The longer you focus on chip investment and financing, the hotter the situation. After writing the Internet Investment Law last time, I found that there are two kinds of chip companies now, one is to take the money to find the official to announce the opportunity, and the other is to take the money and remain silent.

In two recent cases, one is that Bishi Technology announced the completion of round B financing, which has been established for more than a year, rapidly accumulating more than 4.7 billion yuan, setting a record for financing speed and scale in this field, and becoming the fastest-growing "unicorn" enterprise. On the one hand, domestic memory leader Hefei Changxin was exposed to be conducting 10 billion-level financing. Baidu, Inc. announced that his Kunlun chip business had completed the signing of an independent financing agreement, with a post-investment valuation of about 13 billion yuan.

According to Skyeyes, since 2021, there have been a total of 148 financing incidents in the chip industry in less than three months, including the Spring Festival holiday, of which 12 companies have received more than two rounds of financing, accounting for 8.82% of the total financing companies. It can be said that after your singing, an investor complained to me, "this industry lacks everything, but there is no shortage of money and investors." "

The financing speed of fast iteration

Take Horizon, a big fundraiser, as an example, it announced in December 2020 that it had launched round C financing of more than $700m and announced that it had completed round C1 of $150 million; two weeks later, on January 7, it announced the completion of round C2 of $400m; then, on February 9th, a month later, it announced the completion of $350 million of round C3.

Not to mention the amount of financing that exceeded the target along the way, a number of investors in the auto industry regretted that it was too hot to grab a stake in the horizon. This is still on the premise that the pre-investment valuation has risen to $3.5 billion.

Some investors described to me that the financing rhythm that now belongs to chip companies is that this round has just ended, the next round will be settled immediately, and the next round will soon be over.

Core Yaohui Technology is a case in point, which directly announced Angel and Pre-A round financing on Feb. 24, with a total financing amount of more than Rmb400m. And the latter round by Sequoia Capital China, Hillhouse Venture Capital, Yunhui Capital and Banyan Capital joint investment, Songhe Capital, Wuyuan Capital (formerly Morningside Capital), National Policy Investment and Dahengqin Group and other institutions to participate. The company was founded in June 2020.

The next day, Feb. 25, Moore Thread, which was founded for 100 days, announced that it had completed two rounds of financing totaling billions of yuan jointly led by Deep Venture Capital, Sequoia Capital China and GGV.

In December 2020, Chinese EDA software company Xin Huazhang received $30.6 million in Pre A + and A rounds. Core Huazhang was established in March 2020, and these two rounds of financing are led by Yunhui Capital and Gao Li Venture Capital.

In February 2021 alone, more than 33 semiconductor companies raised more than 5.3 billion yuan in financing, which is still a real race between time and money with a full seven-day Spring Festival holiday.

"the whole country is indeed a bit overheated. Some semiconductor projects may be valued at NT $2 billion or NT $3 billion in Angel Wheel and Round A. there must be a bubble. It's just that whether this bubble is good or bad for the industry, it may have to be split in two. Song Chunyu, partner of Lenovo Venture Capital, said.

Just counting the cases on paper is enough to make people feel oppressed, so what are the market factors behind this sense of urgency? Is the existence of these market drivers normal?

Industrial change behind financing

Behind the extraordinary popularity of domestic chip investment and financing, there are many factors superimposed together.

First of all, there is a strong domestic desire for chips. Domestic substitution has been promoted in the past, but with the development of the industry and the change of international relations, China must build its own semiconductor ecological chain and industrial chain. the time for development is indeed ripe.

In terms of automotive chips alone, Li Shaohua, deputy secretary general of the China Association of Automobile Manufacturers, said: in the short term, the shortage of automotive chips is a problem of imbalance between supply and demand in the market, which cannot be solved by administrative means; in the medium to long term, this is a "sticking neck" problem in the automotive industry chain, and the industry is bound to attach great importance to it to accelerate the realization of independent control of China's automobile industry chain.

