From the Big League to the Niche: The Glory Days of a Generation of Chinese VCs

By Lili Yu and Lixin He

Edited by Jing Liu

In retrospect, it all feels like a scene from a movie: at the center of a black-and-gold stage, a sizzling dance number kicked off a 36Kr business summit. The 500-person venue was packed to capacity.

Then it was Allen Zhu's turn to take the stage. During a panel originally meant to discuss "trends for the new year," when the conversation turned to "windfalls" (a term not yet worn out by overuse), he suddenly pivoted and said with a smile: "The name of this conference reminds me of The Great Gatsby. Is 36Kr trying to warn us that this is all just glitz?"

Indeed, the conference was called "The Great Investors." It was December 12, 2017. That afternoon, the first cohort of 36 "36Under36" investors — all under 36 years old — from China's venture capital industry took the stage.

At the time, they had already begun making names for themselves in VC. Five years later, as we try to understand this group again, the observations we can make are perhaps more objective.

They once existed so densely within one "great江湖" [jianghu, a community or world]. This is how Xi Cao described it to us: "From one great jianghu to many small jianghus." A few days earlier, in the offices of Monolith Management on the 32nd floor of Taikang Financial Tower, he — one of the most representative figures from the inaugural "36Under36" class — put it this way to Anyong Waves.

One vignette: at noon five years ago, we had prepared a casual meal for the 36 selected investors and found that they already knew each other inside out; the atmosphere was warm and convivial. But last year, when we arranged a similar dinner for the 2021 "36Under36" class, the investors came from wildly different backgrounds and focused on vastly different sectors. The room was noticeably cooler.

They once possessed, and never hid, such ambition. In 2017, in a recording studio on the eastern Fifth Ring Road, Huadong Wang of Matrix Partners China was discussing "the investor-entrepreneur relationship." Normally reserved and inarticulate, he suddenly burst out with: "It's the mutual fulfillment of ambition with ambition." Today, one of those award-winning investors emphasized to us that the essence of investing is "financial services."

Their fates have diverged dramatically. We can see visible changes in some: Huadong Wang's signature deal is no longer Momo but Li Auto; when people speak of Yi Cao, they no longer annotate him as "that impressive former VP at Sequoia" — his Source Code Capital completed a headline-grabbing fundraising of over 7 billion RMB last year; and Xi Cao has started his own fund, raising $500 million in its first close last year. Of course, there are also those who have faltered — regardless of who is to blame, some have completely lost their investment direction, and some portfolio companies have vanished into thin air.

But fortunately, according to our tally, of the first cohort of 36, aside from Liu Wei, who now has a new startup, the rest remain in the investment industry.

The shifts are even more pronounced among entrepreneurs. After 2017, we successively launched the "36Under36" entrepreneur awards. Before this year, a total of 108 investors and 72 entrepreneurs had participated. According to incomplete statistics, among the entrepreneur list, roughly one-fifth of companies eventually went public, but close to one-fifth have not raised another round of funding since.

"We were in our prime then, a bit like trainees in the entertainment industry." Looking back at this group chosen by the times, one investor from the first "36Under36" cohort put it this way. The description may be somewhat florid, but it aptly captures the crux: they were a group of new faces, intensely watched and full of promise.

In a sense, a list product is snobbish and rarely timeless. This perhaps mirrors the mindset of early-stage investors: always drawn to the new, yet sometimes forced to pay the price for that "addiction to novelty."

In the view of Yuanye Yuan of 5Y Capital, this dramatic volatility may precisely indicate that it captured the most intense "accelerations." But unfortunately, speed within a one-year unit has no necessary relationship with lasting success.

In the history of Chinese venture capital, 2022 was a subtle year — for most of it, the industry moved forward as if in a fog. On October 24, Tencent's stock price returned to its April 2017 level. Around that same week, Anyong Waves returned to 2017, revisiting some "36Under36" members from the past five years.

Going back to the past is not for nostalgia. What we more urgently seek to answer is: when brute force no longer produces miracles, how will this generation of investors re-understand reputation, cycles, and the act of investing itself. This is also the first time many of them have given interviews in recent years.

The Meaning of Reputation

At the end of 2017, one "36Under36" investor mentioned to us that several LPs had approached him at the time, tentatively asking whether he had any intention of starting his own fund.

Of course, it's hard to say this was solely because of "36Under36." In the hottest years of venture capital, there were simply too many lists with names like "XX Under XX." There were even unconventional ones like "Top 100 Investment Managers." "Reputation" was pushed to unprecedented heights in the primary market.

