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We believe that great investors are powerful analytical thinkers with sharp minds and strong business acumen. Leveraging their willpower, intelligence and determination, they seek to continually upgrade their “personal computing power” and enjoy all-rounded self-development.
Recently, Cao Yi, CEO and Founding Partner of Source Code Capital, shared his “Reflections from Six Years of Entrepreneurship and Investment at Source Code Capital” with the guests present at the 2020 Code Class Investor Conference and Smart Manufacturing Summit.
On January 12, 2020, at the invitation of Tsinghua PBCSF, Cao Yi, Managing Partner and Founder of Source Code Capital, participated in this year’s “Tsinghua PBCSF EMBA & EE 2020 New Year Thoughts” as an alumnus. During this event, he delivered a speech entitled “The Four Pillars of Youth — Good Companies in the Second Half of the Industrial Internet.” He shared the potential and capabilities that a good company should possess in this age in order to attract investors.
On May 7, 2019, Cao Yi (Charlie), Founding Partner of Source Code Capital, was invited to the “2nd Digital China Summit” as a Keynote Speaker. He delivered a keynote speech entitled, “Value Discovery and Value Creation in China’s industrial Internet.” The theme of this year’s Digital China Summit is: “New Dynamics, New Development, New Achievements Empowered by Informatization.” It is about fostering new momentum through information technology, promoting new developments through digitization, and achieving brilliance through technological advancements. The Summit serves as both an exhibition and a platform demonstrating China’s newly found technological prowess, and showcasing China’s digital economy, related policies, e-government, smart society, and breakthroughs in the Internet of Things. It provides an experiential forum regarding digitization, and by bringing global resources together, serves as a center for practical technology and business exchange to promote the construction of a collaborative digital China platform. Image source: The 2nd Digital China Summit China Network Photo The following is the full transcript of Charlie Cao’s speech: I am honored to have this opportunity to exchange and learn together at the 2nd Digital China Summit today. Since this morning until just now, I have gotten a lot of inspiration, excitement, and new motivations – whether from the thoughtful and diverse viewpoints of academicians He Hezhen and Li Ying, or from the heads of Haier, XCMG, Inspur and Foxconn, who represent deep industry insights from four leading industrial Internet enterprises. Today, I would like to stand from the perspective of venture capital institutions and share some thoughts on entrepreneurship in the industrial Internet, innovation, and investments, and perhaps bring a new take on the subject. Is the industrial Internet attractive? How is its value creation understood and discovered? The “Inverted Pyramid” and the “Three Fundamental Drivers” Over the past 15 years, I have dedicated myself to making early and growth stage investments as empowered by the Information Revolution. I can summarize the investment logic of these past 15 years with two images. The first image is an industry perspective from the “Inverted Pyramid,” which has “Moore’s Law” at its core. The economic world has been driven by digitalization, “online-isation,” and intellectualization, which create and transform businesses, thus twining the digital world from one layer to the next. The digital world constantly delivers an enormous amount of energy every day, just like how the sun spreads its energy, which by doing so, fuels photosynthesis, metabolism, species evolution, socialization, and so on. The second image is this “Three Fundamental Drivers” (3x9) investment map, which falls on the application layer of the Pyramid. How do these three forces of “Internet+,” “AI+,” and “Global+,” promote 2C (to consumer) and 2B (to industry)? How do they create value through optimizing production and inventory, and activating incremental value-addition? In the first 10 years of that 15-years period, most of the energy was spent on consumer Internet, whereas in the past five years, industrial Internet has gradually caught-up to the level of consumer Internet. My experience is mainly based on a reference that basically reflects a change in the industry, from 2C, to 2C and 2B. I think this is also a microcosm of accurate and timely adjustment of capital. Over the past 5 years, the rapid development of this “second” Internet, as well as the evolution of the New Economy, and even the “new normal” of the national economy, are manifestations of more mature, advanced, and prosperous and development. Figure 1 (top): An Industry Perspective through the Lens of the “Inverted Pyramid” Figure 2 (below): Source Code’s “Three Fundamental Drivers” (3x9) Investment Map The Second Half of the Internet: From Consumption to Circulation to Production I divided the industrial Internet into the “circulating Internet,” and the “industrial Internet.” I think the