Linden Chassistech (上海琳顿汽车底盘件制造有限公司), an automotive chassis component manufacturer and R&D company, recently announced the completion of a 30 million RMB Pre-Series A funding. The investment was led by Blue Lake Capital, with participation from Gaorong Ventures (高榕创投), eGarden Ventures (毅园资本), and Jun Zhiyan (骏之彦). The funds raised in this round will be primarily utilized to accelerate the industrialization of new products.

Established in July 2023, Linden Chassistech specializes in the design, R&D, and manufacturing of automotive shock absorbers in China, along with finished vehicle matching and tuning. The company was founded by industry experts in the Chinese automotive shock absorber sector, with Dr. Ye Guohong (叶国弘), Co-founder and CEO, being a pioneer in introducing modern shock absorber technology to China and having previously served as the president of ZF China.

Linden is committed to meeting the rigorous safety and comfort requirements of new energy vehicles in the era of electric cars through the development of semi-active and active shock absorbers, along with other critical components. By utilizing fully self-developed automated production lines, Linden realizes high-quality lean manufacturing in line with the principles of Industry 4.0.

Linden’s electronically controlled shock absorber products are automotive chassis components leveraging electronic control technology. These components have the capability to instantly perceive and respond to the vehicle’s performance, traffic conditions, and driver inputs, thereby adjusting the vehicle’s damping effect.

As automotive electrification and intelligent technologies continue to accelerate, there is an increasing demand for personalized and intelligent chassis solutions. The demand for electronically controlled shock absorbers has seen significant growth in the past few years. As the trend of domestic production of vehicle components continues, there is a market potential worth billions of dollars within the domestic market alone.

Linden is currently developing two assembly products: the external single-valve (SV) and the external dual-valve (DV) electronically controlled shock absorber. These products feature Linden’s next-generation electromagnetic valves, which excel in performance data and meet the design requirements for forward development. They are at the forefront of the industry in terms of control precision and product consistency.

According to the Linden team’s projections, starting from 2025, DV electronically controlled shock absorbers will gradually become more prevalent in the Chinese mid-to-high-end vehicle segment. DV systems outperform SV systems, as they have the ability to independently control compression and rebound damping. This allows for more precise damping characteristics, ultimately enhancing the sophistication of wire-controlled chassis control strategies and enabling faster chassis tuning processes.

The DV technology elevates the ride comfort and delivers a more responsive driving experience, particularly for vehicles with increased sprung mass, such as new energy vehicles. Its application marks a significant milestone in the automotive industry’s progression from semi-active to fully active suspension systems, opening up an entirely new avenue in the automotive sector.

Linden’s in-house automation team is currently designing and developing the production lines for electromagnetic valves and shock absorbers. It is projected that both production lines will become operational by the end of June 2024. The first phase of Linden’s fully automated production line is expected to achieve an annual capacity of one million electronically controlled shock absorbers and electromagnetic valves.

The increasing penetration of electric vehicles has raised the requirements for vehicle chassis. Electronically controlled shock absorbers that offer rapid response capabilities and real-time adjustment of driving modes based on traffic conditions have become a crucial necessity for automakers.

Following this round of financing, Linden anticipates accelerating the industrialization of new products and expediting the capacity expansion of shock absorber assembly and electromagnetic valve production lines. The goal is to become a leading domestic and globally recognized player in the automotive shock absorber industry.

“We maintain an enduringly positive outlook on the dynamic growth of the new energy vehicle industry, both within China and across the globe,” said Ray Hu, Founder and Managing Partner of Blue Lake Capital. “We are also thrilled to invest in a truly exceptional startup like Linden. With the founding team’s extensive industry experience and excellent product design and manufacturing capabilities, we believe that the company is poised to emerge as another outstanding player in the automotive core components sector.”

JST Group Corporation Limited (“Jushuitan” or the “company”), a portfolio company of Blue Lake Capital, has updated its IPO prospectus on March 21, 2024, as it progresses with its listing process on the Main Board of the Hong Kong Stock Exchange. CICC and J.P. Morgan are acting as the joint sponsors.

