Original link: https://www.latepost.com/news/dj_detail?id=1739
Two years ago, China’s first civil aviation airliner-helicopter intermodal route landed in Shenzhen. For 5,000 yuan per person, you can take a helicopter flight from Bao’an Airport to Futian CBD, and the whole journey only takes ten minutes-this is about the same time as taking a helicopter from JFK Airport in New York to downtown Manhattan, but the price is twice as expensive.
The United States has about 7,000 civilian helicopters and more than 25,000 pilots, and China’s figures for both are less than 15% of the United States. There are similar disparities in the commercial aerospace sector: as of May last year, China operated a total of 166 commercial satellites, compared with 2,991 in the United States during the same period, of which more than 70% belong to the private aerospace company SpaceX.
Gap is also opportunity. Around 2015, China began to encourage the construction of general aviation airports, opening up more airspace to allow general aircraft such as helicopters to fly; the State Council encouraged private capital to participate in the development and operation of rockets and satellites.
Start-up companies emerged accordingly. Some entered the aerospace industry to build rockets and satellites, and took advantage of cost advantages to compete for orders; flying” future .
Investors who smelled an opportunity began to sell. Cong Zhen, the founding partner of Tianshan Capital, is one of them, but the reason why he started investing in aviation is not a direct policy incentive.
Before founding Tianshan in 2017, Cong Zhen was a partner of Matrix Partners, and had invested in three unicorns with tens of billions of dollars, Ele.me, Guazi Used Car and Youzan. Before that, he was the No. 69 employee of Shanda Network and one of the earliest product managers of the popular game “Legend”.
Just like planning a game, you will first determine the market demand, set the world view of the product based on this, and then deduce the plot and gameplay. Cognitive coordinate system with business laws, and then deduce specific opportunities.
“A web search will tell you that there have been five industrial revolutions in human history, but by our definition there have only been two true industrial revolutions. The first was a combination of coal and steam, and the second was Combination of oil and internal combustion engine.” Cong Zhen believes that the real industrial revolution will definitely undergo a major transformation of the material world, and the commonality of the past two industrial revolutions is: new energy, plus machines using new energy.
This time too. The specific opportunity that Cong Zhen sees is: green electric energy, plus smart machines that use electric energy. Wisdom refers to autonomy that does not require human manipulation.
These two elements will not only change existing products, such as cars becoming smart electric vehicles, but also “robots” running on the road; they also give birth to new species, such as eVTOL, which is a robot flying in the sky. Cong Zhen believes that in the past 20 years, one of the great values of the Internet wave is that it has accumulated good algorithms, networks and cloud services… and has written a preface for the new industrial revolution.
China’s electric vehicle industry is already the largest in the world, but in the field of aerospace vehicles, the “jewel in the crown of industry”, China’s scale is still relatively backward: the world’s top two exporters of aerospace vehicles are the United States and France, and the annual export Both accounted for about 5% of the total exports of the two countries, totaling over US$130 billion.
“This 130 billion US dollars is the market for Chinese companies. We want to replace imports and sell things all over the world.” This is the opportunity that Cong Zhen sees.
The following is a conversation between “LatePost” and Cong Zhen. We talked about his insights on aviation investment opportunities and the practical experience of an Internet investor transforming to found a hard technology investment institution.
The next industrial revolution will be a revolution of green electricity plus “smart machines”
“Later”: Tianshan is currently “focusing on early investment in the field of hard technology.” This is also the choice of many former Internet investors in the past 5 years. How is your transformation process different?
Cong Zhen: My partner and I are both witnesses and beneficiaries of China’s Internet dividend. To complete the transformation of thinking and get rid of path dependence requires a self-revolution. We have formed some of our own views on the law of technological development in 2021, which is one of the keys to transformation.
The results of Internet searches will tell you that five industrial revolutions have occurred in human history, but according to our definition, only when human beings, carbon-based life forms in the three-dimensional world, use new energy sources and machines to make major changes to the material world , is the real “industrial revolution”.
By this standard, there have been only two industrial revolutions in history, both of which were marked by new energy sources becoming dominant and machines using this new energy sources becoming popular: the first was coal plus steam engines, the second was oil plus internal combustion engine. We believe that the next industrial revolution will be “green electricity plus smart machines”. “Green” refers to skipping the middleman of fossil energy and directly obtaining energy from upstream, such as solar energy, wind energy, etc.; “smart machine” means that the machine starts to have “wisdom”, which can sense, analyze, and complete tasks independently , even without human participation and guidance.