In 2020, we revisited one early "36Under36" investor. By then, due to setbacks at their representative firm, they had almost lost their spark. Near the end of the interview, they turned a question back on us: "Have you heard anyone mention me lately?" Before we could answer, they murmured something close to a self-reply: "No? That's normal. It doesn't matter."

For anyone, "reputation" may be something ethereal yet irresistible. Investors perhaps especially so.

Zhang Fei of 5Y Capital once said in a 2021 media interview that the investment industry is more like a conspicuous fame market, actually quite similar to entertainment — "most people are tortured by vanity."

He was right, but what Zhang Fei didn't elaborate on is that this is because investing is a highly homogenized industry, and reputation — and what it signifies — is the identity tag that allows an investor to be quickly recognized, whether by LPs or entrepreneurs. Perhaps this is why the world is so keen on giving awards to investors.

Mobile internet further amplified the meaning of reputation. Wang Hua of Sinovation Ventures once said that VCs suddenly appeared center stage precisely because of "the emergence of mobile internet." By participating in massive investments, mega-funds began to appear, and only then was there enough money and scale for VCs to move from backstage to front and center.

In fact, even we ourselves were not immune. In our "36Under36" selection, we used one reference metric: peer evaluation. Basically, the "top-ranked" person each year was the most admired mid-generation investor in the industry that year or two, and their investment sector was also generally the most admired.

Perhaps because this is a list-based revisit, we discussed the topic of "reputation" with many of them.

Haiyan Wu of China Growth Capital said that people in the mobile internet era seemed to have a craving for drama. Manifested in investors, this perhaps meant investing in projects with the "biggest names" as much as possible. Around 2017, after hearing she had just invested in PingCAP, a peer expressed puzzlement — at the time, the company had little public recognition, "not even any revenue."

Xi Cao never felt "reputation" was particularly real: "Actually, the public doesn't know much about the venture capital industry to begin with." He tended to place it in a larger coordinate system to understand: "The VC profession can sometimes easily give people a false sense of commanding the world, but in fact entrepreneurs and businesspeople are the real badasses — after all, they're the ones holding the steering wheel."

"Reputation for investors, I think, is an opening move. In the end, distance tests a horse's stamina. Both investors and entrepreneurs are products of their era, and having the correct understanding of the era is one of the most important questions," said Han Rui of Gaorong Capital.

Some also brought up the story of Lianmeng of IDG Capital to us. This was cited as a counterexample of "reputation for investors." This investor, who had long been based in the Guangzhou-Shenzhen region and focused on cross-border e-commerce — an area overlooked in earlier years — was not widely known outside the industry until around 2020, when investors clustered in Beijing and Shanghai realized that this person with virtually no external reputation had invested in SHEIN and Anker Innovations in the early days.

So, what kind of reputation is appropriate?

From Great Jianghu to Small Jianghus

In the inaugural "36Under36" awards article, 36Kr wrote: "Luck is almost the common characteristic of this generation of investors; tremendous external opportunities allowed them to maximize their achievements at extremely low time cost."

This "opportunity" mainly referred to the explosion of the internet and related industries. In Xi Cao's view, mobile internet once appeared so dazzling because it so rarely combined "scale effects and network effects." During the interview, he carefully distinguished between the two for us: "Scale effects are closer to effects in the physical and chemical sense, while network effects are more like effects in biological ecosystems."

Peng Chuang said that internet models also have a very unique characteristic: "marginal cost is zero," which means "the larger the early scale, the higher the later profits," so "of course you want to use capital to exchange for market and scale as early as possible." These attributes determined its uniquely strange high-growth model.

And precisely because of this, over the past decade, the game paradigm of the primary market was basically summarized by one hard-tech investor as: broad track + sexy story + awesome team = ample capital + rapid expansion = high valuation + IPO bell-ringing to life peak.

The denouement of the mobile internet story extended into the new consumer sector of 2020. At the end of that year, after Pop Mart listed, its market cap once approached HK$150 billion, "rare in all of human history," as one former "36Under36" investor put it.

The investors born into this era possessed an unprecedented (and possibly never-to-be-repeated) era beta. Their growth rate fully attests to this. For example, Yi Cao had his own fund at age 30 — unimaginable today.

Plus, the mostly To-C nature of internet companies made it easier for a portfolio company to become an "investment work" understood by the outside world. This also matches one observation we had about past "36Under36" cohorts: in the 2017 class, we could clearly map an investor to their signature deal, but by 2021, a considerable portion of investors could hardly be identified by any single representative company — rather, it was their multi-layered deployment in a particular sector.

