Capital Winter: Which projects have become new hot spots?

Meituan merged with Dianping, and the theory of "banding together to survive the winter" became dominant. Is the Internet bubble really coming, causing these famous startups to seek countermeasures? But whether it is a cold winter or not, entrepreneurship itself is a bloody battle of life and death. Maybe entrepreneurs are on the way to catch up with the trend, but find that the wind has changed, and it has become a mistake from the beginning. At present, in this increasingly tragic battlefield, which projects can survive? This article covers the most popular O2O, enterprise services and smart devices. The following content is from 21st Century Business Herald.

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The chill in the capital market, which has long been chilly, has become more and more obvious. Entrepreneurs looking for money everywhere have found that it is extremely difficult to obtain financing, and even if they finally reach the negotiation table, the valuation is greatly discounted. Institutions that invested large sums of money in the previous boom have become more cautious. Their focus is to pay close attention to the companies in their investment portfolios in order to be prepared for "rescue".

For entrepreneurs, how to become such an excellent project and then survive?

The coolest O2O

Investors often have a direct view of which projects are likely to fail.

“For entrepreneurs who want to open up new battlefields, we would like to give two pertinent suggestions:

First, don’t start a business in a crowded field;

Second, look for entrepreneurial opportunities from an industry perspective,"

Gao Xiang, founding partner of Gaorong Capital, said in a public speech that the "clustering" mentioned by Gao Xiang refers to industries where companies have already raised a lot of money, industries that large companies have at hand, or industries that require a lot of funds.

For example, the O2O project that has been demonized.

Zhang Qi, investment director of Ether Capital, divides O2O into several subcategories. He analyzes that for vertical door-to-door services such as cleaning, beauty, and home appliance repair, the chances of getting angel or A round financing are very low now.

First, this is a big trend, and it started relatively early. Many investors have already made arrangements in the industry and will not invest again.

Second, in essence, this type of service needs to increase customer orders through subsidies rather than rigid demand. At the same time, door-to-door service cannot improve unit service efficiency and has not transformed traditional industries. Instead, it may waste manpower on transportation. The entire vertical category of door-to-door O2O continues to burn money, and profitability on paper is nowhere in sight. Many people are doing it, but they cannot see the direction, and it is hard to say whether there will be a relatively clear way to make profits in the future.

The reason for the projects that died here is quite simple: many projects that failed to survive eventually proved that door-to-door service may be a false proposition. Zhang Qi said that in the process of changing the traditional business model on the supply side, O2O must improve at least one aspect, namely, the service unit price or the unit time capacity.

However, compared with service staff staying in the store, the capacity of door-to-door service cannot be improved, and the premise of increasing the average customer spending is to improve the service quality. Ultimately, it proves that the service experience is also difficult to improve and still needs to be driven by subsidies.

"First, money can be burned, but it must produce results. There are only two things to consider: whether it can grow rapidly, and whether it can be stabilized and sustained," said Yang Dong, founding partner of SAIF Partners. "But I can't tell whether many companies can stabilize after burning money. They may keep burning money, which is a bit scary."

Community and food delivery O2O projects are also difficult to enter. Community projects are all scrambling for territory, and oligopoly is very obvious in the home delivery and food delivery fields. There are already giant players such as Baidu, Meituan, and Dianping, and the number of orders is driven by subsidies. Such a platform provides zero opportunities for startups.

Another segmented market, the campus market, has also become a red ocean. "The financing structure of the entire campus market has been basically established. Many projects have reached the B round, and students have relatively low loyalty to the products themselves. Now the market is opened up by competing on price, which makes it more difficult for newcomers," said Zhang Qi.

Zhang Qi analyzed that the most common mistakes in the first round of such projects that fail are the lack of a brand or the delivery service in a home-based workshop manner, which leads to poor brand awareness and loss of user stickiness. The second is that the product positioning is unclear, and it is not possible to capture a clear group of people and grasp the user characteristics. If there are too many product lines, supply chain management is easily messed up, and sales expectations, losses, and production will all become problems. Third, catering is very complicated from procurement and stocking to logistics such as trunk and branch systems. If it is just brand packaging and there is no catering experience, it will frequently encounter "pitfalls". Especially for fresh food projects, most of them died in supply chain management.

Where are the opportunities? One is vertical category products, such as semi-finished dishes, bento, salads, etc. After specialization, there are still opportunities because of their high gross profit. The other is the brand model under the community concept, which leverages the concept of consumption upgrade, targets segmented groups, and leverages the power of large platforms.