This kind of smart machine may be a vehicle such as an airplane, a ship, and a car, or it may be a humanoid robot. The next industrial revolution will not be driven solely by the Internet, such as pure AI models or software-driven, but will definitely have the participation of hardware. In the past, the programmers of Internet technology companies used their hair and 996 to create basic capabilities such as algorithms, networks, software, big data, and clouds, all of which were writing the foreword for the next industrial revolution. These achievements will eventually be integrated into new hardware. superior.
The “hard technology” defined by Tianshan is not only “hard core technology”, but also “hardware technology”.
“Later”: The third industrial revolution in your definition is already happening, but because it involves hardware, it has a longer cycle, and this field has not yet grown a new batch of giants.
Cong Zhen: I think within the next 20 years, we may see a new batch of giants, and many of them have already been born somewhere in China. Counting backwards, now is a good time to invest. Now investing in a company, he may have been tossing for two years before he has a product. After investing, give it 5-8 years of growth. By then, the trend of a new round of industrial revolution should be obvious. OpenAI also started many years ago when people could not understand or perceive it, not now.
“Later”: Hardware technology, there are many directions to invest in. Why is one of the focus of Tianshan is aviation?
Cong Zhen: To put it simply, China’s aviation industry today is a bit like the smart electric vehicle industry in 2015-2016.
Smart electric vehicles are essentially running robots, and aircraft are also flying robots. Flying machines have been around for a long time, but the flying machines of the future will be smarter, more powerful, and cheaper.
This can be done, first of all because the development of science and technology has matured. This includes not only the software, algorithms, networks, data processing capabilities, cloud service capabilities, and AI technologies accumulated by the Internet industry in the past 20 years; it also includes the continuous improvement of chips, batteries, motors, materials, and manufacturing capabilities in the past 10 years; and related The dividends brought about by leaps and bounds in the industry, such as the popularity of new energy vehicles, have lowered the prices of electrified components such as batteries and motors.
These developments aren’t just good for aircraft, of course. So another logic is to see where there is growth, and where there is still room for growth in China.
China is already a recognized industrial power, but our aerospace industry is not leading. In terms of the export value of the aerospace industry, the United States and France rank first and second in the world respectively, exporting equipment worth 100 billion and 33 billion U.S. dollars respectively last year. And China has only 5 billion US dollars, which is exactly the growth space for China.
Taking apart “aviation” and “aerospace”, China has long been self-sufficient in the field of aerospace, that is, rockets and satellites, and even many subdivided tracks are already the world’s number one. Therefore, for private companies, aerospace has only one opportunity, which is to “reduce costs.” Musk (the founder of SpaceX, an American private rocket manufacturing company) has shown that if commercial rocket launches are cheap enough, there is no need to worry about orders.
Aviation, that is, the fields of civil aviation and general aviation, has three opportunities. The first is “cost reduction”. Because China’s aviation industry was also promoted by the national team before, the country now hopes that everyone will take advantage of the scale and reduce costs. The second opportunity is “domestic substitution/self-controllable”, which is also the direction for us to make more shots.
Domestic substitution is not achieved entirely by sacrificing profits or stacking capacity, but more by system-level optimization and innovation. For example, an aircraft landing gear manufacturer once told us that now there is a bearing part in the landing gear that can only be purchased from foreign countries, and one piece costs 20,000 RMB, and they redesigned the mechanical structure of the system to disperse part of the impact force borne by this part After the other substructures, the same effect can be achieved with 500 pieces of automotive grade bearings.
To do a good job of domestic substitution in the aviation industry, our internal joking summary is to be a “quadrilateral fighter”-high quality, low weight, high performance, and low price. This requires some innovation driven from the ground up, which startups are good at.
The third opportunity is “China for the world”. Chinese aviation companies have the opportunity to become top players in the global market with “high quality and low price”. Even if they only get some export orders from the United States and France, it means huge room for growth.
big plane is a banner
“Later”: You mentioned the two forces of the national team and private enterprises. What is the relationship between them and how to divide the work?
Cong Zhen: The national team is the driving force and a banner. A fuel vehicle has only 30,000 parts, while a C919 civil aviation airliner has more than 2 million parts. We believe that COMAC’s building of the C919 is far more than just selling aircraft, but driving the development of the entire Chinese aviation industry chain, which is the mission of the national team.
Xie Ling, the founder of Yufeng Future, the eVTOL company we invested in, is from Beihang University. He said that on the first day of class at Beihang University, his teacher said: “It is a miracle that 5% of you will build airplanes in the future.”
However, in 2009, the year before Xie Ling graduated with a master’s degree, COMAC was established. At that time, he and his classmates were very excited. They felt that their aviation dream could finally come true. In the future, students who apply for the aviation major will have more confidence. They don’t have to hold on to the aviation dream in vain. Profession.
“Later”: However, the production quantity of C919 is very limited, and the demand is not large.