Huai Wang of Linear Capital believes that up until 2019, what made the most money in China was still the quick-flip consumer internet. But consumer internet and tech investing are completely different games: "Consumer internet is where you invest in 100, and the last one breaks out and returns 10,000x. If you remove the 10 biggest consumer internet companies from China, Chinese VCs might actually have lost money over the past decade or so." But today's tech investing relies on the robustness of overall investment strategy and portfolio composition — it's hard to rely on one project to return a fund ten or twenty times over.

These wealth stories undoubtedly amplified the allure of the primary market. Xi Cao had one observation: the reason earlier investors appeared more stylistically diverse was partly because the venture capital industry was not well-known to most people, attracting a group with mottled backgrounds — what you might call 'no asking where heroes come from.' Later, it gradually became elitist.

But today, people are utterly certain that the internet, or any industry that can "produce miracles through brute force" like the internet, has virtually disappeared. This is also visible in the choices of the "36Under36" members we tracked. For example, Peng Chuang's Cloud Capital has devoted much energy to "new intelligent manufacturing" opportunities focused on industrial chain upgrading, and "global" opportunities for Chinese companies going overseas. And Fu Zheng of Fengyuan Investment now spends more time deep-diving in traditional manufacturing factories, looking at high-end intelligent manufacturing, industrial equipment, and other projects.

Yuanye Yuan may be an exception. This investor, who previously backed Kuaishou, Maimai, Xueqiiu, Musical.ly, Keep, and others, still looks toward the future along the mobile internet thread he followed before. For example, when discussing innovations in new energy vehicles and autonomous driving, VR/AR/MR, and even AIGC, he calls them opportunities that are still "3 a.m." Over the past year, people have kept asking him: Are you still looking at consumer? His answer: "Why not?" But he also emphasized to us that consumer is a natural industry, fundamentally different from the internet, "so don't fantasize about the kind of disruptive variables from the past, but respect the objective laws of this industry."

This May, we discussed the "generational" question of investors with Yi Cao. Though he emphasized that the investment industry has "opportunity in crisis," he also said that fundraising, investing, managing, and exiting are all becoming more difficult for new funds, and the cognitive demands on GPs are increasingly diverse.

Accompanying the sector dispersion is the scattering of the primary market's "core circle."

The term "core circle" may seem unfair to some; its substitute is basically the "USD circle." Legend has it that China's primary market has 100,000 people, but those truly belonging to this circle may number only a few hundred. And "36Under36" represents the 30-to-40 age bracket. On the 2021 "36Under36" roster, faces from typical RMB funds like Fortune Venture Capital began to appear.

In Zhao Yang's view of K2VC, "the USD fund circle is more lively, with frequent interaction and mutual familiarity and understanding," while RMB is "making a fortune quietly" — many funds have never been reported on, but "DPI and IRR can be incredibly impressive."

In the 2017 "36Under36" list, there was also one investor from a CVC: Yonghua Zhu, founding partner of Meituan Longzhu. This was probably the only investor from a corporate fund in this cohort. Yonghua Zhu said that in his first few years of investing, he often felt there were two discourse systems in the investment circle: TMT emphasized "user-centricity" and "downloads," while consumer investors emphasized "consumer three elements and positioning theory."

Before 2017, he felt "the era surrounded another group of people." Within a few years, these TMT investors also started investing in milk tea and ramen. And now, compared to financial investors who were once the noisiest, industrial capital may have advantages in many dimensions of competitive resource networks. Over the past five years, Longzhu has also scored numerous consumer deals including HeyTea, Mixue Ice Cream & Tea, Manner, Li Auto, and Good Me.

Indeed, on the 2021 "36Under36" list, more CVC investors began to appear, such as Wenxuan Li of Poly Capital and Hao Du of Country Garden Venture Capital.

"Indeed, it evolved from one great jianghu to countless small jianghus." Xi Cao's formulation precisely summarizes the diaspora of Chinese VC in recent years.

New World, New Playbook

At the end of October, after seeing the stock market's extreme bleakness, a hard-tech investor who had remained optimistic in the first half of the year, thinking the crash would last only a few weeks, began to sigh that his past self was "still too young." Because the collapse of the secondary market valuation system meant the game paradigm of the past decade had failed: "An old era has truly ended."

Zhao Yang of K2VC told Anyong Waves: "Typically, investors have always wrestled with two emotions — missing out, and regret." But over the past two years, many investors' bodily sense has been that "you haven't missed anything, and you haven't caught anything either."

