SHANGHAI, April 20, 2021 /PRNewswire/ — The new funds significantly exceeded the firm’s original target and hit the hard caps in a very short time after initial launch. Investors in the new funds include both existing long-term LPs and globally well recognized new investors. The latest USD funds alone exceeded $1.7 billion, including 5Y’s highly reputable early-stage venture fund and its first ever growth fund.
Over the years, we’ve come up with creative ideas and ways to support the entrepreneurs at our best, and we are fortunate to have the LPs always on our side. It’s with their unwavering open-mindedness, trust and support that we’re able to have a longer investment horizon and more diverse investment kits. This allows us to keep backing the best of the bests in the face of fierce competition both now and in the long run.
Today, information technology is unprecedentedly penetrating into all walks of life. Cloud computing, big data and artificial intelligence have led to changes in the underlying technology architecture. The application products have been revolutionised and a new industrial upgrade has just begun. Cultural expression has always been a necessity for younger generations and this will in turn generate more and more opportunities in consumer sectors. Unprecedented progress and disruptive innovations are also in the making in life sciences industry.
There are few entrepreneurs who are imaginative and have the ability to turn that imagination into reality. 5Y’s mission is to keep looking for them and offer whatever we can to support along the way. That’s how 5Y came into being. We have seen them change the way of life of an entire generation and disrupt every industry.
Building a company from scratch is lonely by nature. So is venture capital. It’s human nature to look for people of our kind. Hence when 5Y looks for entrepreneurs, we target those who share the same qualities as us. This is extremely difficult as they’re exceptionally rare. But it is precisely what drives society and civilization forward. Through shared values and imagination of the future we find our kind.
Technology has brought us not only economic development but new social challenges as well. The future holds many more questions for entrepreneurs to answer. As a result, we need more imaginative minds to create the next paradigm shift.
Where others see unrealistic ones, we see powerful imagination of the future. Where others see crazy ones, we see visionaries. We believe this is how we make the world a better place.
We spoke to Richard and Ken, the founding team of 5Y Capital as it closed its latest fundraising. They touched upon their experience seeking entrepreneurs, the importance of imagination in investment and how they keep the imagination flowing within 5Y. We talked about the present but more about the future.
Q: What do you hope to address with the latest funds raised?
Richard Liu: Be it past, present, or future, 5Y’s priority has always been one thing – to devote more time to take on challenges that are tougher but much more rewarding in the long run. We don’t want to spend too much time on insignificant innovations and mediocre followers.
Q: The market nowadays seems to believe that since the past 20 years were filled with innovations and startups, we are no longer seeing as many innovations as we used to. What’re your thoughts on that?
Richard Liu: Such conclusion was made by only looking at a short period of time from the past. If we look at a bigger picture, human society has evolved from agrarian to industrial civilization, and then came the information revolution. I believe the next-generation information revolution has just begun.
The past few decades were dominated by the Internet. Today, a new round of information revolution centred on artificial intelligence, big data and cloud computing is reshaping all industries. As the underlying computing architecture is being redesigned, the application products are also changing. Consequently, manufacturing, financial services, education… all these sectors are under reconstruction. As home appliances and cars are being reinvented, the way of producing is changing and a new industrial upgrade is underway. Life sciences are transforming as well. We are making significant breakthroughs from the origin, inheritance and continuation of life to the reason why diseases exist. Unprecedented progress has been made to better understand the life of human beings.
Therefore, in this sense, real innovations have just begun. Model innovations led by the Internet industry continues to evolve with many more emerging every day, and it only gets better with time.
Q: When it comes to innovations, would you look for entrepreneurs of a certain field based on your prediction? Or would you wait right here for them to emerge?
Richard Liu: No one can predict the future. What we can do is to leverage our imagination to spot those who will write the future. In some people’s eyes, their imagination of the future is deemed to be somewhat crazy or even silly. But just like what we see in the entrepreneurs we invest in, such imagination can be one’s belief or even faith. Instead of only focusing on what’s in front of them, these people are able to see the bigger picture. This is why I believe we are of the same kind.
But we are investors after all, so it’s also about waiting. To some extent, we are waiting for the great minds to show up and to deeply resonate with them. To put it this way, we keep imagining the future whilst waiting for these rare entrepreneurs to pop up.
Ken Shi: This has always been a mutual inspiration. Our curiosity is sparked whenever we listen to them sharing their knowledge and views on a certain industry and technology. This is why we always welcome them to talk about their crazy ideas. We’ve learnt a lot through these conversations.
Apart from the entrepreneurs, our partners and colleagues are extremely imaginative about the future as well. They can even be a little crazy and unrealistic for our work. But that doesn’t mean we don’t do careful analysis and research. Our ultimate goal is to support entrepreneurs who can bring long-term impact to the society.