circulating Internet is the prelude to the industrial Internet. For the time being, let’s temporarily define the “circulating Internet” as going from industry to consumption, going between industry to industry, or from industry to the distribution sequence. This covers the flow of business, logistics, capital, data, digitalization, and online “intelligentization.” Over the past five years, this process has experienced accelerated development in various sectors, including FMCG, agricultural products, pharmaceuticals, clothing, building materials, auto parts, industrial MRO, construction machinery, 2B logistics, 2B finance, and so on. This accelerated development has led to a creation of leading enterprises that rely heavily on information technology to form large-scale and more efficient enterprises. What might have been perceived as “too large, scattered and chaotic” yesterday, has now become much more centralized and efficient. We believe that from this process, dozens of companies valued at over multi-billions (in U.S. dollar) will emerge. With an already very developed consumer Internet and a fast-growing circulating Internet as the foundation and driving force, we believe that the budding industrial Internet will very soon take its place on the main stage. The Circulation-driven industrial Internet will Become more Powerful Whether a concept or a technology can be industrialized and sustained depends on the quality of the model, which directly affects whether it can achieve PMF (Product Market Fit) from 0 to 1. Therefore, in the early stage of the current industrial Internet, as an investor, we are constantly wondering: What value does the Industrial Internet create for companies of different sizes? Why do companies promote manufacturing and production online? If we look into the financial statements of those businesses, perhaps we are able to find the answer. As we dig into their income statement, we ask: How can we help them increase their income (sales radius, sales efficiency, smart pricing, etc.), or reduce costs and expenses (purchase radius, procurement efficiency, improve human efficiency, adopt cloud services, reduce financing costs, etc.)? From their balance sheet, we look at how we can optimize their inventory (inventory turnover, virtual inventory, obsolete goods risk, etc.), optimize liabilities (funding method and cost, etc.), optimize fixed assets (cloud assets, or switch to light assets), and optimize receivables? Based on the needs of these enterprises, we have seen models such as “cloud computing,” “cloud factory,”...
On April 2, 2019, Forbes unveiled its annual Forbes Midas List, ranking top venture investors in the world. Charlie Cao Yi, Founder and Managing Partner of Source Code Capital, was once again awarded with this prestigious distinction, after his initial appearance on The Midas List in 2018. The name “Midas List” (Forbes’ annual ranking of the most prominent deal-makers in the venture industry) is an allusion to the mythological King Midas, renowned for his ability to turn anything he touched into gold. It is also known as the “Golden Touch” list. It is the apex of “the most astute venture capitalists who can earn the best-in-class returns.” In 2018, 17 Chinese investors, including Charlie Cao, were listed; in 2019, 21 Chinese investors were named to the Midas List. This is reflective of the increased recognition that Chinese investors have in the global venture capital field, as well as the growing influence of China’s innovation and New Economy start-ups in the world. In addition to being named to the esteemed Forbes “Midas List” for two consecutive years (2018 and 2019), Charlie Cao was also named a “Top 100 Venture Capitalist” by CB Insights in 2019. In 2018, he was featured as “China’s 30 Most Influential Investors” by Fortune China, and in 2017, he was on Sina’s “China Top Investors Ranking TOP25.” In 2016, he was chosen as “40 Business Elites Under 40” by Fortune China and “Angel Investor of the Year” by Chuangyebang. A 2C and 2B Portfolio Mr. Cao is a seasoned investor with over 15 years of experience in venture capital, investment management and business innovation. Under his leadership, he led the Source Code team to invest along the “Big 3” Fundamental Drivers (Internet+, AI+, and Global+) investment map, providing continuous support to entrepreneurs in the “Information Revolution” across various sub-sectors. Over the past five years, Source Code Capital led investments in nearly 150 enterprises focusing on Internet+, AI+, and Global+ (China-angle companies in the international arena). This is comprised of different sectors such as media and entertainment, consumer services, enterprise, finance, retail, transportation, housing, education, and healthcare. In addition to ByteDance, Meituan Dianping (3690.HK), Homelink, Ziroom, Qudian (NYSE: QD), RELX Technology, CHJ Automotive, Pagoda and other well-known 2C Internet+ Consumer investment examples, since 2014, Source Code Capital has also led investments in Baibu, YunQuNa, Yijiupi, Yimidida, XiaoYaoYao, Edianzu, Zhongneng United and other outstanding 2B enterprises, and