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"Industrial transformation in the era of science and technology innovation contains a large number of investment opportunities, which require venture capital to increase investment and tap the value of innovation." Chen Wei, chairman of Oriental Fortune Capital, said in an exclusive interview with Caixin recently that the rapid development of the Science and Technology Innovation Board has helped capital factors to quickly gather in science and technology innovation industries, and also reflected that China's economic development momentum is shifting towards technological innovation.

After leaving the position of head of Shenzhen Capital Group in 2006, Chen Wei founded Oriental Fortune Capital and started his entrepreneurial journey. As the first generation of private venture capital institutions, Oriental Fortune Capital has experienced ups and downs. After 18 years of development, the scale of funds under management has expanded from 300 million yuan to 35 billion yuan. It currently manages 60 funds including 4 national industrial funds, and has invested in more than 600 companies.

Semiconductors, advanced manufacturing, new energy and new materials, biomedicine, artificial intelligence and other industries are the key areas of Chen Wei's attention. "As a venture capital institution, we have long been planning for the country's strategic emerging industries, and have always adhered to an investment strategy that is oriented towards national strategies, market needs and future needs." He said that the establishment of the Science and Technology Innovation Board has further strengthened Oriental Fortune's confidence in investing early, investing in small companies and investing in innovation.

Focus on investing in the field of "independent and controllable"

In July 2024, the Science and Technology Innovation Board will celebrate its fifth anniversary. "As the first board in my country's capital market to fully implement the registration system, the Science and Technology Innovation Board has played a demonstration role in simplifying the listing process, improving review efficiency, and enhancing market inclusiveness. It is a milestone in the construction of a multi-level capital market." Chen Wei said that the rapid development of the Science and Technology Innovation Board has helped capital factors to quickly gather in science and technology industries, and also reflects that China's economic development momentum is shifting towards technological innovation.

In his opinion, the biggest highlight of the Science and Technology Innovation Board is that it places more emphasis on the hard technology attributes and innovation capabilities of issuing companies. Among them, the fifth set of listing standards is particularly inclusive of unprofitable technology companies, which has changed the past value evaluation system that focused on financial profits. It is an important practice to shift from market value orientation to highlighting innovation value.

The beneficiaries of the Sci-Tech Innovation Board's institutional innovation are mainly companies that focus on long-term R&D and innovation. Chen Wei believes that the introduction of the Sci-Tech Innovation Board's registration system, relatively loose requirements for corporate profitability, openness to red-chip companies, and more flexible equity incentive rules have all provided a growth stage for "hard technology" companies. In addition, the Sci-Tech Innovation Board's four sets of non-profit listing standards also provide financial support and market recognition for early-stage science and technology companies.

"The launch of the Science and Technology Innovation Board has provided more financing channels for science and technology innovation enterprises and accelerated the transformation of scientific and technological achievements and industrial upgrading." Chen Wei told Caixin that compared with overseas, China has reached the internationally advanced level in science and technology fields such as 5G communications, high-speed rail, and new energy.

"However, there is still a large gap in areas such as artificial intelligence computing power, commercial aerospace, biomedicine, and semiconductor equipment, and there is an urgent need to achieve independent control. This is also the link that venture capital institutions focus on investing in and promoting reinforcement." Chen Wei believes that in the long run, whether a company truly has innovation capabilities and international competitiveness is the underlying logic for reshaping and supporting the valuation of Chinese technology companies from the perspective of the global capital market.

Focus on three characteristics of the founding team

Compared with traditional industries, investment in technology companies requires venture capitalists to have a higher ability to "identify gems".

Chen Wei told China Business News that when judging whether a company is worth investing in, he first considers whether it fits his investment philosophy - people-oriented and "innovation + growth." "The core is whether the founding team has the ability to innovate, strategic vision and the potential for continuous iterative growth," he said.

When the investment team is examining a company, other key indicators they focus on include large market potential, strong technological innovation, high product gross margins, rapid corporate growth, a broad-minded team, strong management capabilities, and a high listing valuation.

