Revolution of Jiuding Capital: Success by Efficiency
2012-05-05
As for the rumor on Jiuding Capital, chairman of Jiuding Capital Co., Ltd. Gang WU feels puzzled and agitated, “We have been solving the problems with the most efficient way. Many people don’t understand Jiuding Capital.”
Gang WU said shortly and bluntly. Like him, some founding partners of Jiuding Capital, such as Xiaojie HUANG, Lei CAI, Zhongyi ZHAO, etc. come from domestic non-investment institutions, who are distinct from the overseas returnees in the investment circles. The reason that they come together is very simple: to do things well.
Such several ambitious, purely homebred youths led Jiuding Capital to realize “the most efficient” expansion in China PE industry: Within 5 years since its inception, Jiuding Capital has set up more than 30 offices across China, staffed with nearly 300 employees (The employees in the industry investment research and service team account for 2/3 of total team members.)
In the first half of the year 2011, with the fund scale of more than 10 billion yuan, Jiuding Capital has invested and managed multiple RMB funds, such as Zhengdao Jiuding Capital, Kunwu Jiuding Capital, Xiaqi Jiuding Capital, Shangqi Jiuding Capital, Zhou Yuan Jiuding Capital, Jiuding Capital Medicine, etc., and a dollar fund. With more than 60 investment projects, Jiuding Capital has become China’s largest privately-owned PE firm.
Ford-type Revolution: Success by efficiency
To analyze the reproducible genes of Jiuding Capital, its two souls in its beginning were critical.
President of Jiuding Capital Xiaojie HUANG had done small business in school, and organized sponsor training class. Such training class always attracts many followers. So, he kept innovating to launch practice examination paper, sprint class, etc., built uniquely competitive business mode to maintain the leading superiorities. Small though it is, Xiaojie HUANG has shown his business ability of “creating something out of nothing”.
When Xiaojie HUANG performed his training class, Gang WU also completed his multistage jump: technical secondary school student - undergraduate student - graduate student - investment bank - policy research, and obtained some professional qualifications, such as Certified Public Accountant (CPA), Lawyer Qualification Certificate, etc.
The two had a common characteristic: extremely-rich fancy, so they were not easy to be hedged in with rules and regulations.
2008 was a key node to form corporate strategy. After investing GEEYA and Gifore, Shenzhen second-board market was opened. Their keen instincts told them that China will have more than 8000 listed companies in the future! If we want to earn the price difference between the primary market and the secondary market, its gross margin is very high. At that time, many people thought that 8,000 listed companies were unimaginable.
Young though Jiuding Capital was, the judgment on market and ambition spurred Jiuding Capital’s partners on to make a bold strategic decision-making: to ride on a horse to enclose firstly. In the early development, Jiuding Capital’s increasing market shares meant that Jiuding Capital can utilize more controllable project resources to be the bigger. If it is small and pretty, Jiuding Capital finally loses its market shares, and is hard to be a large-sized enterprise.
The scale development needs rapid expansion. When Jiuding Capital was established, the company scale in PE industry was at most a dozen of employees. From the project discovery to the investment investigation, only one man investigated the whole project from beginning to end, which usually spent several months, even one year. Gang WU called such mode as “workshop”, or “elite mode”. Fine though it is, the “workshop” goes against reproduction and expansion.
Can such situation be changed?
Gang WU discovered that, the “workshop” was suitable for the investment of early project. Because the project has relatively-short history without historical data, we had to stay with the enterprise managers to perform repeated research, so we had to spend much time in the enterprise. The workshop’s another characteristic is that most of PE project directors are proficient in investment instead of in industry, so very long time will be spent in being proficient in industry.
Jiuding Capital targets at the projects during the growth period and mature period, because such projects have clear financial data. Xiaojie HUANG concluded, “When the project is relatively mature, we don’t need to spend very long time to figure it out. At that time, it is suitable for large-scale and systematicness.”
The scale expansion needs standardization and division of specialty, but it is always a patent of manufacturing industry. If the scale expansion is run in the PE industry like Ford assembly line mode, what kind of business mode will it produce?
Modular survival
The outsiders only can see Jiuding Capital’s division of specialty in industry team and process. In fact, since its inception, Gang WU has given up the “faction system” that the partner leads a group of employees respectively. Each partner was converted into the enterprise’s senior executive, in charge of corporate management. The partners were divided their responsibilities in accordance with the division of pre-investment, mid-investment and post-investment: Xiaojie HUANG for strategy, Gang WU for risk control, Lei CAI for project development, Zhengyu TAN for investment due diligence, and Wu Qiang for post-investment management. Since 2010, Jiuding Capital has formed project committee, investment committee, investor work committee, investment and financing services committee, management committee and risk control committee. The management committee is an attempt to avoid the individual decision-making risk.
The building of the partner structure drove Jiuding Capital towards the division of specialty.