Q: How do you keep the team imaginative?
Richard Liu: We’ve kept working on “the methodology” behind the methodology. The methodology guides us to identify valuable entrepreneurs. What we’re developing is “the methodology”to keep creating new ways to find those entrepreneurs. When we step into a new territory, we start with complete ignorance. To grow from ignorance to a clear understanding of an industry, we need a well-designed mechanism.
First of all, it’s about the talent we recruit. Without a doubt, we need people with great curiosity as this is essentially what makes one explore. Secondly, we encourage everyone to take time to simply imagine. We want them to come up with all sorts of crazy and unrealistic ideas and explore at their best. After careful inspections of these ideas, we find a way to put them into practice. This is the methodology we’re trying to develop.
Ken Shi: We always keep an open mind at 5Y, trying to build an open and transparent organization at our best.
Take ITBT (IT-enabled biotechnology) as an example, none of 5Y Partners comes from life sciences background. In fact, we used to believe that life sciences only belong to sophisticated and experienced scientists. When we interview next-generation investment professional candidates, we always ask them one question – what is the thing you’d love to
devote yourself to for the next decade? That’s how we found talent passionate about life sciences and learned a lot about distruptive changes in the sector.
5Y is an open-minded firm at its core. We’re willing to spend time to explore and we understand the importance of trial and error. This is how we develop a shared vision within. We designed it to be open and sensitive to new ideas.
Q: May I take it that 5Y makes investment decisions based more on the imagined future than what has happened in the past?
Richard Liu: That’s a good observation. For us, imagining the future is more important than the experience of the past.
We invest in entrepreneurs with a similar mindset. They are not trapped in the past. In contrast, they are extremely curious and imaginative about the future, constantly thinking outside the box and pushing the boundaries. It’s easy for us to resonate as we know we are alike. The problem is that there aren’t many of them out there. We noticed the scarcity, trying to foster the culture, values and methodologies centred around imagination firmwide. We search for talented young minds to join us. As we help them to achieve their goals, they will make 5Y more imaginative. In the meantime, we’re aware of the importance of staying rational, rigorous and systematic. All these matter to 5Y.
Ken Shi: Venture capital can be a bit complicated at times. On the one hand, you need to be able to imagine the future, which may seem unreal in the short term. On the other hand, you need hard evidence to make sure that the timing is right. It requires rationality and sensibility at the same time, which is certainly not an easy task for any of us at 5Y.
Q: 5Y Capital’s slogan is “where others see crazy ones, we see visionaries”. One interpretation is that “you see it because you believe in it”. Another is that “you believe in it because you see it”. This also relates to imagination. Perhaps it’s because you are so imaginative that you can see it one step ahead of others, which in turn allows you to have more faith in it. It goes spirally. In your work, what is the relationship between belief and imagination?
Richard Liu: This is an excellent question. To some extent, the development of human civilization is a process where we gather with more people of our kind by constantly creating shared values and beliefs. Where do these beliefs come from? They exist because it’s human nature to believe in something. It’s what drives society forward.
But the riskier and more controversial it is, the more painful and difficult it gets when finding our kind. Building a company from scratch is lonely by nature. So is venture capital. In our work, it’s extremely difficult to build mutual trust with others because imagination is a rare competence. However, it is precisely what moves our society forward – the process of finding our own kind through shared values and imagination for the future.
Q: What do you do when someone’s imagination for the future contradicts yours? Would you choose to believe him?
Richard Liu: For some people, they are certain that they’ve got it all figured out. They object whenever someone shares a different opinion. But that’s not how we do it.
As we mentioned earlier, it’s rare to find those who are competent in imagination. Whatever imaginative ideas entrepreneurs come up with, our first reaction is not to dismiss it. They may be looking for their kind and we should know that there can be things we are not seeing. We need to learn to put our egos aside, trying to understand and empathise with them. Such empathy comes from our imagination and understanding of the future. This is how we find our kind.
Q: What is 5Y Capital’s core competency? What brings the craziest and most imaginative entrepreneurs to 5Y?
Richard Liu: We are seeing a very interesting change in the capital markets over the past decade. Capital used to be scarce but not anymore today. Quite a few firms are increasing fund size, trying to gain an advantage in the market.
Increasing fund size is an easy decision to make. But what remains scarce in the long run in an inflated world? The answer is imagination and entrepreneurship. This is what we yearn for the most and the reason why 5Y exists. We are here to find the quality entrepreneurs that are rare.
