“Killing” live streaming: the rapid loss of control of a “trend” and the capital trap

At the end of August 2016, Han Han and Chen Rui, CEO of Bilibili, both received a WeChat message from Wang Sicong. The two messages had the same purpose: Wang Sicong wanted to ask: Is Zheng Xuele a reliable person?

Zheng Xuele is the founder of Guangyuan Capital. He is engaged in the investment and financing intermediary business, also known as FA (financial advisor). He has previously managed the financing projects of Bilibili, Han Han's Tingdong Culture, Kuaishou, Shansong and other startups. The Bilibili order was snatched from Huaxing.

On the other end of the phone, Han Han and Chen Rui both praised Zheng Xuele. This is how Wang Sicong's "Panda Live" was able to raise nearly 1 billion yuan in the B round in May 2017. At that time, the entire live broadcast industry was in a low pressure due to the closure of Guangquan Live and the severe punishment of dozens of live broadcast companies by regulatory authorities.

But probably few people know why Panda Live has to look for FA for financing instead of doing it itself?

Perhaps realizing the special role of capital in the live streaming industry, many leading live streaming companies have arranged at least one person with an investment background in their executive recruitment. In Douyu, this person is Vice President Su Mingming, in Inke it is CFO Jiang Gupeng, and in Panda TV it is Vice President Zhuang Minghao.

Zhuang Minghao is in charge of investment and financing at Panda TV. He has worked in Shanda Network Investment Department and Matrix Partners China. In the summer of 2015, Zhuang Minghao, who was confused about the VC (angel investment) industry, was invited by Wang Sicong to meet at his home. Later, he joined Panda TV, which had just been online for a few days.

With the connections he had accumulated previously, Zhuang Minghao quickly helped Panda TV complete its RMB 300 million round A financing. But the situation was different in the B round.

At that time, Wang Sicong planned to raise about 800 million to 1 billion yuan in the B round of financing, with a post-investment valuation of up to 5 billion yuan. However, this startup company, which initially did game live streaming and later expanded into pan-entertainment live streaming, had only been in operation for 13 months.

"With this scale, I can only look for a late-stage RMB fund." However, Zhuang Minghao's original employer, Matrix Partners China, mainly worked on early-stage projects, and his network was totally incompatible with this, so he could only look for a FA.

Panda is not the live broadcast platform with the highest valuation. Inke, the "Hunan live broadcast army", was valued at 7 billion yuan after receiving 68 million yuan from Kunlun Wanwei's Zhou Yahui at the end of 2015 and a new round of financing from Guangxin Capital. Douyu, another game live broadcast company located in Wuhan Optics Valley, also reached the same valuation scale. It is also the first local "unicorn" in Wuhan.

The rapid expansion of valuations is the result of the live broadcast industry running wild and out of control in the mobile Internet era, and now it has become a trap that makes it difficult for companies to continue to raise funds. Few people know that in this wave of live broadcast investment, there are actually not many VC funds participating in it, especially for early-stage funds, which will hardly have the opportunity to enter the market later.

The bubble was created by capital, and now it is bursting because of capital. When the burning of money is no longer sustainable, the mobile live broadcast trend, which has only been turbulent for a year, began to reshuffle.

The top structure has been initially formed, and a large number of players have been eliminated.

Although the competition in the mobile live broadcast industry is still going on among the top players, in the investment circle, mobile live broadcast is already a thing of the past. Who "killed" the live broadcast trend? At the bottom of the answer, those capital hunters who are either waiting or involved have discovered that an era that makes VCs extremely anxious has arrived.

The Wind Rises: The Climax at the Opening

Many mainland Chinese users watched live broadcasts on their mobile phones for the first time because of a product from Taiwan called "17 Live". It was the summer of 2015, and the mobile live broadcast trend in China was surging.

The investor and developer of "17 Live" is Huang Licheng, the elder brother of singer Huang Lixing. This mobile social application, which has both photo taking and video live streaming functions, became an Internet sensation in a short time after its launch.

Many people play "17 Live" to kill time or make friends with strangers. Some people also say that 17 is popular because it "caters to a large number of lonely souls in front of the mobile phone screen." Some people are more direct, "It's all for watching the beautiful women dancing naked."

On the eve of the National Day that year, the "17 Live" that was caught up in the pornographic storm was ordered to be removed from the shelves. The most nervous person at that time, besides Huang Licheng, was Wang Sicong. He invested millions of dollars in "17 Live" two months before it was removed from the shelves.