"For example, an Internet brand with the concept of sports and health emphasizes the sense of fans and targets the fitness crowd. The product itself has a high gross profit margin, so it is easy to raise the average order value. In addition, there are many subsidies on the platform now, so the cash flow will be very healthy," said Zhang Qi.

The hottest 2B

Compared with the O2O projects that people avoid, enterprise service (2B) projects have become the darlings of the capital market this year, with a large increase in financing cases and amounts. On the one hand, with the development of the Internet in the United States as a benchmark, China's enterprise market has just started and has a promising future; on the other hand, with the disappearance of the demographic dividend and the concentrated outbreak of demand from small and medium-sized enterprises, China's demand for enterprise services has expanded rapidly, and the market is vast.

This winter, enterprise service projects have become more popular. Generally speaking, enterprise service projects require deep accumulation and understanding of the industry. Companies often have a more solid foundation and are more likely to survive with their own thresholds. At the same time, services for enterprises are also easier to charge, unlike the 2C (consumer service) market, which must compete for free, and the financial statements are more attractive.

"Comparatively speaking, enterprise-level projects are not particularly easy to fail, and there are fewer cases of large-scale advertising and subsidies to attract customers." Liu Siqi, vice president of Fosun Kinzon Capital, said, "Enterprise customers make decisions unlike C-end consumers. They will not simply choose companies with poor services for the sake of cheapness."

However, enterprise service projects are far from being safe. Yao Haibo, executive general manager of Fosun Kinzon Capital, said that in the field of enterprise services, the biggest barrier is time. This is not a fast business, and the layout is already an advantage. However, even though many companies have been struggling in the market for many years, before the winter comes, blood-making is still the most important thing. "The charging point is what we value more. When is the charge? Which modules and applications are charged? Especially at this stage, even if the charging point is not clear in the early stage, we will face this problem in the next quarter." Yao Haibo said.

Liu Siqi divides the main enterprise service projects into three types: one is SaaS services for small and medium-sized enterprises, one is B2B enterprise-level trading platform, and the other is enterprise services for developers.

Among them, the first type of enterprise SaaS service is the hottest and attracts the most investment among the three categories. In more mature markets such as the United States, several billion-dollar companies such as Salesforce and Workday have been created. SaaS is the abbreviation of "Software as a Service", which refers to serving enterprises by providing software. Common examples include enterprise OA systems, CRM (customer relationship management) systems, recruitment systems, etc. In the era of enterprise software, services were expensive and products were heavy, and most customers were large enterprises; but now, the SaaS model has greatly reduced costs and prices, and small and medium-sized enterprises have become the main target customers of SaaS companies.

The key to competition in SaaS projects is not spending money, but service professionalism and expansion speed.

Liu Siqi analyzed that now in the SaaS field, competition has become fierce. There are five or six relatively large companies in the CRM sub-industry alone. There are two main categories of entrepreneurs in the field. One is those with a pure Internet background who are good at 2C gameplay; the other is those who have transformed traditional enterprise software into SaaS and have an industry foundation. In the fierce competition, the latter often have a higher chance of survival. "If you have experience in traditional software sales and product know-how, it will be easier to survive and develop. But if you only have professional knowledge of the industry you serve and lack Internet thinking, the company is likely to become a 'small old tree' company and cannot grow up."

The second type of B2B project has also attracted a lot of media attention recently, namely the enterprise-level e-commerce trading platform, where the commodities traded include steel, plastics, fabrics, agricultural products, etc.

"B2B projects are prone to fall into a misunderstanding of only talking about transaction volume. For example, a previous agricultural product trading platform had a data fraud incident, which is actually a common problem in this industry." Liu Siqi said that the core of B2B is to break the information asymmetry between buyers and sellers, especially the asymmetry in regions and sub-industries, rather than just moving transactions from offline to online. However, many platforms tend to overemphasize transaction volume for financing purposes, so much so that they use this as the basis when formulating KPIs, which ultimately causes operators to "fake orders", but they don't know that many investors don't actually value based on transaction volume.

Therefore, there are usually two reasons for the death of B2B projects:

One is to spend energy on meaningless trading volume and rely on subsidies to increase orders;

Second, the team itself has no industry background and is unable to gather larger trading entities, resulting in slow development.

The third type of developer services is for the development and operation of Internet products, and the users are the product developers. "You need to be careful with this type of project, and you can't rush to promote it when the product is not perfect. Once users have problems with your product three times, it will be difficult for them not to switch to your competitors," said Liu Siqi.

The fastest smart hardware

However, the popularity of smart hardware, which has been at the forefront for several rounds, has declined again.

