Imagination Is the Future | 5Y Capital Completes New Fundraise

5Y Capital has completed fundraising for its latest USD and RMB funds, with total committed capital exceeding RMB 13 billion.

This round of fundraising received full support and oversubscription from existing and new LPs at home and abroad in a short period of time. The new USD fund totals more than $1.7 billion, comprising both early-stage and growth-stage vehicles.

We are grateful to our LPs, new and old, for their continued trust and support in 5Y. Over the years, in our efforts to best serve the needs of entrepreneurs, we have introduced many pioneering ideas and structures. We have been fortunate to receive the patience and trust of our LPs. Because of their support, we have longer investment horizons and more diverse investment instruments to back more founders, turning their visions of the future into reality.

Information technology is now penetrating every industry at an unprecedented scale. Cloud computing, big data, and artificial intelligence are reshaping underlying technical architectures, and application-layer products are being reinvented in turn. A new wave of transformation has only just begun. Every generation of young people needs its own cultural expression, which will continuously drive endless opportunities in China's consumer sector. The life sciences are also making unprecedented advances, with disruptive innovations emerging.

What we must do is find those scarce founders — those who are filled with imagination about the future, and who have the capability to turn that imagination into reality. They change the way a generation lives. They revolutionize how an industry produces.

Entrepreneurship is an extremely lonely endeavor. So is venture capital. One of human instincts is the ceaseless search for kindred spirits. For us, searching for founders is also searching for our own kind. It is an extraordinarily arduous process, because such people are exceptionally rare. Yet it is precisely this process that drives social and civilizational progress — humanity, through shared values and imagination about the future, finds and gathers more of its kind.

While technology brings economic development, it also presents us with many new societal challenges. These will inevitably require more imaginative people, more scarce founders, to create the next social paradigm.

We salute their imagination about the future, even if it may seem crazy in the present. But when the you that others saw as crazy begins to be believed, the world becomes a better place.

5Y Capital Founding Partners Qin Liu (left) and Jianming Shi (right)

On the occasion of the new fund close, we spoke with the two founding partners of 5Y Capital. They shared their reflections on finding scarce founders, the importance of imagination in investing, and how 5Y sustains imagination internally. The conversation is about the present, but even more so about the future.

Q: What problems does the latest fund aim to solve?

Qin Liu: Whether in the present, past, or future, for 5Y there is always one thing that matters most — devoting more time to difficult problems with long-term value. We don't want to spend too much time on marginal innovations and me-too followers.

Q: There's a view in the market now that the past 20 years of dense innovation and entrepreneurship are behind us, and innovation is no longer as abundant as before. What do you think?

Qin Liu: I think this conclusion comes from looking at the recent past. With a longer-term perspective, human society has moved from agricultural civilization to industrial civilization to the information revolution, and the new information revolution has only just begun.

We have been through several decades dominated by the internet. Now, a new information revolution centered on artificial intelligence, big data, and cloud computing is reshaping every industry. Underlying computing architectures are being rebuilt, and application-layer products are changing accordingly. Manufacturing, services, finance, education — all are being reshaped. Home appliances and automobiles are being reinvented. Factory production processes are being transformed. A new wave of industrial upgrading has only just begun. Life sciences are also undergoing fundamental changes. How life originates, inherits, and continues; why disease occurs — breakthroughs are happening in all these areas. Our understanding of our own lives has advanced in ways never before heard of.

In this sense, true innovation has only just begun. Model innovation centered on the internet continues to evolve, and new forms of innovation are being born — and they will be even more spectacular and rich.

Q: Opportunities for innovation exist across many domains. For these innovative areas, do you first form a thesis and then go find founders, or do you wait for founders to emerge there and then support them?

Qin Liu: We cannot predict the future, but by preserving imagination, we can identify the founders who create the future. Sometimes this imagination about the future may seem crazy or even foolish — a low-probability success. But like the entrepreneurs we back, this imagination can become their belief, even their faith. They see things on longer time horizons rather than being constrained by the present. In this sense, we are the same kind.

But this is also a kind of waiting. After all, we are investors; to some extent we are waiting for such founders to appear and resonate with us deeply. You could say, we both preserve imagination about the future and wait for scarce founders to emerge.

Jianming Shi: It has always been a process of mutual inspiration. We hear founders share their understanding and perspectives on industries and technologies, and this also sparks our own imagination about the future. So we very much welcome founders with crazy ideas to talk with us more — this collision teaches us a great deal.

Our partners and colleagues are themselves a bit crazy and dreamy, with lots of imagination about the future. But at the same time, we do a lot of rational analysis and research. Ultimately, we use capital to support founders who can have long-term impact on society.

