as for the prior two years, investing in nearly 30 projects in the first six months this year. iAsk (iask-media.com) noticed Wu Shichun’s angel fund completed its fifth financing phase in the first quarter of 2019 with a total AUM of 532.5 million RMB.
Plum Ventures was still a relative unknown 5 years ago.
Wu Shichun, nicknamed the ‘New Wolf’ , took less than 5 years to invest in over 300 companies including Qudian, Niu, and Changba – projects which now boast a total market capitalization of over 100 billion RMB. Da Zhangmen and Qudian in particular have provided Wu Shichun with a more than 1000-fold return on his investment.
“Fast – Ruthless – Precise”. Wu Shichun plays to his own investment logic. The way he sees it, opportunities are like half a glass of water: some see it half full, others half empty. Whereas others might see the dead of winter, Plum sees the future. The early-stage investor, Plum is investing in unicorns 3 or 5 years down the road.
Many great Enterprises, whether BAT or TMD, were actually birthed in a’capital winter’.
iAsk conducted an exclusive interview with Plum Ventures founder, Wu Shichun, to hear what he has to say about how to invest.
Does investing follow a 2-98 principle?
Wu Shichun describes himself as a grassroots serial entrepreneur and told iAsk he has founded several companies since 2002, including Shangzhixun and Kuxun, and so has experienced the startup process on 5 occasions.
Gloria Ai: Why not just launch yourself into founding another company? What transformed you into an investor?
Wu Shichun: China began to promote dual ‘innovation and entrepreneurship’ from 2015, although I had already sensed by 2014 that China needed a new suite of VC organizations to go and serve these newly flourishing and growing businesses and entrepreneurs as well as that RMB funds would flourish and would, just like USD funds, provide financing services to entrepreneurs. So I discussed it over with investors and partners, sold Shishen Yaoyao to Meilishuo, and founded Plum Ventures.
Gloria Ai: What are the challenges involved in being an early-stage investor?
Wu Shichun: First of all, the investment cycle is lengthy; secondly, there’s a high mortality rate. Returns from early-stage investing don’t follow a 20-80 principle. It’s 2-98. 2% of the first early investors will generate almost all the investment’s return and most of the remaining early investors don’t make money. ‘Superstar’ projects that can give investors a super-sized return are few and far between. If your fund doesn’t invest in superstar projects, then it will be a very mediocre fund, even loss-making.
Gloria Ai: What put you onto the VC investment track?
Wu Shichun: None of my several previous startup experiences had yielded any enormous success, and I still felt like something was missing. If I were able to found my own early-stage investment organization, and to help a lot of entrepreneurs, then that would be a major opportunity in my life. I position myself as a super angel behind entrepreneurs. Think about it: I’m standing behind 100 now successful entrepreneurs in 10 years’ time. I am their backer. I helped them ascend their path to glory and so I’m also going to feel very proud of that and have a very strong sense of accomplishment.
Gloria Ai: What makes you so sure that early-stage investing is for you?
Wu Shichun: The first is optimism. My many years of startup experience have given me ample confidence in the value of early-stage investing. Secondly, my awareness and perceptions around investing. The first project I invested in, Da Zhangmen, earned a 1500-fold return. It was a great encouragement and firmed my resolve in regard to early-stage investing, after which I again invested in some star-studded cases, such as Qudian, NIU (Smart Electric Scooter Company), and so on, all of which instilled me with greater confidence. The third is empathy. Plum Ventures’ motto is: “To be the early-stage investment organization that best understands the entrepreneur.” I have gone through the startup experience five times, and couldn’t have a better understanding of what an entrepreneur needs most at each stage. I’m now meeting around 1,500 entrepreneurs every year, and have a strong sense of empathy. I’m able to reflect on the issues totally from the entrepreneur’s point-of-view.
Gloria Ai: Do you feel there’s a common chord running through these many entrepreneurs’ disparate needs?
Wu Shichun: Yes, for improved awareness. They might have been just an engineer or product manager and need to find some stronger people and to see a greater world. So helping to enhance an entrepreneur’s cognitive level is really urgent. Different entrepreneurs will have different needs when it comes to other aspects, e.g. financing, recruitment, and direction, but the enhancement of one’s perceptions and awareness is a universal need.
Are ‘village youths’ driving China’s economy?
Investing is about investing in people and Wu Shichun has his own methodology when it comes to evaluating a person. In his view, people are the core of the new economy – outstanding entrepreneurs – and a company can only grow and develop within the entrepreneur’s cognitive space. The learning and perceptual abilities of the entrepreneur acts as a ceiling for the team. Calculations can be run for business patterns, economic models, user data, and so on, but you cannot calculate the capacity for an entrepreneur to grow. It is very hard to estimate the latent potential that could erupt from a top entrepreneur.