For example, NIO Inc., a hot new force in car building, encountered such a problem. NIO Inc. stopped production at the Jianghuai plant in Hefei for five consecutive days since March 29th. According to NIO Inc. 's estimate, the shutdown will affect March production, which is expected to be reduced by 600 vehicles, accounting for 1.3 per cent of last year's output, based on NIO Inc. 's delivery of 44000 vehicles in 2020.

At the earnings meeting in the fourth quarter of 2020, NIO Inc. founder Li Bin expressed concern that NIO Inc. already had the capacity to produce 10, 000 electric cars a month, but could only produce 7500 due to chip shortages and battery supply. Li Bin expects that these resistance will not subside until July.

According to the latest statistics of market forecasting company AutoForecast Solutions, the chip shortage has led to a total reduction of 1.157 million vehicles in the global automobile market by March 29th, and it is expected that the global automobile market will reduce production by more than 2 million vehicles in 2021.

Correspondingly, in addition to the horizon, in September 2020, Xichi Technology announced that it had completed a series of financing of RMB500 million, led by Holi Capital. Matrix Partners China, CLP Walden, Lenovo Venture Capital, Xiangfeng Investment, Sequoia Capital China Fund and other veteran shareholders accounted for a large proportion. Prior to that, it received financing in May, September 2019 and September 2018.

After obtaining round A financing in September 2020, on March 10, 2021, Xinwang Microelectronics announced the completion of round B financing, which was led by SMIC Juyuan, SAIC Hengxu and Wanxiang Qian Chao, surpassing Moore, Sanhua Hongdao, Silicon Port Capital and Yunxing Capital with a transaction amount of 300 million yuan.

Song Chunyu believes that with the development of AI, 5G, emerging equipment miniaturization, and intelligent cars, there will be a big wave of opportunities in some basic chip innovation or advanced chip fields, and the global semiconductor industry is on the eve of a great wave of change. This is a key factor in the long-term sustainability of this chip craze.

Secondly, for enterprises, the chip industry is recognized as a money-burning industry. If you can get more money in a short period of time, you can carry out more levels of offensive and defensive warfare, accelerate research and development and market launch, and therefore for financing, often happy to see it succeed.

Chen Datong, founder of chip design company Spreadtrum, once mentioned that when Spreadtrum was founded in the early 2000s, there were only single-digit chip design companies in China. After 2005, there were five or six hundred. Now there are more than 2000, while Silicon Valley has never had more than 100. According to statistics, as of November 30, 2020, China has added more than 71000 chip-related enterprises this year, an increase of 31.7% over the same period last year.

For many chip companies, Yang Lei, managing director of Northern Lights Venture Capital, said that the difficulty of chip investment lies in the long industrial chain and complex process. The cost of a single film can be as high as millions of dollars. In addition, there are labor costs. Competent chip engineers need at least five years to train, and the training cost starts at a cost of one million dollars. At the same time, it takes at least 18 months for a team to make a chip.

A famous household appliance entrepreneur once boasted that Haikou would invest 50 billion yuan in making chips, which may have caused a spark in other industries, but for the chip industry, it is easy to build a chip production line worth hundreds of billions of dollars. this is also the amount of investment in its infancy.

As a result, many enterprises in the chip industry have chosen financing, and many related enterprises have also expressed to the Investment Network that they are very happy about the heat of investment and financing. after all, for an industry like chips, the entry of capital is a good thing. If you can't play without capital in a short period of time, you can invest early in early research and development without money, and you can better compete among the same kind.

Coupled with the popularity of the market, it is not a bad thing for the enterprise to fall into the bag early. According to a report released by Ai Media Consulting in September 2020, the global AI chip market will be $11 billion in 2019; by 2025, this figure is expected to reach $72.6 billion, with an average annual compound growth rate of 93.3%.

