Sequoia China and other first-tier institutions have deeply laid out the IC industry ecosystem construction, showing another extreme

Under the influence of the global epidemic, although the capital market encountered a "winter moment" in 2020, China's semiconductor investment and financing field presented a different situation. Data shows that in 2020, the total investment in the IC field is expected to reach three times that of last year, exceeding 100 billion yuan.

In addition to the frequent investments from industrial capital such as Xiaomi Industrial Investment, Huawei Habble, and SMIC Capital, domestic semiconductor investment has been stimulated with new vitality in 2020, with the driving forces coming from first-tier investment institutions represented by Sequoia China and IDG.

The advantages of first-tier investment institutions, such as the support of capital volume for enterprise development, the synergy effect derived from the systematic investment layout, and the keen judgment of industry prospects formed by international vision, are consistent with the current needs of the domestic chip industry. To some extent, as the chip industry has transformed from a single point of prosperity to a systematic boom, first-tier institutions have become one of the "best partners" for its next stage of development. They will form a joint force to promote the development of domestic chip companies and become an important pole to support the construction of the domestic chip industry ecosystem to form a virtuous cycle.

In-depth layout of first-line institutions

The COVID-19 outbreak at the beginning of 2020 has had a significant impact on all industries. In the field of investment and financing, data released by Zero2IPO Research Center showed that in the first half of 2020, the total amount of funds raised in the domestic primary market fell by 29.5% year-on-year, the total investment fell by 21.5% year-on-year, and the number of investment cases fell by 32.7% year-on-year.

Judging from the number of financing projects alone, the number of semiconductor investment and financing in 2020 has slightly decreased compared with previous years, but the amount of financing has increased dramatically. In the first 10 months of 2020, it reached 71.13 billion yuan, 2.5 times that of the same period in 2019, and is expected to exceed 100 billion yuan by the end of the year, reaching 3 times the total amount for the whole year of 2019.

Among them, many investors in the field stated that the actions of Sequoia China, IDG, Hillhouse, Gaorong Capital, and Qiming in the chip field best represent the layout ideas of top funds and first-line institutions in 2020.

Sequoia China, a leading investment institution, is the most active in chip investment. Public data shows that in 2020, the institution has successively invested in more than 10 companies in the chip field, including BYD Semiconductor, CoreChips Technology, Southchip Semiconductor, CoreVision Microelectronics, Boliu Intelligence, Yunying Valley, Xim Computing, Infinity, Zhongke Bluexun, SmartSens, and Yitong Semiconductor, including several financing projects with a total investment of over 100 million yuan.

From the perspective of investment targets, Sequoia China's investments show two major themes: domestic substitution and innovative application opportunities, with a systematic layout along the upstream and downstream of the industrial chain.

Although IDG Capital did not invest in many projects in 2020, including only a few investments such as BiRen Technology and Eswi, it has made some gains in IPO projects in the chip field. Hillhouse Capital, which was just established in 2020, has currently invested in companies such as Xinhuazhang, Xinge Technology, BiRen Technology, and Horizon Robotics.

Qiming Venture Partners, which is also relatively active, focuses on three emerging directions in the field of IC design: AI computing, communication connection, and sensing. Gaorong Capital is more concerned about the "bottleneck" links in the field of IC design, such as EDA, GPU, analog IC, etc.

Judging from the investment amount, there are many cases of high-value financing. For example, in 2020, Sequoia China led the investment in BYD Semiconductor (the company's financing amount in this round reached 1.9 billion yuan), IDG led the investment in Eswi (the company's financing amount in this round exceeded 2 billion yuan), and Hillhouse Capital led the investment in BiRen Technology (the company's financing amount in this round reached 1.1 billion yuan). These are all major financings in the field of domestic IC design companies in 2020. In addition, many financings in which the above-mentioned institutions participated were all above 100 million yuan.

