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"Everyone wants to ring the IPO bell, but the reality does not allow us to wait any longer."

Since the beginning of this year, more than one investor has told us that the mission in 2024 is to exit, and at a time when IPOs are tightened, selling old stocks is one of the most common options.

The investment director of an early-stage fund in East China revealed that at the internal mid-year meeting, the head of the institution repeatedly emphasized post-investment and pushed everyone to give priority to the post-investment projects they were managing. "All old stocks in the profolio can be considered for sale at the right price. The pressure of exit can be imagined."

"Everyone is more pragmatic in the primary market now." A partner of an early-stage fund talked about his feelings this year. Currently, most venture capital funds have reached the exit period, and GPs' exit strategies that originally relied on IPOs have to face adjustments.

As he said, we should withdraw as much as possible and don't have to wait for IPO.

Recently, investors are busy selling old shares

Someone pocketed 200 million

You can also earn returns by retiring old stocks.

The latest case is the recently announced financing of Shuai Ke Pet. The investment community learned that when the new investor of Shuai Ke Pet entered the market, some old shareholders also successfully exited. For example, Jinding Capital realized an exit of more than 200 million yuan through the transfer of old shares, and Hengxu Capital also realized an exit, becoming a typical case of high-return exit of consumer investment outside of IPO in recent times.

The primary market is eager to exit, and this scene is still happening. When a batch of funds have expired, LPs are increasingly demanding cash returns, and the pressure is transmitted to GPs. At present, exit is becoming the most important thing within institutions.

We have observed that this year, there are more and more GP "sales" to complete the exit by transferring the old shares of the invested companies. If you are in the investor community, you will definitely see the shouting of "selling old shares of XX company, valuation is negotiable". Discounted sales are the norm, and any return of principal is better.

"In fact, many projects are running out of cash flow. We just exited a project at an annualized price of less than 3%," said an investor who wished to remain anonymous. "We are celebrating our success."

Some people joked about the current situation of investors: they used to get together to invest in projects, but now they take over each other’s old stocks to do DPI.

But in the current market situation, it is not easy to withdraw old stocks.There are very few investors in the primary market who are willing to take on old stocks now.”At the 18th China Fund Partner Conference, Chen Hongwu, General Manager and Executive Partner of Guoke Jiahe, shared his experience:

AMobile InternetWe are a high-tech enterprise in the field, with profits of over 100 million yuan and several hundred million yuan in cash, but it does not meet the current listing preferences. So we want to transfer equity in the primary market. During this period, we contacted more than 100 investment institutions in total, of which 20 or 30 went to the site for communication, but in the end only two or three were willing to bid, and the price offered was not quite what we expected, so there was basically no way to trade.

This is the case for profitable and well-run companies, so one can imagine the situation for projects that are still losing money. "It is basically impossible for unprofitable companies to transfer shares now, and even liquidation and exit are difficult," said Chen Hongwu.

"It's already amazing to be able to complete the exit of old shares at this stage." Wu Min, an investor in new materials in Shanghai, has been quite distressed recently. This year, he has been focusing on promoting the transfer of old shares of mid- and late-stage projects. He has contacted almost all large and small institutions in the industry, but the number of institutions that have the intention to acquire and participate in due diligence can be counted on one hand.

Even so, it is still difficult to sell old shares and exit. Either the other party’s institutional LP cannot make a call, or the state-owned LP behind it requires another meeting. “It is a test of mentality.”

In some institutions, post-investment positions are called exit specialists. Xu Rui, who works in a post-investment position at a CVC institution, is also busy with exits, looking for resources to transfer old shares of invested companies. But after visiting a circle, he found that it is difficult to exit by simply transferring old shares, and generally requires additional capital.

"Last year, someone wanted to buy it at the current valuation, but I was reluctant to do so. Now, even at a 50% discount, no one wants it."

Don’t expect an IPO

Mergers and acquisitions, buybacks are coming

The withdrawal situation is more serious than expected.

As Guo Kejia and Chen Hongwu said, everyone knew that exit was difficult before, but only when they actually experienced the final stage of the fund did they truly realize how "difficult" it was.

Under the influence of various factors, the exit situation in the primary market is not optimistic. According to the latest report of Zero2IPO Research Center, in the first half of 2024, there were 746 exit cases in China's equity investment market, a year-on-year decrease of 63.5%.Mainly due to the increase in IPO thresholds, the reduction in liquidity of listed companies, the low valuation of companies and the slow growth rate of value-added, the inability of invested companies to repurchase, and the small number of active buyers.And other five aspects of influence.