However, this news, which annoyed Huang Licheng and Wang Sicong, greatly benefited Inke and Huajiao. The large number of users cultivated by "17 Live" in the mainland soon turned to several pan-entertainment live broadcast platforms that were not very popular on the market at that time.

At that time, most of the major players in China's mobile live streaming industry had already entered the market. However, Wang Sicong's Panda Live, with the angel investment from Zhou Hongyi, almost grabbed the last "ticket".

Zhuang Minghao told Tencent Finance that Wang Sicong had always wanted to do live streaming. He had a pan-entertainment cultural company called "Banana Project" and many resources from content providers, including film, television, variety shows, sports, games, and music. He needed a channel to showcase his content online and offline. However, Wang Sicong, who had money and resources, lacked a product and operation team, so he needed to find someone to cooperate with. That person was Zhou Hongyi.

In the live broadcast industry, the opening is the climax.

"There was a boom in late 2015 and early 2016, when 700 to 800 live streaming companies suddenly emerged," Guo He, vice president of Huajiao Marketing, told Tencent Finance. "As far as I know, in early 2016, some projects were only in the product development stage, but they received angel financing of tens of millions of RMB."

According to statistics provided to Tencent Finance by the domestic equity investment research institution Zero2IPO Research Center, in 2015, financing in the live broadcasting sector suddenly increased from the previous annual average to more than 50, and there were about 40 in 2016. Since a large number of live broadcasting companies are too small, these statistics may be less than the actual situation.

When the capital war started, Douyu was the first to take action.

Douyu's predecessor was "A Station Live Broadcast". In early 2014, former A Station webmaster Chen Shaojie and his friend Zhang Wenming founded Douyu and received a RMB 20 million angel investment from Cai Dongqing, chairman of Aofei Entertainment (002292.SZ). Aofei Entertainment is also an investor in A Station.

"The money was burned up within three months, but it was well worth it." An insider told Tencent Finance that the money was mainly spent on two areas. One was to sponsor the LPL League of Legends professional league club and print the sponsor's logo on the clothes worn by members in competitions.

Another was the blanket promotion during the second season of League of Legends in 2014. As long as players added the words "Douyu TV" before their game ID, and then used Douyu to broadcast the game, and reached a certain level after the end of the season, they could receive a bonus of up to 200,000 yuan.

The result was that in those months, Douyu teams were present in every professional match, and it was even possible that both teams were Douyu teams. And during the matches, everyone could hear people constantly calling out "Douyu TV-XXX" to the players, which was quite a spectacular sight.

League of Legends players add "Douyu TV" before their IDs

After these two battles, "Douyu's daily active users suddenly jumped to two to three million," the aforementioned person familiar with the matter said, and Douyu's first-mover advantage laid the foundation for its current leading position.

At the beginning of 2016, Yingke also spent money on promotion under the "guidance" of Zhou Yahui.

When most of the players in the market were still raising angel rounds, Inke was the first to get a large sum of money, namely 68 million yuan from Zhou Yahui. Together with other follow-up investors, Inke received 80 million yuan in that round.

After successfully repelling other investors who wanted to invest in Inke and quickly transferring the investment funds to Inke CEO Feng Yousheng, Zhou Yahui grabbed Feng Yousheng and asked him to spend all the 100 million cash in his account to shoot commercials and hire celebrities to endorse the company two weeks before the Spring Festival.

At the time, Inke had only 1 million DAU. According to Zhou Yahui in his investment notes, “We exceeded our target of 5 million DAU in less than June.”

In contrast, Chushou Live had a rough start. This mobile game-focused live streaming company was formerly known as Kaixun Video, which was founded in 2011. But in October 2015, Kaixun Video was forced to shut down, and the team completely turned to mobile game live streaming.

After the transformation, Chushou looked for investors everywhere but encountered many setbacks. "We looked for almost all the VCs in China, but almost no one was optimistic about or understood mobile game live streaming at that time." Li Qiang, chief operating officer of Chushou Live, told Tencent Finance that they even negotiated the TS (investor agreement) with 360 at that time, but still failed to come to a successful conclusion.

It was not until half a year after its launch that Chushou Live finally received a $20 million Series B+ round of financing from Hangzhou-based Meisheng Culture (002699.SZ). The most well-known event for this listed cultural industry company, which has layouts in games, animation, film and television, and e-commerce, was the acquisition of the astrology self-media "Tongdao Dashu" for 217 million yuan at the end of 2016.