For example, Ziguang Zhanrui, a former industry giant, announced on April 3 that it had just completed a new round of financing of 5.35 billion yuan before listing, which was jointly invested by four original shareholders, including Shanghai Guosheng Capital, Country Garden Holdings Venture Capital, Haier Financial Holdings and Sailui Capital. At present, Ziguang Zhanrui is carrying out pre-listing equity and organizational structure optimization, and is expected to declare the Kechuang Board by the end of 2021.

In the hot GPU track, Muxi IC, which announced the completion of the PreA+ round financing on March 8, completed the Pre-A round and the angel round on January 18, 2021 and November 26, 2020, respectively, with a financing amount of hundreds of millions.

Zhixin, which is the same as the track, also announced on March 1 that it had completed round C financing jointly led by Spider Capital and Dazhuang Capital, which had previously completed round B financing of hundreds of millions of yuan in 2019.

Where does the premium come from?

For the invested capital, no matter how much it is invested, if there is a return in the end, it is still a good investment.

Even if Yang Lei has calculated such an account, he has observed that for excellent companies, many semiconductor companies have an annual net profit growth of 50% to 100%. These are good companies.

Take Huawei as an example. Judging from Huawei's 33-year growth curve, the company's net profit is almost stable between 30% and 40%, and its compound interest of 33 years has grown to what Huawei is today. If you can find out which company has compound interest benefits in the market, then the valuation of the company today will be obvious.

As a result, the current investment strategies of many investment institutions have chosen to sweep the goods and add more than one round.

For example, in February 2021, two months after completing the angel round of financing, Star Semiconductor announced the completion of about 400 million yuan of Pre-A round financing. Its current round of financing is led by CDH Investments, and the existing investor Hillhouse Venture Capital continues to make additional investments.

For Hillhouse Ventures, there were only three angel investments in 2020, and the rest were concentrated around round B. Two of the three companies are semiconductor-related companies. Its current investment projects also include Core Yaohui, Core Huazhang, Star Semiconductor, Guoyi Quantum, Horizon, and a number of on-chip semiconductor enterprises.

At the same time, for chip start-ups, founders are the key, and founders from elite families are relatively scarce. It is reasonable for investors to scramble for head projects.

Not to mention, there are Science and Technology Innovation Board's blessing, exit channels are unobstructed, even the final concerns of many investors have been dispelled. The establishment of Science and Technology Innovation Board itself brings more imagination to semiconductor companies. According to relevant data, semiconductors and electronic equipment received a total investment of about 108.351 billion yuan in the first three quarters of 2020, an increase of 280% over the same period last year. This is also the fastest-growing area of all investment industries.

Jia Jing, a partner at Deutsche Union Capital, has said publicly that Science and Technology Innovation Board has shortened the time from founding to listing of Chinese companies. Why there was less investment in semiconductors before, from the founding of the company to going public for at least ten years, now it has been shortened by at least three to five years.

In her view, the capital market because of Science and Technology Innovation Board, brought "cheap" capital injection, from the general trend, must be to increase the proportion of direct financing, second, the valuation is indeed relatively high, for example, A-share semiconductor equipment PS should be at least eight times that of overseas.

"there is too much capital supply, and there are really few projects worth investing in. It is very difficult for a CEO to decide to start a business in the chip industry. Its threshold and preparation are much more difficult than other industries. We have encountered a good project, but also have not seen CEO, make a phone call and send a 400 million TS. "some investors said so directly.

Of course, for the current chip start-ups, the accelerated pace of financing, but also brought some sweet troubles, "We are happy but also worried, now there are more fish eyes mixed with pearls, for the head enterprises, the topic is too simple, but may not be highlighted." "

Yang Lei has also said that the valuation of the chip sector will be slightly higher now, but in this area with high-quality assets, a price premium is also reasonable. "this may represent the future of China, and China must seize the companies in the chip field. Limited by the scarcity of chip companies, there are indeed individual companies with relatively large bubbles, which may be squeezed out over time. "