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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.
Through combining academic analysis, empirical research and China VC business practitioner insights, this paper puts forward the concept of “China Ecosystem VCs,” and examines it from the angles of a Platform-based VC, Resource-based VC, Composition-based VC, and a Dynamic-model. It demonstrates their emphasis on leveraging “ecosystems” to actively create tangible, multi-faceted value.
This Commencement Speech was delivered in July 2019, addressing all of Tsinghua University’s School of Economics and Management Faculty and Graduates, including Bachelors, Masters, and PhDs. The speech was first published by Tsinghua University, and below is the full transcript.
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,”...
Today, Source Code Capital has announced the closing of a new $570 million fundraise to make early- and venture growth-stage investments in China’s “New Economy” businesses. With the completion of this successful fundraising, the total funds under management at Source Code Capital have now reached a new high, at USD $1.5 billion and RMB 3.5 billion.
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.  
In 2018, the venture capital industry saw a whirlwind race towards the heavens. Only this time, it is less a race to become the next unicorn. Instead, this is a race to see who can build the fastest spacecraft to touch the skies – and allow humanity to reach its final frontier: Space. In this article, we will analyze this burgeoning industry.
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