Undeniably, 5Y is also increasing the fund size as we see the impact technology innovations have over the economy is much stronger than ever before. We’ve stepped into uncharted waters and expanded our knowledge, which are reflected in an enlarged AuM accordingly. But what 5Y is really about is not the amount of capital on hand, but our ability – the ability to identify entrepreneurs through imagination and vision, and to partner with them in making the world a better place.
Q: In the past, 5Y Capital has worked with many entrepreneurs who held different views from market consensus. In today’s market, with abundant capital supply, more entrepreneurs emerge and the funds are covering more diversified sectors. Is it harder or easier to capture founders with minority thinking?
Richard Liu: It’s never been easy and still remains challenging even today.
But we are confident because we know that our understanding of entrepreneurs also evolves over time. We keep enriching our investment tool kits to identify great entrepreneurs. In the past, we received many positive feedbacks in the consumer internet sector. Entrepreneurs from this sector are usually sharp in humanity and great at building new business models. The resourcefulness and insights we enable us to continue our search for great minds in the sector. In terms of hardcore technologies, cross-disciplinary collaboration is needed to put new technology into practice, which is why we need visionary, insightful and pragmatic entrepreneurs who are capable of motivating people from different backgrounds to work together. The positive signals we received in the process of finding them give us more confidence to move further.
Q: Do you consider yourselves more of an entrepreneur or a fund manager?
Richard Liu: We are a group of entrepreneurs who happened to be in the venture industry. We started out with zero investment experience. The problems we had were exactly the same as what most entrepreneurs face when they first started their business. We didn’t have the answer ourselves as we’ve never done it before. How would we make it? In this sense, we are just like entrepreneurs.
But given we are a fund manager, we shoulder the responsibility to bring about changes in the capital market ecosystem. We want to bring those underrated entrepreneurs into spotlight so that more people can see their values. We accompany them from being undervalued and overlooked to being recognised and to receive more financial support in a virtuous circle. This is what 5Y can offer to entrepreneurs.
Ken Shi: We still position ourselves as entrepreneurs. 5Y Capital is part of our startup journey. As an entrepreneur, we keep rewriting rules of the industry with creative ideas and ways to support the great minds at our best.
Moreover, we’ve been extremely lucky to have the LPs always on our side. It’s with their unwavering open-mindedness, trust and support that we’re able to have a longer investment horizon and more diverse investment kits. This allows us to keep backing the best of the bests in the face of fierce competition both now and in the long run.
Q: What’s your biggest concern at the moment?
Richard L
iu: Over the years, we received more and more attention for what we’ve achieved. As an entrepreneur, we went from being overlooked to being recognised. It is time to ask ourselves some fundamental questions. Who are we? Where did we come from? Where are we heading to? We have to answer these questions very carefully. Otherwise we might easily fall.
We have to stay level-headed and make sure that our most competitive strengths remain intact while expanding.
Who are we? We are entrepreneurs. In the venture industry, we went from knowing nothing to being a widely recognised firm. We have come this far not because we have more dry powder on hand or grown bigger. We are here today because we have the ability to keep identifying and partnering with imaginative and visionary entrepreneurs. We choose to stand by them when they’re doubted and underestimated by most. We are here today because 5Y can spot them across industries.
Allocation is key for fund managers. At 5Y, the most important job is to concentrate on those undervalued entrepreneurs leveraging our fund size to support their imaginative ideas and help them achieve greatness.
As 5Y continues to grow, we’re able support them to do things that are crazier and tougher but much more rewarding in the long run. If we had only pursued larger fund size without the right will and competence, we wouldn’t find the entrepreneurs we’re looking for and deliver superior returns from effective concentration of investment.
Ken Shi: We renamed ourselves as 5Y Capital last Octorber. It offered us a great opportunity to contemplate on where we came from. Why did we start 5Y? What are our values? What are our goals?
What we have achieved comes from a decade of hard work. But we won’t indulge in the achiements. We have reset our goals and mission, heading into a new direction. I believe if we stick to it, 5Y will only grow into a bigger platform with larger fund size. But remembering why we started all of this counts above all.
Q: What do you expect 5Y Capital to become if by making an analogy?
Richard Liu: Last year I went off-roading in the desert, something I had been thinking about for years. The desert was desolate. But you can conquer the brutal land with just an off-road vehicle. This reminds me of the vastest and most uncharted place on earth – the ocean. If you ask me what I hope to see 5Y become, I’d say 5Y can be a fearless sailboat, sailing into the vast unknown world driven by the power of nature.
Ken Shi: I’d like to compare 5Y with Linux. I hope 5Y Capital to be an open platform where everyone involved share the same value and mission. Our colleagues, EIRs, entrepreneurs, investors and business partners, all of us collaborate in an open source way. Together we change the world for the better.
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