Image Source: Yuanbao
AsianFin -- Over the past two years, China's primary market has been mired in a prolonged "winter," marked by massive layoffs and closures. Terms like "layoffs in the TMT sector," "investors switching careers," and "fleeing the primary market" have become emblematic of the industry's struggles.
However, recent developments seemed to point to a turnaround, with venture capital (VC) firms starting hiring, investors traveling more frequently, and industry leaders expressing optimism about policy support and market recovery.
Despite these signs of revival, beneath the surface lies a profound structural shift—China's venture capital industry is entering a "new era" characterized by comprehensive iteration in talent, technology, and key players.
The entry threshold for talent in the primary market has significantly increased. A shift from traditional financial backgrounds to a "technology + industry + capital" competency model is now evident. For instance, semiconductor funds now demand candidates with "five years of wafer fabrication process R&D experience and leading more than 2 exits through IPOs."
Technical expertise is no longer optional but a prerequisite. Investment institutions are actively seeking talent in "hard tech" fields such as semiconductors, AI, advanced manufacturing, and new energy. This reflects the growing emphasis on understanding underlying technologies, which are critical for identifying high-potential projects in sectors like AI and quantum computing.
Moreover, the ability to provide industrial empowerment—beyond mere capital injection—has become a key requirement. Investors are expected to deeply immerse themselves in industries, build resource networks, and offer strategic support to portfolio companies. This shift underscores the transition from financial investment to industry-driven value creation.
Policy sensitivity has also emerged as a critical skill. Investment managers are now required to attend regular policy interpretation meetings, reflecting the increasing influence of national strategies on market dynamics.
The changing talent demands mirror the evolving survival strategies of General Partners (GPs). The old model of "investing quickly" is being replaced by "investing accurately" and "managing well." Many GPs are focusing on high-value projects and long-term growth, particularly in hard-tech sectors like advanced manufacturing, AI, and semiconductors.
"Our investment pace this year is the same as last year, and we won't speed it up. After these four to five years of transformation, we believe that finding high - value projects and accompanying their development is the 'right path' in the era of hard technology. There aren't an overwhelming number of good projects in the market," investor Liu Jie told AsianFin.
However, some GPs are adopting a "high-volume investment" strategy, particularly in booming sectors like AI. As one investor noted, "We cannot afford to miss the opportunity to bet on potential unicorns, even if we are uncertain about which companies will succeed."
Regardless of the strategy, GPs face intense competition in hard-tech sectors. Advanced manufacturing and AI are the most sought-after fields, followed by semiconductors and biomedicine. This reflects the broader trend of GPs transitioning from traditional financial VCs to roles that actively empower enterprise development.
"Take AI as an example. Investors have passed the craziest stage. Unless there are variables such as technological breakthroughs or large-scale monetization, it may be difficult to continuously boost valuations solely relying on financing and market space. Nowadays, most institutions are no longer willing to pay for 'pie-in-the-sky' promises," said Liu.
China's venture capital market is undergoing a structural transformation, driven by the increasing influence of state-owned capital. In 2024, state-backed funds accounted for 57% of total fundraising, with post-Series C financing almost entirely reliant on state capital.
State-backed funds are characterized by "patient capital," exemplified by the national venture capital guidance fund, which focuses on long-term investments in cutting-edge fields like AI and quantum technology. This approach breaks the traditional VC "5+2" model, allowing for deeper exploration of high-risk, high-reward technologies.
However, state-owned venture capital is still concentrated in mid-to-late-stage projects, with limited participation in early-stage investments. Policy reforms, such as fault-tolerance mechanisms, aim to address this issue.
The exit landscape is also evolving. The number of A-share IPOs in 2024 dropped nearly 70% year-on-year, prompting a shift toward alternative exit strategies like mergers and acquisitions (M&A) and secondary market transactions. Leading institutions are exploring combinations of "technology spin-offs + strategic buybacks + industrial M&A" to maximize returns.
Secondary market funds are gaining momentum, with equity trading centers in Beijing and Shanghai completing transactions worth 18.2 billion yuan (US$ 2.55 billion) in 2024. This trend is expected to continue, with more innovative products and structures emerging in the future.
China's venture capital industry is transitioning from cyclical fluctuations to structural leaps, driven by the integration of technology chains, industrial chains, and policy chains. As state-backed capital reshapes valuation systems and technological assessment becomes the "first principle" of investment, the industry is poised to play a pivotal role in driving technological innovation and industrial upgrades.
(Note: USD 1 equals 7.25 yuan)