He used Shanghai Guangsheng Pharmaceutical Co., Ltd. (hereinafter referred to as "Guangsheng Pharmaceutical") as an example to explain the investment model of Oriental Fortune. Guangsheng Pharmaceutical is a new drug research and development company with characteristics in the field of photodynamic therapy that Oriental Fortune discovered while continuously tracking entrepreneurial projects in medical industry-developed areas such as Zhangjiang. After the investment, Oriental Fortune assisted it in optimizing the company's internal governance structure and grafted the ecological resources of Oriental Fortune's invested enterprises to help the company grow steadily. At present, Guangsheng Pharmaceutical has completed a round A financing of more than 100 million yuan.

Another case is Wuxi Shengjing Microelectronics Co., Ltd. (hereinafter referred to as "Shengjing Micro"). Oriental Fortune Capital is the company's earliest angel investor. Through continuous strategic guidance and all-round post-investment support, it has accompanied its growth in depth, helping the company grow from a small team of three people in 2018 to being listed on the main board of the Shanghai Stock Exchange this year.

"Oriental Fortune's mission is very simple, which is to 'achieve success for entrepreneurs and continuously create value'. This makes our investment and post-investment services very focused. We closely revolve around entrepreneurs and help them grow, so as to achieve win-win value for all parties." Chen Wei told Caixin that the reason why Oriental Fortune has developed to where it is today is closely related to its adherence to the value of "continuous reflection and innovation."

"Whether it is the transformation of management model from comprehensive funds to professional funds and then to national funds, or the innovation of incentive mechanisms, risk control systems, and investment management models, they are all practices of our continuous reflection and innovation on the road of development," he said.

Multiple measures to get out of the "low activity cycle"

The establishment of the Science and Technology Innovation Board provides more possibilities for technology companies to go public domestically. Recently, a series of "combinations" have been launched at the policy level, including the "16 Measures for Science and Technology Innovation", "Eight Measures for the Science and Technology Innovation Board", and "17 Measures for Venture Capital", all of which are intended to further optimize the development environment for science and technology investment and technology companies.

"(These policies) first emphasize the need to enhance the 'hard technology' positioning of the Science and Technology Innovation Board and support the listing of high-quality, non-profit technology companies with outstanding scientific and technological attributes. This reflects the inclusiveness of the Science and Technology Innovation Board and its role in enhancing the financial functions of science and technology." In Chen Wei's view, the full-chain supervision mentioned therein is to further improve the standardization, transparency, and predictability of listing and issuance, as well as comprehensively regulate the issuers' various listing behaviors, which is conducive to improving the level of standardized governance of companies listed on the Science and Technology Innovation Board.

In the past two years, the global equity investment market has faced downward pressure, and the domestic equity investment market has also been in a low-activity cycle. Every venture capitalist in it has felt this deeply. With the changes in the market and policy environment, the development ecology of the venture capital industry has also changed accordingly. So, at this point in time, what difficulties and challenges does the development of the venture capital industry face?

"my country's venture capital industry is currently facing multiple difficulties in all aspects of 'raising funds, investing, managing and exiting'." Chen Wei cited examples, such as insufficient total capital supply; more short-term money and less long-term money; more state-owned enterprises and fewer private enterprises; heavy tax burdens and difficulty in exiting; unclear development policies and an imperfect ecological system.

As a professional institutional person who has been working in the venture capital industry for a long time, Chen Wei has also thought about the countermeasures. He believes that "first of all, through policy support, we should increase the entry of long-term funds such as insurance, social security funds, and bank wealth management into the market, and support the increase of the supply of 'patient capital' from the head end of fundraising resources. At the same time, we should establish government-guided funds with a term of more than 10 years and angel funds with a term of more than 15 years; and allow sub-funds to extend their term depending on the fund situation."

At the exit level, he suggested that we should give full play to the functions of the secondary market, expand the exit channels of mergers and acquisitions, develop merger and acquisition funds and S funds, build a stable and predictable multi-level capital market, and increase the exit support of science and technology enterprises in the on-site and off-site markets. In addition, we should systematically study the issue of venture capital tax burden, use tax means to attract and encourage private capital to participate in venture capital, and strengthen the venture capital ecosystem.

"It is gratifying that the timely release of the '17 National Regulations' on venture capital stands at the height of improving the innovation ecosystem, aims to systematically optimize all aspects of venture capital's 'fund raising, investment, management and exit', responds to the general demands of the industry, and boosts confidence in the development of the industry." Chen Wei believes that China's venture capital still has huge room for improvement in terms of capital supply, capital structure, acceptance of market-oriented concepts, and the overall innovation ecosystem.