Cong Zhen: Yes, even if you look at the whole world, not many large aircraft can be built in a year, and it is difficult to survive only supplying large aircraft. China had about 4,000 civil aviation passenger planes last year. According to 20-year depreciation, only 200 planes will be replaced a year. Moreover, it is still difficult to supply large aircraft. In order to quickly gain worldwide recognition, it is impossible for the C919 to be 100% localized. Civil aviation aircraft can only be produced and delivered after passing the airworthiness certification. During the airworthiness certification, every part, process, and code must be reviewed. Choosing parts that are certified for European and US airworthiness can save a lot of time and money – as long as they are still willing to sell to us.
It is still too early for C919 to compete with Boeing and Airbus. China’s building of large aircraft industry is more to tell everyone: We have already set off, please come and join us.
“Later”: Where is the greater demand?
Cong Zhen: Demand will bring about a revolution in new travel modes after the cost of flying in the future is reduced. At present, China’s general aviation industry is very weak, and one very important reason is that aircraft are too expensive. General aviation can be simply understood as aviation other than civil aviation, including various aircraft for sightseeing, competition, training and emergency use.
Take helicopters as an example, the cheap ones are 30 million yuan, and the ones with more seats cost 60 million yuan. Moreover, we have not been able to build the top helicopters, so we can only rely on buying them. Helicopter pilots are also highly paid, making flying expensive. Now, eVTOL can complete all the tasks of the helicopter, and the manufacturing cost can even be as low as 10 million yuan. It can also drive automatically, saving the cost of the pilot.
The scenery in western China is beautiful, but the distance between the scenic spots is very long, and eVTOL can be used for sightseeing between various scenic spots. Even in the eastern region where high-speed rail is densely populated, if one day you can travel faster by flying for the same price as a high-speed rail ticket, the demand will explode.
“Later”: How big is the demand for eVTOL, and how big is the opportunity?
Cong Zhen: We estimate that the market size of China’s passenger eVTOL is about 400,000. The freight market may not be as large as passenger transport, but it will land before the passenger transport scene. It is optimistically estimated that by the end of 2023 at the earliest, China will have a cargo eVTOL model that has received an airworthiness permit, which will be an important milestone. The Civil Aviation Authority and the government are very supportive of this area.
“Later”: How did you calculate 400,000?
Cong Zhen: Passenger transportation scenarios can be roughly divided into three parts: sightseeing, commuting and business travel, corresponding to semi-enclosed scenic spots, intra-city traffic and inter-city travel respectively.
We calculated passenger transport demand based on the number of 5A-level scenic spots in China, the number of private car orders on various online car-hailing platforms (excluding express trains, etc.) About 5% will be replaced by eVTOL, and then it is deduced that the demand in the Chinese market is between 300,000 and 500,000. If freight is added, there may be more. In addition, overseas demand is also very strong, and Southeast Asia and the Middle East are good markets. The products of Yufeng Future have already been sold to Saudi Arabia and the United Arab Emirates.
Just now we mentioned that there are only about 4,000 civil aviation aircraft in China. In contrast, the demand for eVTOL will be several orders of magnitude larger, and it will be easier for suppliers of eVTOL components to take advantage of economies of scale and grow into “quadrilateral fighters.” They can then, in turn, supply commercial airliners and other general aviation aircraft with cheaper, flight-proven parts, forming a positive cycle.
There may be fewer $100 billion companies in the hard technology industry
“Later”: Many founders of the aerospace industry in China come from central enterprises or scientific research institutes within the system, while Musk and Bezos, the founders of SpaceX and Blue Origin, built rockets across borders, and China’s first batch of successful electric vehicles The founder is not from a car company. Will entrepreneurs who build eVTOL across borders from the Internet and other fields be able to grasp this opportunity better than the people you see now?
Cong Zhen: At the initial stage of cultivating the industrial chain, it must be done by professional people. When the industrial chain matures, cross-border entrepreneurship is feasible.
Musk can build rockets because the U.S. rocket industry chain is mature enough. He can basically buy all the parts needed to make rockets in the United States, and he can also find professional talents. Similarly, before the new energy revolution, China’s car-making industry chain was mature enough, giving new car-making forces a good opportunity to start a business.
The aviation industry does not currently have such conditions, and there are not enough people in China who really know how to build aircraft. Many founders in this field first joined private R&D and operation companies after leaving the system, honed their business and management capabilities, and then came out to start a business.
“Later”: How do you pick out good projects during the industrial chain cultivation period?
Cong Zhen: Regarding how to do a good job in hard technology investment, we have summarized a “MAGIC” model, which is the acronym of English words for five key points to do a good job in hard technology investment.