supported their growth from the early stages onwards through later rounds. Patience and Dedication to Post-Investment Value Creation After five years of development, Source Code Capital has expanded its organization across three distinct functions (investment, post-investment, and operations), and nutured a team of around 60 professionals. Over the last two years, special attention was paid to deepening the organization’s post-investment capabilities. In 2018 alone, 426 post-investment actions were completed across different functions including Human Capital, Public Relations, Financial Advisory, and Policy, providing much appreciated help and insights to entrepreneurs. In 2018, Source Code Capital further released a new initiative called “Code Brain,” a platform exchange for entrepreneurs. The monthly “Code Brain” gathering brings dozens of CEOs together to improve knowledge sharing, algorithms and decision-making, as well as to share experiences and feedback. Charlie Cao calls it “systematic learning.” About Source Code Capital Source Code Capital was founded in the Spring of 2014, and since then it has devoted to becoming the partner of choice for leading entrepreneurs in today’s “Information Revolution” era with over $900 million and RMB 3 billion under management. The funds managed by trusteeship mainly come from prestigious SWFs, endowments and foundations, pensions, fund of funds, PRC central government guidance funds and state-owned enterprises. Source Code Capital insists on the significance of research and independent thinking to motivate its investments. It is focused on investing its “Big 3” fundamental drivers, which are Internet+, AI+, and Global+ (China-angle companies in the international arena), and invests along diversified sectors such as finance, enterprise, media and entertainment, consumer services, retail, transportation, housing, education, and healthcare. To date, the Source Code team has led investments in both early and growth stages in close to 150 companies. Its set of portfolio companies include: ByteDance, Meituan Dianping (3690.HK), Homelink, Qudian (NYSE: QD), Asset360, Smart Finance Group, Insnail Hospital, Magnet Finance, ABC FinTech; Yijiupi, Yimidida, XiaoYaoYao, Edianzu, Baibu, Zhongneng United, YunQuNa, Ruigushop; Pagoda, RELX Technology, Meili Inc. (Mogujie) (NYSE:MOGU), XinChao Media, Ziroom, Julive, Huizhaofang, CHJ Automotive, Che300, NIU Technologies (NASDAQ: NIU), Haifeng Education, KnowBox, Walnut Coding, Weimai, Huishoubao, Linlinyi, Linji Convenience Store; Krazybee, Zenjoy and BluePay. Source Code Capital has created “Code Class,” a strategic alliance composed of 30+ New Economy leaders in China and connected to Source Code portfolio of 150 companies. Within this inner circle, Code Class members can openly exchange and network. In addition, the Code Class ecosystem provides differentiated networks and value-adding resources to its portfolio companies.  
The theme of his speech was “A Dialogue with Future Entrepreneurs.” Zhejiang University is known for its strong entrepreneurial and innovative spirit. Huang Yungang is also known as “the investor who has invested the most from Zhejiang University entrepreneurs” and “the investor who knows entrepreneurs the best.”
Dr. Hongjiang Zhang recently appeared on CGTN English Channel’s “Dialogue with Yang Rui.” Dr. Zhang engaged in a fascinating discussion with host Yang Rui on the topic of “issues that have emerged during the course of the development in the artificial intelligence (AI) sector.”
Three years into this prosperous and dynamic world of the new economy, we have just got ourselves a foothold to start. 2017 was the year of what the company called “The Year of Prominence.” It was at this third anniversary that the company achieved the success of Phase III of RMB and USD fundraising. While the Phase III RMB fund continued to attract more leading enterprises (entrepreneurs), it also received investments from national guide funds, top-grade FOFs, and mega state-owned enterprises. Like its RMB counterpart, the Phase III USD fund acquired abundant investments from many sovereign wealth funds, charity funds, pension funds, FOFs, and family foundations. A successful Phase III fundraising has always been considered a significant sign of “prominence” by a portfolio management company. We are fortunate that our diligent work helped to establish such a firm foundation.
On August 17th, Huaxing Alpha hosted the Impact Investment Summit of 2017 in Beijing with the theme, “Tear Apart the Opportunistic Theory and See the Truth”. The summit included expert investors from renowned institutions as well as elite entrepreneurs from technology and new consumption industries for in-depth discussions. The summit attracted the interest and attendance of nearly 2,000 industry entrepreneurs and investors. This year’s summit, from August 17th to August 18th, offers two full days of discussions on frontier topics surrounding “the era of technological scenarios” and “the rise of new consumption”. The aim is to discuss “hot topics”, uncover the truth and analyze the essence of business.
