Sequoia Sukai: Be more proactive

On April 26, Sequoia launched the consumer early entrepreneurial community “Sparkle Consumption Creative Exchange” and launched the first phase of recruitment. In less than a month, they received more than 800 application forms; they selected 15 entrepreneurs from them—more accurate Said to be a person who has just stepped into the threshold of entrepreneurship and organized a two-day offline exchange event. Someone brought a drink from his own laboratory and labeled it with a few plastic bottles, which was regarded as packaging. “I was worried about whether it would be drinkable at first, but it tasted delicious.” Thinking back to a few days ago Su Kai couldn’t get enough of that event.

Su Kai is a partner of Sequoia China. He is responsible for investment and post-investment management in the consumer sector. His leading projects include star companies such as Bubble Mart and Kayou. Almost every company that is familiar to us now is covered: Ali, JD.com, Vipshop, Pinduoduo, Countryside, Junlebao, Yuanqi Forest, SHEIN, HEYTEA, Santon and a half, Winona, Cotton Times, Babycare, Ubras, Guanxia, ​​UR, Guming, etc.

This investment map also reflects the changes of the entire consumer generation in China: from the gradual emergence of comprehensive e-commerce to the emergence of vertical e-commerce, and then to the emergence of live broadcast e-commerce; the consumption power has transitioned from generation Y to generation Z, and from mass market segmentation Portraits of the middle class and silver-haired people have been bred, and the consumption battlefield is gradually spilling out and sinking from the city. Just like the “main channel of the investment era” emphasized by Sequoia, successful investment must also be an investment that steps on the drums of the era.

It’s just that the trend of the times seems to have moved away from consumption, and consumption and investment once entered a “cold winter”. Under such circumstances, how should we view the opportunities of the era of consumption and investment? How to dig out the high-quality projects?

“Nowadays everyone says that consumption is cooling down. The most intuitive feeling is that the number of opportunities in the market is indeed decreasing. In this case, we still need to maintain a certain scale and pace, so we must do more, be more innovative, and There are more value-added things.” Su Kai said that Sequoia will take the initiative to take the investment tentacles one step further, and detect those consumption “seeds” that have not yet broken through the ground. The Sparkle project is also their early stage of consumption. An innovative attempt in investment exploration, just like the name, hopes to “make consumption and entrepreneurship spark into light”.

The following is Su Kai’s dictation of the interview with “Chinese Entrepreneur” (abridged):

Now everyone says that the so-called cooling of consumption is actually more of the transmission of changes in the secondary market to the valuation of the primary market, which in turn affects the choice and judgment of early entrepreneurship. Therefore, the most direct feeling in the market is that the current market The number of projects has indeed decreased.

This is an objective reality. For Sequoia,We will not be overly anxious, nor will we shrink or lower our investment standards.We use the same investment criteria to measure and judge investment opportunities. When the market is good, there will naturally be more opportunities. When there are few opportunities, we need to actively explore them. Especially now that the market is hot and FA institutions cannot recommend enough project opportunities, we even moreBe proactive, can’t wait.

“Ask where the canal is so clear, so that there is a source of fresh water.” One of the ways to grasp the market trend is to pay attention to the early stage. Now that the investment project supply method has changed, the project development method must also change. One thing we know for sure right now is that,To do more, to stand more forwardso as to ensure that more project opportunities are covered in a more efficient way, so as to support our sustainable development and growth in any environment.

Some time ago, we reviewed the projects that performed well in the market in the past 5-8 years, especially the projects that we have followed since the early days—about dozens of them, focusing on some common problems : What kind of project? What kind of founder? When did we vote? If we can take another step forward, at what stage should we contact? How to contact?

After internal discussions on these issues,We found that some projects could actually be covered earlier and more proactively.Many entrepreneurs may have found friends or angel investors in the early stages; after they have made products, they went to FA for recommendation and contacted investment institutions. But in fact, the time window for consumption and investment is very short. When one day it is discovered that it is an opportunity to be verified, and everyone is buying and queuing up, they may not be able to invest in it or the valuation will be very expensive.