Q: How do you ensure the team maintains sharp imaginative capacity?

Qin Liu: We are cultivating a methodology behind methodology. Methodology is our approach to finding scarce founders; the methodology behind methodology is how to continuously generate that approach. When we enter entirely new domains, how do we move from not knowing, from ignorance, to gradually forming clear ideas? This requires institutional guarantees.

First is who we want to recruit into the team. They must have immense curiosity — this is the driving force of their thinking. Second, internally we must encourage people to spend enough time sparking imagination, to try all kinds of crazy and even unreliable ideas. Third, we need to find a way to validate and implement these ideas step by step, and this becomes the methodology behind methodology.

Jianming Shi: We maintain a very open mindset, and we want the firm to be a very open system.

For example, when we look at the ITBT (digital pharma R&D) industry, neither Liu nor I nor the other partners have life sciences backgrounds. In our minds, life sciences was something highly esoteric, studied by very old scientists. When younger colleagues joined, we asked them: what is something you want to devote yourself to fully for the next ten years? And we heard new input about changes in the life sciences.

Our system is inclusive enough, willing to spend time exploring these things, to trial and error, and slowly build consensus internally. This may be an important mechanism for maintaining sharp imagination.

Q: Could we understand it this way: compared to investment judgments based on studying the past, 5Y makes judgments more based on imagination about the future?

Qin Liu: That's a good observation. What matters is not past experience, but imagination about the future.

The founders we invest in are also such people. They are not bound by past frameworks; they possess intense curiosity and imagination about the future, constantly breaking conventions and pushing beyond present boundaries. We easily resonate with them, and realize that we are in fact the same kind of people. But such people are extremely scarce. We increasingly cherish this scarcity, and consciously cultivate such a culture, values, and working methods within 5Y, finding young people to join 5Y and helping them succeed, so that 5Y itself can become an institution full of imagination. At the same time, we also need a great deal of rational, rigorous, systematic substance — we must combine these two things.

Jianming Shi: Venture capital is sometimes a bit schizophrenic. You need imagination about the future, which may seem crazy in the short term, while also being able to carefully verify and judge whether the timing is right. It is a matter of combining rationality and sensibility, and the difficulty is indeed great. The demands on ourselves and our team are very high.

Q: 5Y's slogan is "The you that others saw as crazy, begins to be believed." There's a saying that you see because you believe; there's also a saying that you believe because you see. This connects to imagination — perhaps because your imagination has arrived, you see earlier than others, and therefore believe more. It's a spiral process. So what is the relationship between your belief and imagination in your work?

Qin Liu: This is a very good question. In some sense, the progress of human civilization is also a process of continuously creating values, creating beliefs, to gather more kindred spirits. Why does belief arise? Because it is a human instinct, or one of the driving forces of human societal progress.

But the riskier and more controversial something is, the more painful and difficult the process of finding kindred spirits. Entrepreneurship is an extremely lonely process; so is venture capital. In our work, finding people who can mutually believe in each other is extraordinarily hard, because imagination about the future is so scarce. But what is interesting is that what pushes society forward is precisely this process — finding kindred spirits through your values and imagination about the future.

Q: When your imagination about the future differs from a founder's imagination, would you choose to believe?

Qin Liu: There's one kind of belief where I have it all figured out: I believe if others agree with me, and oppose if they don't. We may not be like that.

As I said earlier, imagination about the future is extremely scarce, so our instinctive reaction to any founder who proposes wild ideas is not to negate them first. Perhaps there are things I haven't seen; they may be searching for another kind of scarce kindred spirit. We must first learn to let go of ego, try to understand them, and then try to empathize — this empathy is based on your own imagination and understanding of the future. This is the process of finding kindred spirits that I mentioned earlier.

Q: What is 5Y's core competitive advantage? What attracts the craziest, most imaginative founders to come to 5Y?

Qin Liu: Over the past decade, there has been a very interesting change in capital markets. In classical economics, capital was considered a scarce factor of production; today, relatively speaking, it is no longer scarce. A phenomenon has emerged in the market of amplifying fund size to gain investment advantage.

But scaling up is an easy choice. In today's environment of monetary excess, what remains truly scarce in the long term? Imagination about the future and entrepreneurial spirit — these are the scarcest things. This is 5Y's reason for being: to find these scarce founders.

But today 5Y must also grow in fund size. Because the scale of technological innovation's impact on the economy is no longer comparable to before. Our understanding has also expanded from a few narrow sectors to many more new domains, and this cognitive expansion will inevitably be reflected in fund size. But 5Y's true meaning and value is not fund size; it is our capability — the capability to identify founders based on imagination and vision, and to drive change together with them.