From the perspective of investment areas, in 2020, the investment of leading institutions is still concentrated in the chip design link, focusing on tracks with larger market space such as AI, Internet of Things, and smart cars, and market leaders in sub-markets. Different institutions also have their own focuses based on their own characteristics. For example, "deep pocket" funds such as Sequoia China are more based on the construction of industrial ecology and have a more systematic layout. Of course, most funds prefer to enter the "neck" field where domestic substitution is more urgent.

Policy × industry ecology shows superposition effect

Compared with the Internet, medical care, online education, fast-moving consumer goods, and even commercial aerospace projects, the chip industry is not "sexy" enough, and because of its own special development rules, the investment is long-term and sustainable, and it is difficult to obtain financial returns in the short term. However, when the domestic chip industry ecosystem is becoming more and more perfect, the entrants are not dazzled by the so-called enthusiasm and are prepared to accompany for a long time.

In fact, 20 years ago, leading investment institutions and first-tier funds had paid close attention to the domestic semiconductor industry. At that time, represented by the entrepreneurship of overseas returnees, companies such as Spreadtrum, RDA Microelectronics, SMIC, and GalaxyCore were all born at the beginning of the new century. At that time, first-tier investment institutions such as Sequoia China had already begun early layout in the semiconductor field.

However, the domestic market environment, capital environment and industrial ecology were not optimistic at that time. Startups mainly focused on cheap substitutes for mid- and low-end imitations, and there were not many high-quality targets to choose from.

Over the past 20 years, these large investment institutions have not stopped investing in China's semiconductor industry.

For example, since 2006, Sequoia China has successively invested in a series of excellent domestic semiconductor companies such as GalaxyCore, Zhan Shengwei, Core World, and Horizon Robotics; IDG has successively invested in Amlogic Semiconductor, RDA Microelectronics, Hengxuan Technology, Aojie Technology and other companies.

Of course, the macro-environment has undergone qualitative changes in recent years: the introduction of national policies, the establishment of large funds, the launch of the Science and Technology Innovation Board, and other changes in the policy environment, as well as the emergence of domestic substitution market opportunities, have provided a good soil for the growth of more high-quality companies in the field and facilitated the establishment of a closer value bond between capital and start-ups.

Zhao Zhanxiang, managing director of Yunxiu Capital, told Jiwei.com that the frequent moves by leading institutions in the capital market are a natural response to policy guidance and rising market demand, and the biggest demand is domestic substitution.

According to the data released on ICCAD in 2020, the number of domestic IC design companies in 2020 increased by 438 from last year, up 24.6% year-on-year to 2,218, while in 2019, the growth rate of chip design companies was only 4.8%. At the same time, according to data released by the General Administration of Customs, in the first 11 months of 2020, my country's imports of integrated circuits reached 488.46 billion, an increase of 21.9%, with a value of 2.2 trillion yuan, an increase of 15%.

"This means that there is still a lot of room for domestic substitution, and there is an opportunity for chip design giants to emerge. Especially in some deep-water chip areas that require large amounts of capital and high technical challenges, such as CPU, GPU, FPGA, high-end equipment materials, etc." Zhao Zhanxiang told reporters.

Even with policy support and an increase in startups, leading institutions have not relaxed their standards for benchmark selection. Jin Wenji, managing director of Sequoia China, pointed out in an interview with Jiwei.com that investment in the semiconductor industry needs to be more rigorous and cautious. There are three considerations for whether a company is worth investing in: first, scale, which requires a large enough market space; second, innovation, which requires higher innovation capabilities than its peers in the industry; and third, the quality of the founding team.

A person in charge of a chip startup that just received Series A financing told Jiwei.com that it is normal for investment institutions to have expectations for a company's listing, but at least from their current contacts, these leading institutions have a deep understanding of industry rules and are basically patient.

Jin Wenjie also said that investing in semiconductors will respect the rules of the sub-sectors, be prepared for long-term companionship, and grow together with the company and the Chinese semiconductor industry.

"Good companies are not afraid of cycles, and their value can only be reflected over a long period of time. As an investor, we must be patient in cultivating the invested companies, help them build good products, good businesses and talent platforms, and go through cycles with excellent companies." said Jin Wenjie.

Cross-industry collaboration and ecological value spillover of leading institutions