Then, Chushou's treatment in the capital market unexpectedly took a turn for the better. The reason was not because of Chushou's own changes, but because a group of mobile games such as "Honor of Kings", "Crossfire Mobile Edition" and "Battle of Balls" suddenly became popular, driving the entire mobile game sector to heat up sharply. Chushou, which focuses on mobile game live streaming, also became a new favorite in the investment community.

In September and November 2016, Chushou received two rounds of financing, each of which was about RMB 200 million. The first round was led by GGV Capital with US$20 million, followed by Yimei Investment and other institutions, and the second round was led by Shunwei Capital with about US$20 million, followed by Qiming Venture Partners, Boiling Point Capital and other institutions.

"It immediately became that it was no longer us looking for investors, but investors looking for us," said Li Qiang.

Suddenly calm, reshuffle begins

All live streaming industry practitioners and investors interviewed by Tencent Finance frequently mentioned one word: "fast".

One of the manifestations of “fast” is the speed of differentiation of the industry structure.

Guo He, vice president of marketing at Huajiao, told Tencent Finance that during the boom period, all live streaming companies developed in an extensive manner. What they competed on was speed and execution. They did not need too much innovation and only needed to do two things well: one was to build the platform and make the product free of bugs and able to run, without taking care of the user experience; the other was to spend money to find anchors, do promotion, and increase traffic.

Spending money to attract users has become the only way for live streaming companies to win.

Excluding the share of the anchors, the biggest cost for pan-entertainment live streaming platforms such as Yingke and Huajiao is purchasing traffic, which not only includes the purchase of online channel traffic, but also offline targeted advertising, pre-movie advertising in theaters, etc.

For game live streaming platforms, the anchor signing fee continued to rise last year, accounting for about 30% to 40% of the total cost. One of the means of competition between platforms in the early days was to poach each other. The signing of top anchors was like the transfer of international stars, and the signing fees were quoted at sky-high prices. Douyu once poached six anchors from its competitors in just one month, with a total price of more than 60 million yuan.

Entrepreneurs all hope that these huge expenses can be covered by investors. In fact, throughout 2016, live streaming companies, which are in the limelight, have been able to raise funds quite smoothly.

The live broadcast investment circle is also a "circle of friends".

In November 2016, Panda TV announced the completion of a RMB 300 million Series A financing. Investors such as Chenhai Capital, ZhenFund, Bopai Capital, Ledo Games, and Jingling Investment are basically all acquaintances of Zhuang Minghao and Wang Sicong, or acquaintances of acquaintances.

Zhuang Minghao told Tencent Finance that Zheng Lan, the founding partner of Bopai Capital, is a friend of him and Wang Sicong. Ledo Games had previously received investment from Wang Sicong's Pusi Capital, and Jingling Investment was introduced by the then-scheduled lead investor, who also had a close relationship with Wang Sicong. However, the company was later forced to withdraw its investment due to sudden funding problems.

Chen Chen, the founding partner of Chenhai Capital, was introduced to Cui Jing, the partner of Guangyuan Capital. Zhuang Minghao and Cui Jing both joined Shanda Network as management trainees after graduation in 2009. Gu Minman, the managing director of Zhen Fund, joined the company a year later than them. In the words of Zhuang Minghao, "We are all partners who have fought together in the revolution."

So when Zhuang Minghao was looking for an FA for Panda Live's Series B financing, he first thought of Cui Jing. Guangyuan Capital, co-founded by Cui Jing and Zheng Xuanle, former vice president of Qingke Capital, is already a powerful FA institution in China.

As for Zhen Fund, Zhuang Minghao first went to Gu Minman, who quickly arranged a meeting between Wang Sicong and Xu Xiaoping, and the deal was reached in one go.

Similar situations of "investment by acquaintances or insiders" also exist to varying degrees in leading live streaming companies such as Huajiao and Huya.

Several people in the live broadcast industry told Tencent Finance that among the current leading live broadcast companies, only Douyu’s Series A (June 2014, led by Sequoia China with US$18 million) and Series B (March 2016, led by Tencent with RMB 400 million), and Inke’s Series A (November 2015, with SAIF Partners, GSR Ventures, and Purple Light Ventures investing tens of millions of RMB) and Series A+ (January 2016, led by Kunlun Wanwei with RMB 68 million) can be considered as “project-oriented” investments, and the other investments are more or less “relationship-oriented”.