At the project discovery stage, imitating Shenzhen Capital’s practice to cooperate with local governments in the industry fund, Jiuding Capital has built some offices in more than 30 provinces and cities and dispatched some professionals, and attempted dragnet-type screening method to select out the target enterprises in line with Jiuding Capital’s investment strategy. Such practice was deemed to destroy the game rules. But Gang WU thought that, Jiuding Capital discovered many blank zones neglected by many PE firms, and some of excellent companies were hidden in the second-tier and third-tier cities. With the help of its huge network, Jiuding Capital fished out these invisible target enterprises, such as Wiseman, Lancy. “We investigate hundreds of projects each year.” Gang WU said. Many projects provide Jiuding Capital a wide range of selection, so Jiuding Capital never vies for the projects with a higher price.
After a good project is discovered, the industry investment team performs investigation, research and judgment. In Gang WU’s words: head of each industry investment team must be a genius in the industry, who must know well about the industry and industrial rules, and be acquainted with entrepreneurs and experts in the industry. Taking general manager of Jiuding Capital Medicine Fund Bo YU as an example, before joining in Jiuding Capital, Bo YU had worked at State Pharmaceutical Administration, Haihong Pharmaceutical Electronic Trading Center Co., Ltd., etc., so he knew well about enterprises, medicine varieties, R&D institutions, etc. Under the leadership of Bo YU, Jiuding Capital Medicine Fund gradually built a medicine investment team with nearly 20 employees, covering all the links such as R&D, manufacturing, sale, etc. So far, Jiuding Capital has invested more than 10 medicine enterprises in R&D, manufacturing, sale, etc. in succession, including Zhejiang Wanbang, Hunan Er-Kang, etc. Gang WU told Manager, the division of labor inside the industry team is finer. Each segmented medicine industry is tracked and researched by a specially-assigned person. “The higher degree of specialization is, the shorter the time for investigation and decision-making is.”
Man who knows well about the specialty does not necessarily know well about investment, and vice versa. Jiuding Capital matches various types of talents together. Gang WU calls it as “module”. According to specific projects, such “module” can be split and combined. By this way, Jiuding Capital rapidly has reproduced China’s largest professional investment teams in such sectors as consumption, agriculture, medicine, advanced manufacturing and emerging industry.
The due diligence is completed by more-than-40-employee financial audit team, without the involvement of the third party. In Gang WU’s words, each year Jiuding Capital investigates a great number of projects. Therefore, Jiuding Capital is different from the small-sized company which only investigates several projects each year. Our audit team can investigate and research in its own way efficiently.
The division of specialty greatly enhances Jiuding Capital’s efficiency of investment. But each coin has its two sides. The factory mode indeed exists defect of roughness and risk of neglecting individual experience.
Just as Xiaojie HUANG predicted: enclose and then refine. Jiuding Capital’s mode of project operation will be converted from currently regional and industrial investigation into specialized refined industrial fund. The industrial fund itself shall perform division of labor in process.
Reproducing man and guidelines
Man and soft standard are the most uncontrollable links of Jiuding Capital mode in reproduction and expansion. Jiuding Capital attempted to reproduce experience and excellent employees through training, thus solidifying man and experience into the standard.
Taking the key link in the investment experience - investment decision-making mode as an example, Gang WU told Manager, “They only see our investment in the enterprises, but don’t know well about the guidelines.” Jiuding Capital considers it from three aspects:
The first aspect is the increase of the invested enterprises. For example, some of projects have many merger targets. Increase needs money. The listing of company increases financing channels, equity financing and bond financing. At this time, there is a big increase possibly.
The second aspect is the delisting time, the time to be listed and lockup period.
The third aspect is price.
All three aspects can’t be totally quantified. Gang WU said, the combination of the tree aspects will cause many changes. “Each time we combine increase, price and company listing into a portfolio. Which condition is ok or not? The starting points are not different, so our value-added services are also different. Each project is supported by very rational framework. Its ultimate purpose is for generous profits, but major means are different.”
The next thing is the training of experiences and skills of various industries, for example, investment framework of medicine investment, basic financial knowledge; key medicine varieties, for example, OTC drug, prescription drug, general drug, etc.. The experiences of the medical enterprises include medical institutions, industrial pattern, survey mode, etc.
In training, Jiuding Capital is willing to spend money. In the first half of the year 2011, the frequency of employee training reached one time every two weeks. Jiuding Capital dares to provide the new employee with practices, for example, new employee can act as the assistant to participate in the project practice.
Gang WU believes that “the speed of talent training in Jiuding Capital is certain to be quicker than that in other investment institutions.” A real far-sighted company will focus on the foundation. This is an important link in Jiuding Capital’s growth genes.
Some newly-built investment companies have begun to imitate Jiuding Capital’s business mode, performing division of labor in pre-investment, mid-investment (due diligence, etc.), post-investment management, etc. Gang WU still remains calm for Jiuding Capital’s growth: there is no so-called legitimacy. The best method is that the one can solve problems. If the method is not feasible, change it.