“The world is experiencing the third wave of artificial intelligence (AI), and this AI wave is very different from the Internet wave. The focus of the Internet wave was driven by business models, while this AI wave is driven by technology.”  At the 2017 New Business Summit, Dr. Hongjiang Zhang, Venture Partner at Source Code Capital, shared his thoughts on the essence of this AI wave, as well as the challenges and opportunities that it will bring. Dr. Zhang believes that the machine learning, which forms the core of AI, has already shifted from traditional mathematical modeling to relying on big data. This wave of AI will bring more possibilities. By leveraging troves of big data from various industries and the reserves of AI talent, it is possible for China to lead the world in AI technology, which is an opportunity for Chinese start-ups. As for how AI will affect people’s lives, Dr. Zhang believes that we should be ready for AI to not only assist humans in the future, but also replace or surpass some functions, as some new AI algorithms are already equipped with “god’s view.” AI has already surpassed humans in the capabilities relating to perception, such as speech and image recognition. In cognitive capabilities, however, AI still has a long way to go. In his speech, Dr. Zhang also reminded founders and investors that as any company can brand itself as an AI company these days, it presents the risk of creating a bubble. If the company only has algorithms and a few experts, but does not own, or has difficulties obtaining data, and lacks application scenarios, then it will not grow in scale. The full transcript of Dr. Zhang’s speech is as follows: Mr. Feng, distinguished guests, good morning. It is my pleasure to be here at the Forum organized by 36Kr. I would like to spend some time today talking about the essence of the current wave of artificial intelligence, as well as the challenges and opportunities it will bring. 1. Data as the new religion If we look at the development of AI over the past 60 years, the core of the AI we talk about today is really a branch of AI – machine learning. More specifically, it is the technology of using neural networks to conduct machine learning, which is the technology of deep learning. What are the differences between this wave of AI and previous ones? I believe that the AI wave hitting China today is more aggressive than the ones hitting anywhere else in the world. The reason may be that AlphaGo has defeated humans for the first time and that has led us to gain a newfound respect for AI. The second wave of AI was from the mid-1980s to the early 1990s, but it disappeared so quickly that for a long time, people like me were embarrassed to say that we studied artificial intelligence. An important reason behind its quick disappearance is that although its neural network was very popular, it also died down quickly. There were two reasons: one was that the neural networks back then did not have the support of big data, and two was the lack of support for computational resources. Today, we not only have new deep learning algorithms, but more importantly, we are equipped with high quality, categorized big data and extremely strong computational resources. From a technology perspective, today’s deep learning is fundamentally different from previous AI methods, especially when comparing to the expert system methods. Today’s algorithms are in fact driven by data, and not solely reliant on the rules of thumb. Let us take a look at the two drivers of the current AI wave. First, Computational resources have grown by leaps and bounds in the past 30 years. In the development over the past few decades, we saw exponential growth in the performance of supercomputers and an exponential reduction in their unit price. Second, data, another important support for AI, has begun to explode. According to research by IDC, the data created by the entire human race will increase tenfold between 2013 and 2020, equivalent to an annual growth rate of around 40%. The data we generate every day has exceeded tens to the 19th power (or ten quintillion bytes). A large amount of today’s data is created by the Internet. This data is not only large in quantity, but has also been labeled. For example, your phone will record the time, location, and other information about a photo that you took. It is thanks to the explosive growth of this type of data that we can provide better training data for artificial intelligence. I want to share some of my own experiences. Today’s smartphones can take photos, recognize faces, and not only beautify these faces, but also tell you how many people are in the photo and who they are. That was my dream 20 years ago – to have a mobile device that can recognize the people in a photo. After 20 years of development, this was finally realized in smartphones. Why it took so long to achieve this is mainly due to the two drivers previously mentioned: computational resources and big data, plus the newest machine learning algorithms. When we first started to work on this problem in the 1990s, we only had a few hundred photos and a little over 100 people in our entire database. Only when industry giants like Google, Facebook, and Microsoft started to use hundreds of millions of photos to train deep neural networks, and use the method of deep learning to conduct the recognition (around five years ago), did we see an increase in the recognition rate and become able to recognize people in hundreds of millions of photos. So what I want to stress is, when the scale of your training data begins to increase, the accuracy of your learning should start to experience great growth as well. The more resources and data used in training, the...
According to 01Caijing’s “2016 Annual China Consumer Finance Development Report”, peer-to-peer consumer finance capital reached 99.1 billion RMB that year, an increase of 90.9% compared to same period last year. Conservative estimates of the 2017 figure stand at 200 billion RMB. The securitization of consumer finance capital is also accelerating. 2016 saw the issuance of 51 asset-backed security products for consumer financing, totaling 93.632 billion RMB, 6.76 times the amount in 2015.
It’s only been a little over ten years since the beginning of China’s venture capitalist industry to today’s hyper-competitive environment.  How did the industry become so hot? How can one excel as a venture capitalist? Many young people are eager to find answers.

 Source Code Capital's co-founder, Cao Yi, is qualified to answer these questions. Even before graduating from college, Cao Yi had already stepped into the venture capitalist industry. He was part of China’s first wave of domestic venture capitalists and witnessed the industry’s entire journey from birth until now.
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