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This is Xiaomi's fifth round of financing. Compared with the fourth round that was confirmed in August 2013 (at the time the valuation was worth US$10 billion), Xiaomi's valuation has almost quadrupled.
Is millet too expensive? What is the logic of investment in the various capitals in this round of financing? This article may give some answers.
"A valuation of 45 billion U.S. dollars is not expensive for U.S. apples. For Ericsson in Europe, it is expensive. Did you say that China's millet is less expensive?" On December 22, Xiaomi's new round of funding was finally finalized, and one of the major investors asked Cai. New reporter.
US$45 billion hit the highest valuation of Chinese companies’ private equity financing. For a company that was established four years ago and financed five rounds, Xiaomi’s expansion was commented as “universe speedâ€.
From the perspective of each round of financing, the capital market can be said to compare Xiaomi and Lei Jun. At the end of 2010, Xiaomi’s first round of financing was US$41 million, with a valuation of US$250 million. At the end of 2011, Xiaomi's second round of financing was 90 million U.S. dollars with a valuation of 1 billion U.S. dollars. Six months later, Xiaomi started financing 216 million U.S. dollars and its valuation has reached 4 billion U.S. dollars. The last round of financing was in August 2013. The valuation eventually broke through the 10 billion mark. Lei Jun announced his achievements on Weibo and it was hard to hide his excitement.
One year later, Xiaomi’s valuation was further increased by 4.5 times. Xiaomi and Lei Jun were silent. The various types of information Caixin’s reporters obtained from the capital market were officially “not commentedâ€. The insider of the millet who is close to Lei Jun said: "Lee does not want to raise the valuation too high too early, or be cautious." The amount of financing also sees Lei Jun's trade-off: "1 billion US dollars financing compared to the valuation, took The shares that come out are very few. Come slowly back."
All-Star Investment, GIC, Yunfeng, and Hopu? These names, either familiar or unfamiliar, have divided Xiaomi’s fifth round of one billion dollar financing. What do they value Xiaomi or Lei Jun? After the "baptism" of Chinese Internet giants such as BAT (Baidu, Alibaba, and Tencent), "winner-take-all" has become the basic logic of investment. From the Internet companies that have entered the field of smart hardware, Xiaomi’s high-speed expansion has demonstrated its winning qualities. The founder of Lei Jun's angel investor qualifications, familiar with the capital market rules of the game also increased the investor's trust in Lei Jun, even with Lei Jun to invest in the layout of the hardware ecological chain. But the most important thing is that they do not want to miss the opportunity to join the next BAT, if only possible.
Although Lei Jun emphasized to reporters that there will be no IPO for five years, his tone will immediately change: "Of course, it may be three years. I don't guarantee." The investors who entered Xiaomi are used to investing lately. They obviously do not want to. Waiting too long, an investor said: "I waited Lei Jun for five years." Another person close to the transaction said: "Lei Jun is also an investor, investors believe he will choose a good time IPO, is it right? The key to this is not to lose the opportunity."
Ji Weidong Leads New Investors
Xiaomi’s current round of financing began to fluctuate in August, and Xiaomi’s initial valuation of US$40 billion means “no commentâ€. Until Dec. 22, the transaction was finally completed before the foreign investor's Christmas holiday. In four months, Xiaomi’s valuation went up another step to reach US$45 billion. However, Xiaomi has not announced it yet. From the information obtained by Caixin reporters, each investor has not fully communicated.
The list of investors confirmed by the Caixin reporter has emerged from the private equity investment circle. The All-Star investment fund that led the investment in Xiaomi was formed in April this year. The main business team members are all from Morgan Stanley. At the helm of the fund, Ji Weidong was a star analyst and managing director of Morgan Stanley. He has spent more than 10 years in investment banking and has participated in the IPOs of more than a dozen Internet companies at home and abroad. I am also very humble and have many years of experience in the industry and many high technologies. Enterprises such as Alibaba maintain good relationships. Apart from Ji Weidong, Fu Mingxia, formerly head of Asia for Morgan Stanley Private Bank, is also the core of the team.
For such a new face of private equity, many veteran VC speculation. According to a well-known VC investor in China, the capital of the All-Star Fund is mainly the hot money of "Shanxi's coal bosses" and "real estate dealers." Those who know about the All-Star Fund said that the new team's funds are mainly from well-known domestic and foreign companies and entrepreneurs. The team is focused on investing in late-stage private equity and open markets, and it is mainly investing in leading companies in the Internet and consumer industries. "They are actively adding value. Funds are differentiated from the capital of purely financial investment, and attract entrepreneurs as investors, and bring resources such as overseas expansion, strategic and technical cooperation to the companies they invest in."