The first is Market (market). Many founders in hard tech are scientists or engineers. Compared with grasping market demand, they are more confident in polishing products and technologies. We believe that “technology that can make money is a good technology”, which will help entrepreneurs calculate market size, design market strategies, and make product planning closer to demand.
The second is Academics. Internet companies are not proud of which universities or institutes their executives come from. In the past 20 years, so-called technology companies have innovated more from the demand side. In the era of hard technology, innovation will come more from the supply side, and the context and origin are the stepping stones and paving stones. Most of the innovative and leading technologies come from the top brains in top universities and research institutes.
The third is Government (government). Once a hard technology start-up company has finalized its product, it needs land, factory buildings and workers for trial production and mass production, all of which require cooperation with local governments. But hard technology entrepreneurs are often not familiar with the needs and operating rules of the government. As an investment institution, Tianshan can connect excellent enterprises with local governments with clear needs and industry counterparts.
The fourth is Industry (industrial chain). Investing in hard technology requires industrial chain thinking, and investing in one company in each field is by no means a stop. Tianshan’s approach is to first invest in the main enterprise of the chain, and then look for high-quality targets in the entire industrial chain. For example, we first invested in Yufeng Future. As an eVTOL complete machine manufacturer, it will cooperate with many excellent suppliers. By communicating with Yufeng Future, we can identify other potential companies in the industry chain.
The fifth is Capital (capital). Entrepreneurs in China’s Internet industry have spent 20 years walking the path that American entrepreneurs have traveled in 60 years, and have become financing masters at the fastest speed. But in the field of hard technology, whether investors or entrepreneurs, everyone is still in the Internet era in 2005 and needs to explore and adjust. After contacting the company, no matter whether we invest or not, we will share financing methodology with entrepreneurs and help them design financing strategies.
“Later”: From the establishment of Tianshan in 2017 to the completion of the cognitive and action transformation from investing in the Internet to investing in technology, you have spent several years. What have you done specifically? Where is the difficulty of conversion?
Cong Zhen: From the Internet to hard technology, investors may have changed their perceptions, but they are still very honest. For example, some people may still “like to take orders from high positions”. It must be admitted that it is reasonable to invest in ByteDance at a valuation of US$20 billion, but hard technology cannot be invested in this way.
Because the reward algorithm has changed. The Internet is driven by the demand side, and its internal logic is the network effect. It is inevitable that the strong will always be strong, and the winners will take all. In this way, investors can accept a success rate of 1/10 or even 1/30, because once the network effect is formed, the 1 in the molecule will bring hundreds of times and thousands of times of return.
Hard technology is often driven by the supply side, and its internal logic is the scale effect. As long as a small company piles up its production capacity, it can also gain a foothold in the vertical field. Among the more than 500 listed companies on the Science and Technology Innovation Board, the number of companies with a market capitalization of more than 30 billion yuan accounted for barely more than 10%. We judge that there will be many companies with a market value of 20-30 billion yuan in the hard technology field in the future, but we do not expect that there will be companies with a market value of tens of billions or hundreds of billions of dollars in this field.
This means that investing in hard technology should not still hold the idea of investing in one out of ten companies, but must ensure that half of the ten companies will be successful. As the return algorithm changes, the investment strategy must change accordingly.
From the peak of Internet incremental opportunities in 2017 to the decision to invest in hard technology in 2021, Tianshan has done two things during this period: one is to emphasize values, requiring the team to embrace change and be good at learning; the other is to start in 2020 The “Tianshan Research Institute” was established to continuously summarize the methodology, and share and refresh cognition through the internal self-built system.
One of Tianshan’s advantages is that we have a capable team, unlike large investment institutions that cover more than a dozen tracks at the same time, maybe one or two track partners realize that they are about to start a transformation, and convince the rest of the colleagues Very difficult. Although Tianshan’s decision-making of transformation is very cautious, once the decision is made, the whole organization turns quickly.
“Later”: Investing in a ten-billion-dollar company and investing in several billion-dollar companies brings very different resources and attention to investors. You used to be used to the former, but now you invest in smaller companies, how has your mentality changed?
Cong Zhen: We are used to not positioning ourselves as investors in a certain industry. We are investors. Wherever the new wave comes, we will go there and adjust our investment methods accordingly.
Hardware technology entrepreneurship represented by the aviation field is a typical long-term entrepreneurship. It may take nearly 10 years to make a model, and most hard technology fields will not be winner-take-all.
The law of the venture capital industry is that when you do the right thing, it will automatically lead you to a decent return. If you can invest in 5-10 technology companies with a market value of 10-30 billion yuan within a valuation of 1 billion yuan in the early stage of the company’s development, your returns will also be very rich.
This article is transferred from: https://www.latepost.com/news/dj_detail?id=1739
This site is only for collection, and the copyright belongs to the original author.