From the launch of the "first year of smart hardware" in 2013 to the rapid development of the industry in 2014, followed by the entry of giants and the frequent death of small businesses, this industry, which was highly dependent on capital in the early stages, is feeling threatened in the winter.

"In fact, in the field of smart hardware, entrepreneurs who failed to make it had already anticipated it from the beginning, but they did not expect the end to come so soon," Yao Haibo said. "Now, people who make hardware have clear minds and are particularly hardworking. In the short term of 3 to 12 months, the success or failure of this thing will be determined, and the results will be seen in one year."

Ecosystem is a huge weapon that amplifies the Matthew effect. An ecosystem formed by multiple products can retain users well, such as Apple and Xiaomi; star products with content ecosystems can also gather fans, such as gaming hardware. On the contrary, if there is only a single product, the challenge of survival becomes quite severe.

Yao believes that the logic of some early investors and start-ups is to attract attention with explosive products and then form usage habits. But now, it is very challenging to dominate and grow with a single product. Users are no longer particularly sensitive to simple innovations. Therefore, for smart hardware to survive, it still needs to return to technical know-how and product iteration capabilities. The second is system capabilities, including the ability to build an ecosystem and software systems.

"Some teams are not well prepared for the expected iterations. After getting the first round of funding, many people failed in the B round or the second stage of product innovation. People still don't think long enough. In fact, successful hardware companies at home and abroad have a series of products to occupy their position and market, which requires long-term technology accumulation."

Innovation requires companies to get rid of the Copy to China model. Yao Haibo found that in the hardware market, people always follow like sheep. The first people who made circuit boards later made MP3s. When they found that it was not working, they started to make copycat notebooks. When it was still not working, they made GPS and various PADs. "Following the trend is definitely a business, but it is not necessarily the most ideal target. Real innovation requires a long-term run and a lot of accumulation in the future."

In addition, Internet communication is also very important. Products that sell well are often those that make full use of Internet factors. For example, many users of DJI drones do spread the videos they shot online, which creates a leverage effect through the Internet. Otherwise, it is difficult for users to make up their minds to buy a product alone. Yao Haibo gave an example, Fosun Kunzhong invested in smart hardware such as Scanadu in Silicon Valley, which complied with the investment logic of continuous technological iteration capabilities, ecological system building, and rapid Internet fermentation.

What should smart hardware entrepreneurs do after BAT and "Jing Xiaosan" have entered the market? Yao Haibo suggested that if you want to get involved in this field now, you can consider the intelligence of equipment, such as AI, small robots, etc. There are still investment opportunities in projects that can improve production efficiency and save labor costs.

Entrepreneurial ability is more important than willingness

If Tolstoy were to write a novel about entrepreneurship, he would probably summarize it this way: successful projects are all successful in their own way, but failed projects are always similar.

There are generally several types of death:

First, there are problems with the team itself, such as internal strife, disagreements on development direction, poor management, insufficient overall strength, unreasonable equity structure, etc.

Second, there are problems with the entrepreneurial direction and products, such as mistakenly entering the competitive red ocean, unable to accurately position, having no profit model, and failing to find user needs;

The third is the failure of financing and cash flow management, such as excessively high marketing costs, too rapid team expansion, projects that continue to burn money and cannot generate revenue, and poor grasp of the financing rhythm.

When capital is hot, all kinds of "hot spots" are the favorites to chase. Even if it is a "pig", there are always people willing to bet that a strong enough wind will blow it into the sky. But in the end, what often flies into the sky is the huge amount of money that has been thrown crazily, and what is left on the ground is a mess.

Now, the market is cold. Many once popular fields have become capital black holes, burning a lot of money but not spending it. From O2O to P2P and the post-90s, some institutions have clearly listed the types of targets that they "will not invest in again", and entrepreneurs are afraid of being labeled and losing opportunities.

Previous data from ChinaVenture Group showed:

In the second quarter of 2015, the scale of VC/PE financing in the Internet industry was US$3.789 billion, a decrease of 50.36% from the previous quarter; the number of financing cases was 222, a decrease of 10.84% ​​from the previous quarter. Fu Xinghua, executive vice president of Zero2IPO Group and managing director of Zero2IPO Research Center, said in a public speech that there were 52 active angel investment institutions in 2014, with each institution investing in 15 projects on average, while in the first half of 2015, there were 248 active angel investment institutions, with each institution investing in only 3.7 projects on average.

Once the transfusion of capital stops, death will follow. Financing is difficult, and no one will take over later. A good story alone will no longer be popular.

Looking back at the experience of the three major industries, demand grasp, monetization ability and technical strength are crucial. As most investors say, not everyone is suitable for starting a business, because when winter comes, ability will be more important than willingness.