All-Star leader Jimmy could be described as a debut. In a total of US$1 billion in financing, the All-Star Investment Fund is the largest investor. The aforementioned person close to the fund disclosed that, except for Xiaomi, in the private equity field, All-Stars have invested in beautiful and Didi taxis and other companies, and the open market also holds Alibaba shares. “If this is not because Xiaomi Capital is too concerned about A lot of rumors, you probably won't see Ji Weidong's name in the media."
Outside the All-Stars, Yunfeng Fund invested 250 million U.S. dollars, GIC invested 150 million U.S. dollars, and Hopu invested 100 million U.S. dollars. The GIC is a Singaporean sovereign investment fund that was once considered to be the current round of capital investment. However, GIC insiders told Caixin reporter that GIC's projects in China are more inclined to capital investment and will not pursue the lead.
Yunfeng Fund is second only to All-Star. Yunfeng was led by Ma Yun, Chairman of Alibaba's Board of Directors, and Yu Feng, the founder of Juzhong Media. Many entrepreneurs, including Shi Yuzhu, participated and their investment actions have been attracting attention. Its investment actions are also easily linked with Alibaba. However, for this investment, close trading sources told Caixin reporter that Ma Yun did not participate in the decision.
At the helm of Fang Fenglei, the funds of Hopu Investment come from large institutions such as Singapore Temasek, Goldman Sachs and Shell Pension. Hopu Investment has entered the high-tech and Internet fields for a relatively short period of time. Fang Fenglei once told Caixin reporters that investment in this area was mainly based on investment and post-investment strategies. This investment in millet is the biggest move of Hopu in the near future.
Close traders told Caixin reporters that investors such as Hopu, Yunfeng, and GIC had communicated more closely in Xiaomi’s investment, but did not have much contact with Ji Weidong’s team responsible for due diligence: “Millet’s data is difficult to see. To tell the truth, from the top down, we can see the scale and development speed, look at the business model and cash flow, investors are optimistic; from the bottom up, looking at the net profit data pulls back optimism."
The value of 100 million users
"Lei Jun said that it would not be profitable for three years and the future profit will be Costco's membership fee model." Those close to the transaction told Caixin reporters. In fact, Lei Jun needs to tell its own profit story to the market just as other Internet companies faced earlier problems. After listening to too many entrepreneurial stories and seeing countless cases, Lei Jun recently began to explain Xiaomi using traditional business cases.
On December 17th, Lei Jun made a small-scale communication for the media of the past ten days on the second day of his birthday. He officially introduced the various prototypes of the “millet modelâ€: Product Learning Tong Ren Tang’s Quality Assurance, Service Learning Haiduo’s Surpassing Expectations , Cost and Benefits Learn Wal-Mart, and Costco Model is the future path for Xiaomi to realize. Earlier, he also mentioned these companies in several internal communications.
Lei Jun said that Wal-Mart's use of old factory buildings in the junction between the urban and rural areas is simple, cutting the average retail cost of the United States from 45% to 22.5%. Haidilao established a brand through a more than expected reputation and made marketing efforts.
From these two companies, Lei Jun learned from the two approaches, abandoning all dealerships on the line and lowering costs, and also relying on price advantage and reputation marketing to establish a brand. The cost control brought Xiaomi's low-cost, low-margin model: "At present, millet's gross margin has reached more than 10%, but its cost has risen from 4.1% in the previous year to 4.3% in the previous year, and will be controlled within 5% in the future." Market sources told Caixin reporters.
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How to ensure such a low gross profit, Costco model inspired Lei Jun. Lei Jun described his experience of being shocked by Costco for the first time: He and his colleagues traveled to the United States on a business trip. Everyone bought something from a famous brand's luggage from Costco. The price of the box was only one-tenth of that in China: "We started at the beginning. I bought it with a membership card, but then we all paid for the membership card."
After returning, Lei Jun carefully studied Costco's model. The first one was about quality when choosing products: "Each commodity only picks a few high-quality products." Based on Wal-Mart's low gross margin, Costco cuts gross profit margins by half again. In 1%-14%, the average gross profit margin is 7%. "Their gross profit margin exceeds 14%, which requires CEO approval, but the CEO has never approved it."
Costco has become the nation's largest membership-based chain retailer, seizing attractive products, and at the other end of the annual membership fee of increasing and sticky members.
Millet wants to learn Costco, but it's certainly not just mobile phones. The aforementioned market person close to All-Star said: "Software and ecology are the key to profitability. Of course, this has just started, but it already has a user base." Xiaomi's current cumulative user base has reached 100 million, MIUI built on Android system in 2014. The game distribution area achieved revenue of RMB 173 million, which was squeezed into the top five of game distribution platforms.