Q: In the past, 5Y unearthed many non-consensus founders. Looking at today's market, capital supply is greater, founders are more numerous, and funds cover more domains. Is capturing non-consensus founders now harder, or easier?

Qin Liu: It has never been easy, and it remains hard today.

But my confidence comes from our understanding of founders also evolving with the times. We are continuously enriching our toolkit for finding scarce founders. In the past, we received tremendous positive feedback in the consumer internet space. Founders in these domains typically have very strong human insight and business model construction capabilities, and we will continue to search for new entrepreneurs there. Founders in hard tech, meanwhile, must possess very strong technical vision and insight into technological direction, while also having stronger cross-domain capabilities, because technology commercialization must cross boundaries — integrating technological innovation with business demand. This sets a higher bar for entrepreneurs. We have already received some positive feedback in our exploration of them, which gives us more confidence.

Q: Do you see yourselves more as entrepreneurs or fund managers?

Qin Liu: We are a group of entrepreneurs who stumbled into the fund industry. When we first entered, we had zero experience. The problems we faced were exactly the same as countless entrepreneurs on day one: we couldn't answer why we could succeed at something we'd never done before. In this respect, we are exactly the same as entrepreneurs.

But another important mission of ours is: as fund managers, we hope that through what we do, we can drive change in the entire capital market ecosystem, so that this group of underestimated founders can be discovered and recognized by more investors, moving from a state of being underestimated and unacknowledged to gradually being recognized by capital markets and receiving more capital support. This is also the important value we provide to founders.

Jianming Shi: We still position ourselves as entrepreneurs. Building 5Y is part of entrepreneurship. As entrepreneurs, we are also continuously rewriting some of the rules of this industry, proposing many pioneering ideas and designs to maximally support founders' needs.

Of course, we have also been very fortunate. Over the years, we have gathered a group of LPs who believe in our crazy ideas and continue to give us patience and trust. Because of their support, we have longer investment horizons and more diverse investment instruments to support more founders, to turn their imagination of the future into reality.

Q: What concerns you most right now?

Qin Liu: In recent years, because of our investment track record, we have received increasing attention. Like an entrepreneur moving from being underestimated to gradually being recognized, at this point you really have to ask yourself: who am I? Where did I come from? Where am I going? Once you start being evasive about these questions, it becomes very dangerous.

So we need to keep a clear head. While expanding scale, we must preserve our scarce capabilities.

Who am I? We are entrepreneurs. In the fund industry, we went from completely not understanding the business to slowly becoming a recognized fund. The reason we have come this far is not because we have more capital or larger scale, but because of our scarce capability — the ability to continuously find entrepreneurs with imagination and future vision, and to choose to believe in them when they face great controversy and are underestimated. And we have developed the ability to find them across different domains — this is the most important thing that has supported us to this day.

Actually, for fund managers, what matters most is the value of allocation. Our true reason for existence is to overweight, within our fund size, those underestimated founders and the imaginative ideas behind them, helping them achieve greater success.

Assuming 5Y's fund size can grow larger, we can continuously support founders in doing things that are crazier, harder, and have greater long-term value. But without the will and capability to do so, simply making the fund larger means you cannot identify this scarce founder value, and thus have no ability to overweight.

Jianming Shi: 5Y's name change last year was a very good opportunity for us to recall our original intention. Why did we take this entrepreneurial step? What are our values? What are our ideals?

Scale may be the result of more than a decade of effort, but we cannot become intoxicated with current achievements. We must rethink our goals and mission, and continue moving in that direction. I believe scale will certainly grow larger in the future, because as long as you walk this path, scale will grow and capital will concentrate more and more. But the most important thing is to hold fast to the original intention.

Q: What kind of organization do you want 5Y to become?

Qin Liu: Last year, I fulfilled a long-held wish: to drive off-road in the desert. The desert is desolate, but with an off-road vehicle, you can conquer that harsh environment. The vastest, most unknown place on Earth is the ocean. If you ask what kind of organization I want 5Y to be, I hope it is like a sailboat, relying on natural forces to explore the broadest, most unknown world.

Jianming Shi: I want to use Linux to express my hopes for 5Y's future. I hope 5Y is such an organization: an open system with a shared mission, where everyone participates because of this mission — colleagues, EIRs, founders, and partners — engaging in a kind of open-source collaboration, ultimately having profound impact on the world.

5Y Capital (formerly Morningside Venture Capital) currently manages approximately $5 billion in USD and RMB dual-currency funds. We believe that if the you that others saw as crazy begins to be believed, the world will be a better place.

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