5Y Capital's Kai Liu: Patience in Technology Innovation and Venture Capital | 5Y View
Innovation is what brings something new into the world.
At the recent "18th China Investment Annual Conference · LP Summit" hosted by ChinaVenture, Liu Kai of 5Y Capital shared his perspectives during a panel on "The Profound Questions of Our Era — Investing in New Quality Productive Forces." Liu noted that the essence of VC is investing in innovation; only by focusing on innovation can something new emerge. Venture capital has two critical elements: a tolerance mechanism and agency. As agents, we must have patience.
Liu Kai, 5Y Capital
Selected excerpts from the event:
Q: What is your understanding of "new quality productive forces," and what does it encompass?
Liu Kai: From an investor's perspective, I haven't paid particular attention to the term "new quality productive forces," but we have always been very focused on innovation. As early-stage VCs, we especially love investing in innovative things. I also believe that whether it's state capital or market-based capital, the essence of VC is investing in innovation. Innovation is what makes the law of large numbers work; innovation is what brings new things into being. This principle is as hard to defy as gravity.
Moreover, many things may look like productivity innovation or production relations innovation today, but they may all prove valuable in the future. All of today's AI data comes from the internet, and the internet is heavily a product of production relations. Without the internet, there would be no AI today. Everything is interconnected. It's hard to say you can lift yourself up by your own bootstraps — you have to stay grounded.
Q: How do you understand the long-term nurturing relationship needed between patient capital, bold capital, and new quality productive forces enterprises?
Liu Kai: This is how I understand patient capital: venture capital originated in Silicon Valley, but its earliest DNA actually came from Europe, with a core mechanism of the principal-agent relationship between LPs and GPs. Why doesn't this money go directly into investments, but instead flows from LPs to GPs to entrepreneurs? With two layers in between, it seems inefficient from a pure efficiency standpoint — every layer requires decision-making, charges management fees, and ultimately slows down returns.
Why has venture capital flourished globally and become the fastest-growing segment of financial capital? Fundamentally, because innovation and VC are extremely well-matched. In the early days of venture capital in Europe and America, people compared it to Columbus's voyages of exploration — he asked the queen for funding to explore new worlds, and even if he failed, the queen wouldn't punish him. So the first keyword is tolerance, meaning tolerance for failure; the second keyword is agent, because the queen couldn't explore herself. In Silicon Valley's early development, many people had abundant resources and capital and wanted to innovate, but lacked the corresponding capabilities, so they entrusted their money to innovative universities and entrepreneurs.
In Silicon Valley's early venture capital days, people also felt this approach was inefficient. Take Steve Jobs and Bill Gates in their early years — the wealthy backers all knew each other personally. Why not just give them money directly, instead of going through LPs and GPs with fees at every step? I think that while this may seem inefficient in the short term, it's highly efficient in the long term. Over the past century, all innovation has been supported by venture capital, without exception globally.
So we can distill two key elements of venture capital: a tolerance mechanism and agency. As agents, we must have patience. It's like helping with homework — doing it yourself would be fastest, but you let them do it themselves because they need to grow. That's my response to the buzzword "patience" that everyone is discussing.
Returning to the original intention behind venture capital's creation — though it was imported from abroad — as Chinese practitioners, we deeply respect its core principles and do our best to ensure our actions align with them.
5Y Capital seeks out, supports, and inspires lonely entrepreneurs, providing them with support from the spiritual to all operational aspects of running a business. We believe that if the "crazy" you in others' eyes begins to be believed in, the world will become a different place.
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