Writer/Deng Ruonan Quoted from Money Journal
Ji Wei, the partner at Meridian Capital China, doesn’t like people who are stubborn or who brag. “I pay attention to the accuracy of the speaker’s words and their substance. If one frequently says the words like “certain” “sure” or his words are always ambiguous, I would like him to tell me the ratio, which I have a preference for.”
This female investor, who uses the word “busy” to summarize her own life, behaves gracefully. With more than five years of experience in the investment area, equanimity and caution have always been her “sword”.
“I am a rational woman, and to some extent, I would be more rational than many men. Although I can realize some good projects through my business sense, I try my best to get more relevant information. I lack the resolve to make direct investments; however, I hope my rationality can balance those investment decisions that are made out of perception or impulse,” she said with a frank smile.
“Meanwhile, Meridian Capital’s investment area is relatively concentrated, and its investment can be regarded as investment within the industry. It has a clear view of development in the industry and sub-industries. We never compete with our competitors by means of controlling the price, but basically keep in line with the fixed policies.”
In the latter half of 2009, when the relevant restriction policies on local currency funds from foreign institutions began to loosen, Ji Wei started to lead the work of preparing for and establishing Meridian RMB funds. Other members in her team included Xiong Xiangdong, who is the leader in the area of China’s new media and internet investment as well as the chief inspector in the original IDG investment, the founder of Meridian Pictures, an expert consultant in finance, media and entertainment management. The fund aims at the overall layout within the industry of cultural media and new internet media.
Eyes Only for the Cultural Industry
In 2010, Meridian Capital cooperated with SND Ventures Group, and founded the first RMB fund in China, with a total investment scale of RMB 1 billion. What’s more, in the first quarter of this year, Meridian Capital collaborated with Changshu Southeast Economic Development Zone to establish the second RMB fund. It’s also said that a third fund, under the cooperation of Meridian Capital and Wuxi Radio and Television Group, will be approved in the first half of the year.
“The culture industry is a weak periodic industry, and the economic cycle doesn’t have much influence on it. For example, during the economic crisis, the normal cultural consumption activities are still on the go, such as watching movies, playing online games, receiving education, etc. Thus, the culture industry has maintained steady and fast growth on the whole, which is among the few highlights in the national economy.”
In Ji Wei’s opinion, for pillar industries supported by policies, their added value should account for at least 5% of the national economy. According to their survey in highly-developed Zhejiang province, the added value of the culture industry only accounts for 2% to 3% of the economy; there is still broad space for development
It is understood that since the beginning of this year, eight culture industry funds have been declared to be established in China, and their capital scale exceeds RMB 10 billion. This upsurge in culture industry funds arose in the first quarter of the year.
In Ji Wei’s opinion, this upsurge has actually appeared since 2010. Among these funds, some have themselves originated from the culture industry; some are advance layout for the diversification of investment funds. “But our company is currently the only institution in China concentrating on private placement equity investments of the culture industry.”
Diversified investment is always aimed at avoiding risks, however, in this crowded market, explosive growth continuously happens based on valuation. “If one internet enterprise investment is one month late, its valuation will be doubled”. On the other hand, its exit value will gradually become reasonable, which brings immense risk to the investor.
“Our investment philosophies, first is to invest in cultural content and channels. Second is to get the primary investing rights for a good project so that our company has enough power to speak for its development. As industry investors, our investment period is in the relatively early stage, mainly the interim, and the experience and social relationships of investment institutions can help the enterprises to develop soundly. As far as I am concerned, whether it’s PE or VC, they will return to this route eventually, or they will only survive for a short time.”
Ji Wei treats investments like playing chess. She said “We should try to connect each chess piece to the others and make them interact with each other, so that the whole composition is dynamic and successful. For an individual chess piece, the controlling force of the chess player over its influence and future development is restricted; in this case, concentrated investment would have less risk.”
Investment Strategy: Content plus Channel
Ji Wei discloses that Meridian Capital China concentrates its investments on three sub-industries: new media mobile Internet, film and television as well as music, and culture-oriented travel.
“In the past ten yeas, the internet has had explosive growth. We witnessed most of China’s internet enterprises go to overseas markets. Next, information technology based on the mobile terminal is sure to become the development trend.”
For an investor for whom business trips make up more than half of her daily life, airports are the places where Ji Wei most frequently appears.
“One may notice the change that not long ago, laptop computers were frequently seen in the terminal buildings. Then electronic books appeared and now all those have been replaced by tablet PCs or smart phones. Modern people have more and more spare time, and during this time they are not content to just deal with their emails, but have a lot of demand for entertainment.”
After business models are updated, such demand will bring a larger market. Meridian Capital has already invested in a series of mobile terminals and service applications. For example, APP Dreamworks, a high-tech enterprise founded by Chinese returned from overseas who are doing pioneering work, is the one of the first brands in China to develop software for the iPhone and tablet PCs, and is the application program brand with the most users. The number of its install base has exceeded 1 million and its many free Chinese application programs rank first in application stores
“The model of APP Dreamworks still has a lot of room for further development.” Ji Wei told the reporter. “How do developing application programs make profits? Models where the entrepreneurial team develops a product and sells it on the market will be fewer and fewer. The technology team must consistently produce free products of high quality, create their own channels and platforms, and make profits through advertising methods and precise marketing. That is trend for the future.”