Therefore, our previous early investment is generally entered in the Pre-A round or the seed round-this kind of investment project can be compared to 1,Now if we go one step further, we should be looking for 0.6 or 0.7 projects——Maybe the company has not been established yet; or the direction has been thought about, but not fully thought through; or some experiments have been done at home, but the product is still in the process of polishing. To find these projects, we need to do more things at the stage of 0.3 and 0.4 than before. One is to dig, and the other is to serve and empower these entrepreneurs to make 0.6 and 0.7 projects 1, and in the process enhance understanding and trust.

The next problem is that the early investment in consumer projects is quite different from technology and medical projects. It must first grow downwards and then grow upwards. If the foundation is not solid, it is difficult to grow into a towering tree. But the difficulty also lies in that it is actually difficult to judge when it has taken root and has not emerged from the soil. It depends more on factors such as seed genes and soil environment; the same is true from the human level. The founder of the consumer project There is no obvious label, and there is no particularly clear framework of ability and quality to compare, so it takes a lot of time to deal with him, and it takes a deep perception and understanding of this person to judge whether he can do this.

So the Sparkle community activity is based on this kind of innovation and attempt for early project investment. It turned out that the founder project came out, and I came to Sequoia for a 45-minute video chat; now, in addition to information understanding and video communication, we will spend two days together day and night—this kind of depth of understanding and judgment must be better. It is very gratifying that some of the projects in the first phase that meet the investment standards of Sequoia have been held in the IC (Investment Committee) one after another. And now the students are all in the same communication group. Everyone communicates frequently and synchronizes their progress, which also allows us to have a continuous observation and understanding of these students.

Consumption is an eternal topic, and China is a big consumer country, which provides unique conditions for Chinese consumer entrepreneurs, soThere is no doubt about the investment opportunities in the Chinese consumer market in the future.Under the current background and time window, we have three judgments on the consumer market:

The first is the macro development environment and GDP level. China’s economic and social development has been stable for a long time, and the per capita GDP has exceeded 10,000 US dollars in 2019, which shows to a certain extent that the Chinese consumer market has accumulated to a new stage.After that, consumer demand will become diversified, personalized and stratified.For example, the rise of collectibles, the vigorous pet economy, the emergence of the silver-haired economy, and the exquisite life related to middle-class consumption are all investment opportunities of the times.

The second is demographic change, which means that each segment creates new opportunities. For example, consumption upgrades in low-tier cities will generate strong growth support for some affordable commodities.Consumption upgrades are not necessarily to buy luxury goods, but upgrades in different markets and at different levels. There are many opportunities in this;Extend to look at the distribution of talents. Now it is no longer a single urban economy like Beijing, Shanghai, Guangzhou and Shenzhen. Hangzhou, Suzhou, Changsha, Wuhan, Chongqing, Chengdu and other talent spillover areas are constantly producing new consumer brands and start-up companies.

The third is infrastructure, which used to refer to “iron roosters” (railways, roads and airports), but now refers more to the development of social and technological capabilities, such as cloud computing, mobile payment, and modern logistics systems. When McDonald’s first entered the Chinese market, it had to build its own logistics and distribution, but now it certainly doesn’t need to do these things for Heytea and Country Base, but can directly rely on the corresponding developed and efficient social resources. This greatly enhances the success rate of entrepreneurs’ “cold start” and expands the scale of management.

These are opportunities of the times, but on this basis, of course, there will be historical accidents. As Zweig said in “When the Stars of Mankind Shine”, there are always some people who come to the stage of the times by chance.Opportunities always exist. Which entrepreneur can better interpret the opportunities of the times and better utilize and control the capabilities of social infrastructure can produce better entrepreneurial ideas and a greater possibility of success.This is especially true for entrepreneurs in the consumer space, whoIt is not necessarily the person who digs the well by himself, but the person who can use the well water well.