As for how to collect membership fees, Lei Jun and investors did not specifically expand. The only thing that can be determined is that the membership fees are not mandatory, but they are implicit: “If you use a theme to get cool, would you be willing to give a little money? Money is very cheap for users who like the product." The insider of the millet prefers to describe and explain Costco's membership fees.
Since it is rewarding membership fees, what kind of content can attract members and how many members can form the basis of ecological profit? "Weidong Wei has seen thousands of Internet companies. According to his experience, 100 million active users are the threshold for Internet value-added services, and Xiaomi will soon have more than 100 million users." The aforementioned person who knows about the All-Star Fund said. In his view, the millet model and the monetization of Alibaba and Tencent are all based on a large number of high-viscosity users, but the route to meet the needs of users is different.
The main source of confidence for investors is the soaring global shipments of Xiaomi's mobile phones. According to IDC’s global smartphone shipments in the third quarter of 2014, Xiaomi shipped 17.6 million units in the third quarter of this year, an increase of 211% year-on-year, with a market share of 2.1%, surpassing domestic associations, followed by Samsung and Apple in third place. Among them, the Samsung market share of 32.5%, Apple 12.9%.
"Millet's current valuation is Apple's one-sixteenth, but the market share has been third." The aforementioned close to the transaction to the Caixin reporter stressed.
Now Xiaomi is multiplied by the profit margin with a user base of 100 million. In the future, it may be 30 million and 500 million users multiply profit margins. "A mobile phone can earn $10 in the next five years, and 60 yuan will not see much. If you add peripheral accessories, the entire profit is actually very substantial." Investors said.
Is the ecological core a mobile phone or a router?
Costco's retail format is certainly not enough to explain the millet story. The above-mentioned millet investors summarized their model as the current hot industry 4.0 concept, that is, in the case of full marketization, internationalization, and logistics assurance, the level of hardware, software, and the Internet plus vertical integration.
"The idea of ​​hardware + software + Internet is actually Apple's thinking, but the advantage of Xiaomi is that it is fully integrated in the learning process. Moreover, the most important thing is that Xiaomi has a huge home market." In his view, including Nokia The reason why the hardware giant failed in the transition process is directly related to the smallness of the domestic market. "Whether it is the Chinese market or the Indian market that Xiaomi currently enters, the fancy market in Indonesia and Pakistan has a population advantage."
Similar soft and hard cases such as 360 and Cool cooperation in the market are likely to duplicate the millet model in the future. However, in the eyes of investors, Xiaomi has a first-mover advantage and has excellent cost control capabilities: "Miao has kept costs within 5%. He used two methods. On the one hand, the cost of channels and brands is very low, almost zero. On the other hand, labor costs are further squeezed by giving employees high equity rather than high wages."
However, the use of employee stocks to reduce labor costs will keep Xiaomi from facing pressure from employees. Millet insiders told Caixin reporters that Xiaomi has adopted a repurchase policy on employee stocks, which does not allow employee stocks to circulate, and it also means that employees’ holdings of stocks may not realize the realization of transactions in the short term. However, due to the company's IPO still waiting, the company has revealed that it is necessary to lift the signs of employee stock trading.
The hardware that currently carries Xiaomi's software and ecological infrastructure is still a mobile phone. In addition to Xiaomi’s mobile phone, the sale of cheaper red rice has broken 10 million units in October. However, Xiaomi's other two hardware areas: Xiaomi TV + box, and Lei Jun's key layout of the router, have failed to form a climate.
The TV+box is the home-side entrance, while the router is the centralized control storage platform for the entire smart home in the future. In this area, Xiaomi does not have the first-mover advantage in the mobile phone field. LeTV was earlier than Xiaomi’s layout, and there were video sites and LeTV’s backing in content supply.
In October of this year, Lei Jun digged up from Sina to edit the chief editor Chen Wei responsible for the content, generously given $ 1 billion in funding layout content, one-time investment iQIYI and Youku potatoes two major video sites. Among them, Yiqiyi invested RMB 1.8 billion to become its second largest shareholder. Xiaomi and Chen Hao did not want to be involved in the war on money between video sites. So, at the same time, Xiaomi invested Youku potatoes through the secondary market.
Unlike other giant investment video sites that value their traffic ports, Lei Jun and Chen Hao are looking at the contents of video sites. It is worth noting that video sites also have their own mobile and home-side strategies, and Chen Hao will face further specific tasks such as how to bring down cooperation and determine sharing. The time window left for Xiaomi to catch up with LeTV is not long.