Income from advertisements depends on the time spent by users, and the time spent by users directly determines the fee advertisers spend for medium.
According to the statistics by relevant authorities, the internet and mobile online games market has reached RMB 34.9 billion, with a growth rate of 26.2%.
Considering the overall arrangement, Meridian Capital has also invested in a search engine and mobile internet advertising company. This company has received core authorized dealership from Google in many regions and it develops optimized internet products. Over the past three years, its growth rate has exceeded 70% and its annual revenue in 2010 exceeded RMB 100 million. It is expected to realize annual revenue of more than RMB 270 million in 2011.
“Optimized internet search engines, search advertising and mobile phone broadcasting will continue their growth trend for a period of time into the future, and they are focal points in the culture industry that we pay attention to.”
Ji Wei and other members of the team almost all use two mobile phones at the same time, one based on Google’s platform and the other on Apple’s, in order to quickly understand trends in various application service program.
Since revenue from the music business with traditional media is declining enormously, the digital music business has been gradually drawing more attention. Ocean Butterflies Music, once one of the largest record companies in the Chinese region, has been heavily stricken on its original business. However, “they have found a new profit mode that is to cooperate and divide the profit with the operators and develop mobile terminal music services, which provides them with stable revenue growth”. This business model has also become favorable for capital.
Nevertheless, investment in recent popular film products is not an area she focuses on.
For all investments, opportunity counts. If 80% of people are optimistic about an industry, as an investor you must be especially cautious.
“Our investment in the cultural industry focuses on the infusion of cultural content and the integration of cultural channels. Content includes, for example, film & TV, music, tourist destinations, educational content, games and animation, etc. As for the channel, it should be transformed from traditional media into new media and mobile platforms. Our investment strategy is to invest in the content and channel simultaneously.”
She also reveals that if Meridian Capital considers one sub-industry as a promising one, generally, it will not invest in just one company in the industry but in companies ranking in the top three to five, if the investment opportunity is appropriate. “The industry itself is promising and the investment profit is secured. And this is an effective way to reduce risk as well as secure a profit.”
Investors as Detectives
Another investment factor she highly values is the price of entry. “The price must be in a reasonable valuation range; no matter how promising the company looks, it is for the future, and not now.”
She is unwilling to only act as a financial investor for the entrepreneurs; as a result, the pre-IPO program is not her main investment direction. At this stage, the enterprise’s scale and governance structure has already been formed.
As an institutional investor, she hopes to provide entrepreneurs with more help than just money. For instance, strategic development recommendations based on industry level and trend; resources on upstream and downstream integration, expansion of strategic lines, product marketing, technology information and other routine operations; guidance on the company governance structure, assistance with the listing process, and more.
“Investment requires some patience” is a concept that both she and Xiong Xiangdong agree on. They believe that currently, if funds can be held over the long term with sufficient patience and investors cultivate an enterprise and grow alongside it, “this method can gain a higher rate of return”.
“I maintain an attitude of sincerity towards entrepreneurs. I clearly explain the assistance we can offer to the enterprise. However, sometimes, regarding the price, I will frankly say to the entrepreneurs that our price may be lower than others, but I, as the institutional investor, join the enterprise and hope to gain some areas in which we will compensate with other perspectives, in order to help him understand what he will get.”
As a female investor, she has her own advantage. Many entrepreneurs at first contact are relatively relaxed and more personal, and the topics discussed are also wider and more extensive. However, if you simply see it as an easy pass, you would be totally wrong. “Before, the result of my MBA personality test said that my most suitable profession would be a detective.” says Ji Wei, smiling. “I like to observe people and analyze and probe an event objectively.”
When communicating with entrepreneurs, this rigorous investor pays a great deal of attention to discover an entrepreneur’s mode of thinking.
“We often learn about an enterprise’s status from statistics. But I will talk with the entrepreneurs about their previous experiences, both successes and failures. I believe that if he learns the lesson, he will do better in the future. Generally speaking, from the first conversation you can basically determine whether this person has the executive ability and is open-minded or not. However, whether an enterprise can stand out or not in the end depends on its team. In this ever-changing industry, strategic perspective plus an open mind plus strong executive ability, is the team combination I prefer.
Ji Wei is the mother of a five-year old child, but she has to arrange time to take care of the family along with her husband via a schedule. Nonetheless, she still enjoys her current job status.
“Meridian Capital has never limited its annual withdrawal amount or the amount listed, etc. in China. We don’t pursue scale. Actually, the success of the funds lies in the rate of return. In addition, I have an ideal that, in the coming great development of the cultural industry, we can participate in or support China’s various cultural corporations in the future, and have a positive impact on the industry’s overall development.”