Therefore, our early investment in consumer projects focuses on these fundamentals.

see itemAt the current economic level, is there a possibility of explosive growth; can it match the unmet needs of a certain segment of the population, thereby achieving rapid growth; and whether it has a good use of infrastructure dividends—— These can help us identify whether entrepreneurs have taken the “elevator” of opportunities of the timesso as to achieve faster growth and stronger competitiveness in a shorter time.

For example, in the coffee market, considering macro factors such as the trend of consumption upgrading and the level of coffee per capita in China, there are definitely investment opportunities. However, under the current situation of the Chinese market, the incremental space that can be created needs to be assessed. If you ignore the changes in the demographic structure and the use of China’s current infrastructure and technological dividends, and still blindly copy and imitate Starbucks, the chances of getting out of this way must be very small. Some of the ones who have come out now have seized the blind spots of international brands—the opportunities for the rise of third- and fourth-tier cities, and made a breakthrough; some have innovated in form, such as three and a half meals. , The freeze-drying technology commonly used in the food manufacturing industry was introduced into the coffee field, quickly making a difference in a highly competitive field. Another example is the rapid development of China’s electric vehicle industry in recent years. In addition to the development of electric vehicles themselves, there have also been many technological breakthroughs and innovations in the development of motor and battery technology. We have seen some electric bicycle e-bike entrepreneurs. Taking advantage of the dividends of these technical capabilities, it has made product innovations beyond its predecessors. This ability to tap social infrastructure is very important for consumer entrepreneurs to find innovation breakthroughs in a traditional market and establish their own market position.

In addition, we also pay attention to the fundamentals of the founder, to see if he has a big dream (big dream).Of course, if there is something, it does not mean that it will be successful, but if it is not, the company will be very mediocre and the possibility of success will be very low. Just imagine, if Wang Ning wanted to be a little doll, instead of giving something fun to young people, a new kind of spiritual sustenance, he might still be in the wholesale business instead of spending so much time talking to people all over the world. Communicate with niche designers and help them polish their products, so we will not be able to become an excellent company like Bubble Mart. If the founder of Kayou is only satisfied with making Ultraman cards and getting rich, he will not persevere in investing a lot of resources to continue to build design, R&D, and manufacturing capabilities comparable to world-class companies in the industry, hoping to become a world-class company. An excellent toy + stationery company. Although the road ahead must be tortuous, Sequoia believes that it can be seen and is willing to accompany such a visionary founder along the way for a long time.

So when it comes to Sequoia’s early investment in the consumer sector, we mainly interpret category opportunities from environmental variables.One is to innovate a category from scratchfor example, the trendy play led by Bubble Mart belongs to this category;There is also an innovative iteration of the categorysuch as Ubras, is a subdivided type of bra without size and steel support in the traditional category of bras, and has a foothold in the red sea of ​​competition.

Of course, the earlier you go, the higher the risk, because there are fewer points for observation and screening. But “no pain, no gain”, in today’s market environment,We must take risks, dare to take risks, and do more things, do things smarter, manage risks better, and create value in a down-to-earth mannerThis concept will also dominate the innovation direction of our investment model and investment strategy in the future.

The good thing about Sequoia, and the key point that allows us to dare to try this kind of innovation, is its fault-tolerant mechanism and atmosphere. Investment is a high-risk industry. No one invests without making mistakes, but try not to make low-level mistakes, don’t make repetitive mistakes, and don’t make mistakes because you don’t work hard and are not serious. We have an internal column called “Learn the New by Reviewing the Past”. Investors from all departments share the sad and failed projects in the past with everyone, hoping that the team can really learn from failures and create a kind of The culture of “don’t be afraid to do things because you are afraid of failure”.

Without this kind of atmosphere and cultural support, no one would dare to innovate and try.Now we still dare to attack, I think this kind of culture is a very important prerequisite.