Will the venture capital industry, which was deemed by many industry insiders at the beginning of the year as having hit a rough patch, go from bad to worse as a result of the novel coronavirus pandemic? Moreover, what will be the most sought-after investment opportunities in 2020? The commercialization of 5G technologies will be a new direction for investment in 2020, and VR/AR and other downstream industries for 5G application have greater potential for growth, predicted Wang Cong, Presidential Chair Professor at The Chinese University of Hong Kong, Shenzhen, and Associate Director of Shenzhen Finance Institute, earlier on China Business Network’s Brainstorm: New Momentum 2020 program. The pandemic has actually accelerated the pace of the new 5G era. With people moving their main activities from offline to online as a result of the pandemic, 5G applications such as live streaming of HD video, distance education, telemedicine, telework, delivery by robot, and unattended supermarket have completed the initiation of users and enabled potential government and business users to see the tremendous value of 5G in social and commercial aspect.
For the venture capital industry as a whole, 2019 presented both challenges and opportunities. On the one hand, both capital raising and project investment were met with disinterest; on the other hand, thanks to the positive news surrounding the Sci-Tech innovation board, the return on investment upon exiting invested projects was having a rebound. In addition, the downward trend of investment in and financing for new economy areas was gradually easing up, and the venture capital market was bottoming out. Instead of being totally pessimistic at the investment market in 2019, Prof. Wang Cong suggested that the issue could be viewed from another angle by shifting the attention to the secondary market. In 2019, the S&P 500 Index rose by 33%, the NASDAQ Composite Index representing the high-tech sector by 40%, and the Shanghai Stock Exchange Composite Index by 22%. Judging from these figures, the secondary market did not experience that much difficulty after all. Even though the primary market was in a wretched state due to the tremendous uncertainty surrounding startups and the dwindling number of innovative projects, the performance of the secondary market in 2019 was nevertheless very refreshing.
Looking ahead towards 2020, Prof. Wang Cong believes the commercialization of 5G (the fifth-generation wireless communications technologies) offers a new direction for investment due to the fact that it has been included in the national strategy and therefore enjoys policy supports. Speaking of the direction of 5G development, Prof. Wang Cong cited the example of South Korea, where 5G commercialization has been quite a success. South Korea launched 5G services for consumers in April 2019, and it took only nine months for 5G users to grow to five million. As the nation has only over 50 million smart phone users, the penetration rate amounts to 10%, indicating a rapid growth rate. In terms of traffic distribution, 20% of the traffic of the 5 million 5G users is used on VR (virtual reality technology) and AR (augmented reality technology). This indicates that VR and AR manufacturers have significant growth opportunities, and cloud gaming and immersive-content video producers also gain relatively tremendous market opportunities. Investors should be able to infer from the 5G development in South Korea that downstream industries will have greater potential for growth once 5G commercialization is launched in China, pointed out Prof. Wang Cong.
According to statistics from Times Data, until 2019 (as of December 1), there were a total of 327 startups that were wound up, of which 181 received no funding, accounting for over 55% of all wound-up startups. 69 made it only to the angel round, accounting for less than a quarter, while very few made it to Series B round or beyond. So, what kinds of startups attract the attention of investors? Moreover, what kind of skills does a startup founder need to have to be able to lead the long-term development of a company? According to Prof. Wang, Pony Ma of Tencent, who keeps adapting and self-reflecting, is a role model for startup founders. Prof. Wang reviewed the history of Tencent: Back when Tencent went public, Pony monetized QQ traffic by way of multimedia message service through cooperation with telecom carriers; after this business had shrunk, he then turned to online games; after online games were restricted under tight regulations, he once again adapted to the situation and began making strategic investments in industrial Internet; next he entered areas such as cloud computing and smart city; and now he has entered the financial technology business. According to the latest financial data, cloud computing and financial technology combined already account for over a quarter of Tencent’s total revenue.
If there is one Chinese character that can be used to describe the year of 2020, Prof. Wang thinks it should be 变 (change). In his view, as macro-economic growth has switched from a medium-high gear to a medium-low gear, it is necessary to adapt to this “new normal” and to implement more structural reform of the economy. On the micro-economic level, investors also need to adapt their logic thinking to this “new normal”state characterized by medium-low growth. Instead of being preoccupied with running for the next wave, tide, or trend, it is necessary for investors to upgrade their thinking and turn their attention back to the essence of business, evaluating whether the firm can create value and produce cash flow.