Wu Shichun has publicly voiced the formula that: a first class team + third class direction = a second class or better project; a third class team + first class direction = a fourth class result. 90% of a company’s value rests on the team’s shoulders. 80% of the team’s value rests on the founder’s shoulders.
Wu Shichun notes the founders that Plum Ventures invests in generally possess three characteristics: they are poor, smart, and have desire.
Gloria Ai: Why do you believe entrepreneurs with these three main characteristics will rise to greatness?
Wu Shichun: These ‘PSDs’ might well be more suited to a startup than ‘PhDs’. Intelligence is of course a prerequisite for founding a startup, whereas being poor will provide a young person with a very strong desire to go out and change their life. At least 70% of successful founders in China are ‘PSD youths’ – whether that’s Ma Yun, Liu Qiangdong, or Wang Xing. ‘PSD youths’ enter large companies and do make it to middle management, so they’re not ‘ultra grassroots’, but that powerful desire and motivation they carry to change their destiny will keep on going. On the other hand, we are actually very cautious about investing in people from well-to-do families with glowing backgrounds. Such people have too many options. If they don’t succeed at one thing, then they can turn in another direction offering rich rewards. It is difficult for them to truly go all-in. ‘PSD village youth’ offer the most value. We could even characterize them as one of the main driving forces propelling China forward today.
Da Zhengmen’s Ye Kai, Qudian’s Luo Min, and Newborn Town’s Liu Chunhe are all ‘village youths’ who returned Wu Shichun’s investment many times over. At one stage Wu Shichun ended up lending money twice to Ye Kai during a difficult period in the project’s development.
Gloria Ai: Are you yourself also a representative of ‘poor’, ‘smart’ and having ‘desire’?
Wu Shichun: Yes. If I hadn’t matriculated to a university, then I would be herding cattle in the countryside. I came to Beijing from a small ‘seventh tier’ county town and subsequently made it into VC circles. It’s been a smooth journey. But I’m never satisfied with my circumstances and I’m always being an entrepreneur and updating myself. ‘Poor’, ‘smart’, and having ‘desire’: that would be a very obvious tagline on my shoulders.
Gloria Ai: “If investment were just about giving money, that’d be to my shame”. Why do you say that?
Wu Shichun: From the perspective of Plum Ventures, we are issuing entrepreneurs with their first check. If we are just about giving people money, and are otherwise unable to help, then not only is the investment very easily ‘frittered away’, but they are going to have a lot of trouble as well in their startup. So we don’t just invest our money. The most important thing is to provide resources, to give help, and Plum Ventures has always taken pride in being able to help entrepreneurs.
Gloria Ai: Business models, technologies, environments – they’re always changing. How did you become a ‘super angel’ who can provide serious help to entrepreneurs?
Wu Shichun: I’m constantly improving my own abilities to help empower entrepreneurs. Past cases just represent previous achievements or good fortune. Riding on the coattails of the past will inevitably suffer a reality check at some point. An investor has to constantly generate new things to convince entrepreneurs this super angel investor is valuable. An investor who can’t reinvent themselves, improve their thinking and cognition, and remain on the cutting edge will definitely be phased out socially.
Gloria Ai: Everyone is now saying we are in a ‘winter’. How long do you think this ‘winter’ will last?
Wu Shichun: You can’t just go along with the crowd and follow others’ opinions when it comes to ‘winters’ . We are very firmly ‘Long China’ and believe that there is plenty of future prosperity in store. We will continue to do better and better over the next 10 years. Although the economy looks a little frosty right now for a variety of factors, we are firmly ‘long’ when it comes to the new economy, innovation and entrepreneurship. I think China’s economy might still double from here given another 10 years, from 1.3 trillion USD today to 3 trillion USD with growth of over 1.5 trillion USD. Investment opportunities will certainly come bubbling up from within this enormous quantity of growth.
Gloria Ai: Looking to the future, where will Plum Ventures and Wu Shichun be in 10 years?
Wu Shichun: I’m 43 this year. I can see myself doing early-stage investing for another 20 or 30 years. As long as I can maintain a youthful attitude then I think I’ll still be hanging out with entrepreneurs and taking in new things when I am 60. I will still be able to understand their difficulties, desires, and complaints. Of course, I might be managing more money than I do today, and my investment success rate might be higher than today. I believe that Plum Ventures will be doing very well, as will I, in 10 years, and that I’ll still be adhering to a vibrant, positive attitude.