Players who received support from capital quickly broke through the siege and dominated the mountain.

In just one year, the mighty "Thousands of Broadcasts War" has become a thing of the past, and the scale of the battle has suddenly shrunk to "hundreds of broadcasts" or even "ten broadcasts". In the pan-entertainment sector, YY, Inke, Huajiao, and Momo are the best, while in the game sector, Douyu, Huya, Panda, and Chushou are the leaders.

Average monthly DAU of top live streaming platforms

Although Guo He does not agree with the so-called "second half of live streaming", he still laments the speed of change in the industry. "Seven or eight hundred live streaming companies suddenly emerged in the first half of last year, but now, in just over a year, there are less than 200 left. Most of them have died, and some have turned into brokerage companies and no longer operate live streaming themselves," he told Tencent Finance.

Compared to the initial uproar, the live streaming industry has suddenly calmed down. The "audition melee" has ended, and what follows is a "death duel" among several leading companies.

The possibility of non-head companies "overtaking on the curve" is getting smaller and smaller. Unless a revolutionary product emerges from this group, the unequal allocation of capital and the increasingly stringent regulatory policy environment will further consolidate the current head pattern.

Loss of control and traps

Many people never expected that the huge expenses caused by burning money in the early stage would directly push up the valuation of the live broadcast company.

Generally speaking, company valuation is an assessment of its intrinsic value, and the determinants of intrinsic value are often the company's assets and profitability.

However, even the leading live broadcast projects in China are still in their early or growth stages, and the discounted cash flow method commonly used in corporate valuation, or the market comparison method based on the price-to-earnings ratio, price-to-book ratio or price-to-sales ratio of similar companies, are usually only applicable to mature companies.

As a result, the live streaming industry adopted a valuation method commonly used in early-stage entrepreneurial projects: using funding requirements to reversely infer the overall valuation.

For example, Wang Sicong's logic was that Panda TV needed about 400 million to 500 million yuan in funding at the time, and giving up about 20% of its shares would have resulted in a valuation of more than 2 billion yuan. By the B round, Panda TV needed more funding, and its valuation doubled again to 5 billion yuan.

At that time, not only was there capital to pay for it, but there were also a few funds that dared to gamble and fanned the flames from behind.

At the beginning of 2015, Douyu, which had only been in business for a year, started its B round of financing, reporting a valuation of RMB 2.5 billion to investors and planning to raise RMB 500 million. An industry insider told Tencent Finance that before this round of financing, Sequoia China had issued convertible bonds worth USD 20 million. Together with the USD 20 million invested in the A round, which is equivalent to the projects that have not yet been raised in the B round, Sequoia China has already invested USD 40 million.

"A regular dollar fund only has a total of 400 million US dollars!" The industry insider felt helpless.

In the C round, Douyu's valuation soared to 7 billion yuan, almost doubling from the previous round.

An executive of an FA agency told Tencent Finance that the out-of-control growth rate of the valuation of live broadcast projects is largely the result of capital speculation. The most fundamental reason is that the current currency is over-issued, there is a lot of money but few high-quality projects, and the supply and demand relationship in the primary market is seriously unbalanced.

"There are probably only about a hundred startups in China that can help investors make money every year, and everyone is trying their best to invest. Often, entrepreneurs originally plan to raise 100 million yuan, but a bunch of investors, all of whom are friends, squeeze in and everyone wants to take a share, and in the end they raise hundreds of millions of yuan, and the valuation keeps getting higher and higher," said the executive.

Financing map of major domestic live streaming platforms

After rapidly rising to an overly high valuation, there are not many VC funds left to participate in the live streaming industry.

Cheng Tian, ​​a partner of Shunwei Capital, which invested in Chushou Live, told Tencent Finance that although the scale of VC funds is getting bigger and bigger, in terms of target valuation, the current "range" of general VCs is mostly less than a few hundred million US dollars. The current valuations of top live broadcast projects almost all exceed this scale.

Capital gave birth to this round of live streaming boom, but also quickly brought it to an end.

"The live streaming industry is no longer friendly to VC funds. Prices are high, growth space is limited, and the exit mechanism is unclear." A senior practitioner in the live streaming industry who requested anonymity told Tencent Finance that shared bicycles still involve heavy asset investment, while live streaming companies are completely asset-light, and there is a considerable bubble component in such a high valuation.