At the media conference on December 17, Lei Jun specifically emphasized the role of routers in the layout of the ecological bottom layer, namely the central control and storage devices of home smart terminals. "The home camera detected by the smart camera is stored by the router and transmitted to your mobile phone," Lei Jun said.
However, smart terminals only have link centers, and no terminal obviously cannot function. Another layer of Xiaomi's hardware ecology remains to be developed. Xiaomi also needs to tell a bigger story to attract investors. Therefore, Lei Jun chose to invest in brands, channels, and even with new investors to invest in various types of intelligent hardware vendors.
Capital transfers to the Xiaomi ecological chain
Xiaomi's smart hardware ecological chain team was established at the end of 2013. However, before this, Lei Jun had talked about the production of millet bracelet Huami technology company.
Hua Mi Technology CEO Huang Wang told Caixin reporter that Lei Jun, who was watching various types of bracelets at the time, got a smart watch produced by friends from Huami. "He will see us for a day."
At that time, Huang Wang did not expect Lei Jun to invest. "There is no harm in seeing the meeting. If the watch can be sold in the Xiaomi Mall, it is not bad." Huang Wang and Lei Jun met in Xiaomi's office for the first time. Lei Jun put Xiaomi's entire intelligent hardware ecology into account and sent an invitation to Huang Wan to "play together."
Lei Jun wants a bracelet. Regarding this story, Huang Wang told Caixin reporter to read his article: "In January 2014, Huami Technology was quietly established. The core team stopped the development of all new tablet and smart watch products in 2015. The decision resulted in multiple sets of new molds of up to several million yuan being all obsolete, and the wisdom device brand in snow. At that moment, I exhausted all my credibility and authority, and I held the company’s hundreds of people throughout the entire company. Unconditionally obeyed and embarked on a road that could not be turned back and the Jedi lived. We stopped all and gave up all for the sake of more focus, more focus, and more extreme. Throughout 2014, we only made a product that was Xiaomi Hand. ring."
What did Lei Jun bring to Huang Wang? Let him drag a hundred staff, 10 years of transformation with credit? Of course, not only the channel, Huami bracelet produced in the channel and branding copy the road of millet mobile phone, even Huang Wang storytelling and Lei Jun is more and more similar to the deployment.
Because of Lei Jun’s investment, Huami’s second-round valuation jumped from 100 million U.S. dollars to 300 million U.S. dollars. Investors include Gao Bin Capital’s Yue Bin and Morningstar Capital’s Liu Xin, both of whom were early millenial investors. . Yue Bin invested in Xiaomi Fashion at IDG. After founding Gaochun Capital, he focused on smart wearable devices. "Yue Bin gave 80% of his net worth to the millet bracelet and gave it to Hua Mi." People close to Yue Bin told Caixin reporters.
Huang Wang said that this round of financing, Lei Jun did not match the line, but because investors are familiar with the Xiaomi ecology, so it is also a fancy to Hua Mi as an ecological chain. In addition, because of Xiaomi’s blessings, Huang Wang also stood out from a crowd of business people: “Only looking at the track, not looking at the company’s Sequoia, we decided to invest only for 15 minutes. As far as I know, they have not invested yet. Similar companies."
The yellow bracelet of the millet bracelet also excavated the core value of the bracelet's ecological chain, "ID binding," and once the bracelet can communicate with the person's ID, it becomes a mobile phone with the same identity recognition capability as the future. Can discover new profit points and collaborators.
Hua Mi's story has just begun. Almost at the same time as Castillo, at the end of 2013, Xiaomi's smart hardware ecological chain team was established, and Lei Jun delivered the specific business to partner Liu De. In one year, Liu led the team to invest in 25 companies, including purple rice for mobile power, Zhimi for air purifiers, plus one for pistons, and nine companies for smart blood pressure monitors. Make yourself a circle of millet.
In December of this year, millet 1.266 billion yuan was invested in the United States, and the transaction was finalized in only two weeks. Lei Jun described the cooperation with Fang Hongbo, chairman of the Hemei group, as a milestone in the layout of the smart ecological chain. He also said that he hopes to sign more home appliance giants in the future: “We are an open ecology, and the more people work together, the better.†He even told reporters that he did not reject the cooperation between Geng Li’s Chairman Dong Mingzhu who was the thief and the United States.
"In the future, Xiaomi will connect the router, a family center, a mobile phone, and a variety of hardware." Lei Jun said that investing in smart hardware is to duplicate 100 millet. And millet phone does not make money, Lei Jun does not care about their investment in hardware manufacturers are not able to make money: "As an investor, the investment company makes no money I really can not be managed, the key is its contribution to the ecological and rich "."
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