Yuanye Yuan of 5Y Capital tries to filter out this market sentiment, because "it's easy for people to generalize based on timing, external environment, and emotional state — the facts may not be so." In his view, "many things are actually already happening, but when swayed by emotion, we're not so likely to notice."

Yungang Huang of Source Code Capital is often asked by peers: Why are you still so busy? His reply: busy doing research, finding methodologies, doing internal team sorting. He feels that inside, "when I see certain things, I'm still very serious, very excited — nothing has changed."

But for Fu Zheng of Fengyuan Investment, the era dominated by USD funds is past and gone. Earlier in his career at CVC Capital Partners doing PE and M&A, the education he received valued relatively light assets and good cash flow — completely opposite to the then-dominant internet logic of burning money to buy users. Now, the entire market is swinging back to this rhythm.

He feels that if someone's entire career has been in USD funds, facing many companies today they would find the "curve doesn't look good," "not sexy." It was partly based on this consideration that after founding Fengyuan Investment, he didn't recruit from other investment institutions or financial advisors, but instead "re-incubated" a team entirely from industry, strategy, or information security backgrounds. And facts have proven that "they don't have so many preconceptions from industry peers, looking at projects purely from fundamentals, undistracted."

For Yuanye Yuan of 5Y Capital, because technological change involves both "continuity" and "leaps," people often fall into two extreme views regarding experience: very important, or useless. But reality is rarely so absolute — for example, when migrating between different fields. He tends toward those "who can be aware of their own boundaries," "like whether you're at Changbai Mountain or Sanya today — you need to have a sense of what to wear."

How does one become a flexible shuttle capable of switching between different domains?

Han Rui of Gaorong Capital's answer is: The importance of the blind men touching the elephant lies in touching from many different angles, changing angles, changing paradigms; touch more, conclude less.

Yuan Ye's answer is that "flexibility doesn't exist." His methodology is: expand into as few different domains as possible. "Like excellent entrepreneurs don't continuously cross domains to prove they're outstanding entrepreneurs." When switching to a new domain, you must adjust expectations, respect the new domain's laws, and maintain humility; be psychologically prepared to accept your own mistakes, and possibly continuous mistakes; and don't fear others' mockery.

Huai Wang of Linear Capital, who has always focused on tech investing, has a similar view: the transferability of entrepreneurs' skills and experience is rapidly diminishing. He believes that examples of serial entrepreneurial success sometimes seen in consumer internet basically don't exist in frontier tech — "those who can do well and do big, the vast majority are first-time entrepreneurs."

Yuan Ye says investing is a high-risk industry, but the goal isn't to optimize risk, it's to optimize returns. So "spreading risk across more baskets is worse than more carefully choosing which basket to put it in."

Another widespread collective shift is probably the increased emphasis on macro environment.

Peng Chuang of Cloud Capital told Anyong Waves that "mobile internet investing previously didn't require paying too much attention to macro," because it "was essentially more about efficiency improvement and the online shift of demand," while today's investing is obviously much more complex — when judging investment impact factors, "you need to incorporate more policy, international environment, and so on."

And one former "36Under36" award-winning investor believes that "every company goes through twists and turns; you have to think through possible risks," "policy, development cycles, market, management can all encounter risks," so his choice is to "lower expectations," "just like married life — there's no such thing as happiness that lasts forever."

The mobile internet era is thoroughly past. Occasionally seeing the fewer-than-50 apps that most people use on their phones, as an investor who has accompanied many entrepreneurs through countless complex high-pressure situations, Yuan Ye thinks of that "concrete hardship" — "knowing that this is a limited subset that survived from millions of apps killing each other," "extraordinarily brutal."

And because he witnessed it firsthand, compared to investors, he has more sympathy and understanding for the reputation many entrepreneurs receive.

When someone mentions certain entrepreneurs becoming swollen with arrogance, his reply is usually: "They need it, they need release." In his view, you can't demand someone "hold on" when they're under enormous pressure, and then when they achieve something, say "no, you must stay hungry" — "that doesn't respect human nature."

This explanation, in theory, also applies to investors themselves.

Now, some from the first 36Under36 cohort have reached the age of forty. On her personal WeChat public account, Haiyan Wu self-mockingly noted that she is now "no longer qualified to participate in something like a 40Under40." And even Wang Tianfan, whom Long Yu of BAI once called "the youngest mountain on Planet Kr," is now 33. But in this year's 36Under36, the youngest entrepreneur was born in 1999.

To borrow a sentence often used to describe modern cities: A list doesn't age, because there's always someone rushing toward splendid youth.

(Intern Tian Yu also contributed to this article.)

Image generation | Midjourney

Layout | Guo Yunxiao