Bao Fan, chairman of China Renaissance Capital, also told hundreds of investors sitting in the audience at a public event on August 17 that the current Chinese equity investment market is "very risky", one of the reasons being the rapid increase in valuations. The influx of many market participants has increased the valuation of the target and the transaction price, "making it really difficult for people to make a move."

The seemingly impressive valuation turned out to be a "fatal trap", which may be something many entrepreneurs had not expected. What should the valuation be for the next round of financing? If they don't "raise money at a loss", who else can they turn to? They feel very anxious.

Many investors have lost their enthusiasm for live streaming. A year ago, they were also part of the rush to buy live streaming, but now they are unwilling to talk about those stories.

Some investors also told Tencent Finance directly that they would no longer invest in pure live broadcast projects because it is difficult for such projects to retain traffic. For the show model, users' sense of novelty is also easily exhausted, and the retention rate is too low.

The so-called "pure live broadcast projects" are relative to another type of "not purely live broadcast" companies, which started out as social, short video or other businesses, and later expanded into live broadcast business, such as YY, Momo, Kuaishou, and Bilibili. Compared with pure live broadcast companies such as Douyu and Huajiao, YY and Momo have made more money. This is a reminder for investors.

"Live streaming is just a monetization tool, and there are no technical barriers. Almost any product can be included in live streaming." Shao Jun, partner of Heyi Venture Capital, told Tencent Finance that the live streaming tool itself is not the most important, and it ultimately depends on what value the product can provide.

Qiu Hao, former vice president of Morningside Venture Capital and founding partner of Lian Fund, who was deeply involved in the investment of YY, said that he hopes to invest in products that can build communities, have traffic, and monetize through live streaming. "The more promising future is not live streaming, but instant video social networking."

Almost all the leading live broadcast companies are trying to keep up with the logic of investors. They are no longer just doing pure live broadcasting, but are also gradually developing new ways of playing, such as instant video social networking, PGC self-made variety shows, and star-making plans, although the quality varies.

These practices are not only a consideration of developing new businesses to cope with the difficult times, but also a means of financing. "With such a high valuation, we have to tell some new stories," an industry insider said bluntly.

"Blitzkrieg" and "Tide of Trend"

Investors who are known to be “smart” are not always winners. Many investors failed to catch up with this round of live streaming boom.

The live streaming industry is advancing too fast, and valuations are rising rapidly, leaving a very limited window of time for VC investors. Many VC investors feel that "it will be over in less than a year."

This kind of "blitzkrieg" is rare in the history of domestic investment, and the live broadcast industry has its own particularities.

Cheng Tian believes that the reason why live streaming exploded in 2015 is that the infrastructure of mobile Internet was already very mature at that time, including bandwidth, smartphone penetration, APP downloads, mobile payment, rewards, etc. In addition, mobile live streaming is a continuation of PC live streaming, which not only lowers the threshold for participation, enables real-time interaction, and can be turned on and off at any time, but also touches a certain need deep in the hearts of users.

This means that once the mobile live streaming campaign begins, the speed of expansion at the user level will advance by leaps and bounds. Since there are no technical barriers, competitors will be able to catch up quickly, forcing themselves to pursue capital support and spend huge amounts of money to attract users. Everything is racing against time.

"The mobile Internet world has become increasingly flat. The time left for entrepreneurs and VC investors for each product or technological innovation is getting shorter and shorter." Cheng Tian told Tencent Finance that in the 2C pure consumer Internet field, seemingly alternative phenomena like the "live broadcast investment blitzkrieg" will become a new normal.

Entrepreneurs who have no choice, irrational capital seeking profits, and even the era of popular mobile Internet have all contributed to the "early death" of the mobile live broadcast boom. In the foreseeable future, similar stories of the rapid rise and fall of the mobile live broadcast boom may continue to occur frequently.

This is a mixed blessing for VC investors. The potential opportunities are increasing, but they are also fleeting like shooting stars. If the time allowed for research and judgment is too short, VC investors who have always been "not afraid of making a mistake of investing in 3,000, but afraid of missing out on one" may have no other choice. Once they smell something that seems to be a hot spot, they must rush in and run for their lives.

"If you don't react quickly enough, you may not be able to do anything later." A young investor who has just joined the VC army said with a wry smile. In this trend, everyone with ambition is a time hunter.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.