Among them, IPO, the exit path that VC/PE relies on, is gradually becoming distant. In the first half of 2024, only 82 Chinese companies were listed, a year-on-year decrease of 62.4%. The number of IPO cases of overseas and A-share invested companies decreased by 20.1% and 74.1% year-on-year respectively.

In April this year, the new "Nine National Policies" were released to strictly control access, and the A-share IPO market showed a phased contraction trend. Under such circumstances, the primary market ushered in a wave of listings in Hong Kong, but Hong Kong stocks have always faced valuation and liquidity problems. In addition, the cornerstone investors are cautious, and the road to Hong Kong stock IPOs is full of challenges. Even if you overcome all difficulties and successfully go public, the scene of breaking the issue price is still worrying.

It was previously heard that a new energy unicorn in Shanghai with a valuation of 10 billion yuan turned to Hong Kong stocks due to the increase in the threshold of A-shares. In order to obtain cornerstone investment in Hong Kong stocks, the company had to lower its posture and run around to raise funds.

A partner of a Shenzhen-based fund of funds talked about his experience. He invested in a fund a few years ago. The IPO situation was very good that year, and many investment portfolios had met the listing conditions at the time. There were relatively good expectations, but now the situation has changed, the hope of listing is slim, and exit has suddenly become difficult.

This is also the situation most practitioners are facing.

"In fact, the high-tech industry is basically a winner-takes-all industry. The market can basically only accommodate the top three, and it is even less likely that more and more listed companies will appear in the capital market." I remember that Fu Hongyan, chairman of Shanghai Science and Technology Innovation Group, reminded at the Zero2IPO annual meeting that the relationship between the primary and secondary markets is moving towards a new balance, and the idea of ​​project exit needs to change.

Zeng Chun, partner of Yuanhe Chenkun, pointed out that in mature markets, even if the final IPO exit revenue accounts for as high as 70% or 80%, the actual number of IPO exits only accounts for 10% or 20%.VC/PE still needs to explore and consider more diversified exit methods。

Therefore, we can see that in addition to the transfer of old shares in underwater transactions, there have been many mergers and acquisitions this year. The situation is stronger than people. Behind this is not only the urgent mood of investors to exit, but also the subtle change of mentality of founders to recognize the reality and accept the fate of being acquired.

What makes people feel complicated is that buyback lawsuits seem to have become one of the ways for investment institutions to seek exit this year. Lifeng Law Firm released a report saying,130,000 projects will face exit pressure one after another"Tens of thousands of entrepreneurs may face repurchase risks of hundreds of millions of yuan."

Building primary market liquidity

As a result, the liquidity problem in the primary market is now at hand.

"We need liquidity," said an investor who wished to remain anonymous. "Without liquidity, it's useless even if the price is discounted."

As one of the main exit channels of the VC/PE market, the obstruction of IPO is seriously affecting the overall liquidity of the industry. The exit "reservoir" is becoming more and more serious, and a series of contradictions and disputes are also spreading in the industry.

Witnessing all these scenes, a venture capital tycoon who has been in the industry for more than 20 years felt mixed emotions. If the sluggish exit in the primary market continues for another two years, where will the industry go?

In his opinion, IPOs are necessary, mergers and acquisitions are necessary, and equity transfers, S-share transactions, etc. are all aimed at solving the liquidity problem in the industry.We must solve the problem of indigestion in the primary market and make funds flow., so that the water of venture capital can flow, so that more funds can flow back to support China's innovation, support China's entrepreneurship, and support China's scientific and technological innovation. "

The importance of primary market liquidity is self-evident. At the just concluded 18th China Fund Partner Conference, many investment tycoons called for the fact that primary liquidity has not yet been fully established and that we need to find a way to connect with more friends and connect with resources. This requires someone to set up a platform and it may take a period of time to build.

Survival of the fittest. The venture capital industry has always been subject to cycle and time constraints. Under numerous challenges, GPs are facing unprecedented survival pressure. Chen Hongwu suggested that GPs should do a good job of managing investment expectations. It is too late to consider exiting when the fund reaches the end of its life.“Don’t always think about making every penny. Let go when it’s time to let go.”

Lower your expectations, keep a calm mind, and pay full attention to market changes. Making an exit decision at the best time may be the best strategy at the moment. When there is a conflict of interest, please be more tolerant.

"If we can use time to buy space, these temporary difficulties can be digested. If everyone is anxious, especially when the market is at a low point, we will only end up hurting ourselves."

The test has just begun.

*Wu Min and Xu Rui are pseudonyms in this article