Established in 2014, Jushuitan has developed a comprehensive set of cloud-based e-commerce SaaS products, enabling businesses to seamlessly upgrade capabilities, improve performance, grow their cross-platform operations, and reduce deployment and operational costs. 

Jushuitan is China’s largest e-commerce SaaS ERP provider in terms of relevant revenue in 2023, with a market share increasing from 20.7% in 2022 to 23.2%, according to CIC. In China’s e-commerce operation SaaS market, the company also ranks first based on the total SaaS revenue in 2023. 

Specifically, Jushuitan ERP is the company’s cornerstone SaaS product, which serves and fulfills the critical needs of merchant customers in handling e-commerce order-related operations on e-commerce platforms. Merchants can integrate, synchronize, and coordinate all their stores, orders, products, inventory, and other operating or financial data across multiple platforms through Jushuitan ERP, enjoying a streamlined cross-platform business experience. Currently, the Jushuitan ERP offers key functionalities such as Order Management System (OMS), Warehousing Management System (WMS), Procurement Management System (PMS) and Distribution Management System (DMS), among others. According to the report by CIC, Jushuitan ERP has emerged as the most popular e-commerce SaaS ERP brand among Chinese merchants.

In 2023, Jushuitan ERP well managed the processing of approximately 65 million orders per day, with a peak daily order volume reaching 233 million, being acknowledged as an e-commerce SaaS ERP with the highest order processing efficiency in China. According to CIC, Jushuitan ERP is also one of the fastest iterating e-commerce SaaS ERP products in China in terms of the number of iterations. From 2021 to 2023, Jushuitan ERP maintained an average response time of less than 50 milliseconds and an uptime of more than 99.5%. 

Building upon its ERP foundation, Jushuitan has further expanded product and service offerings to encompass other e-commerce operation SaaS products. As of December 31, 2023, the company has introduced four additional e-commerce operation SaaS products (excluding ERP). Jushuitan’s suite of SaaS tools caters to diverse needs of e-commerce participants, providing capabilities such as financial accounting, management reporting and analytics, workflow management, and wholesale market procurement.

In 2023, Jushuitan served 62,200 SaaS customers across various categories, as compared to an industry average of less than 20,000 customers in 2023.

Jushuitan has demonstrated notable performance in two sets of data that reflect the excellence of a SaaS company. From 2021 to 2023, Jushuitan achieved an LTV/CAC ratio over 6x. This ratio measures the relationship between customer lifetime value and customer acquisition cost, with the industry average being approximately 3x. Meanwhile, Jushuitan‘s net dollar retention rate in 2023 stood at 114%.

Furthermore, in the years 2021 to 2023, customers who purchased two or more Jushuitan products contributed 27.6%, 30.6% and 33.0% respectively of its total SaaS revenue for each respective year. 

In terms of financial data, Jushuitan‘s revenue for the years 2021, 2022, and 2023 were RMB433 million, RMB523 million, and RMB697 million, respectively, with a compound annual growth rate of 26.8%. During the same period, the company’s gross profit margins were 50.5%, 52.3%, and 62.3%, showing a year-on-year increasing trend. 

Notably, Jushuitan‘s revenue in 2023 exhibited a higher year-on-year growth rate compared to 2022, accompanied by a significant increase of 10 percentage points in gross profit margin. The improvement in gross profit margin is attributed primarily to economies of scale and an increasing proportion of recurring customers. Additionally, Jushuitan‘s adjusted net losses narrowed by 45.8% year-on-year, and the adjusted net loss rate decreased sharply from 72.4% in 2022 to 29.4%. 

In this regard, Jushuitan has the potential to soon become a Chinese SaaS company with annual revenue surpassing US$100 million and positive adjusted net profit. In the U.S. SaaS industry, reaching US$100 million in revenue is often seen as a threshold for scale. 

As of December 31, 2023, Jushuitan held cash and cash equivalents amounting to RMB897 million, more than doubling from RMB427 million as of December 31, 2022. In 2023, Jushuitan generated net cash inflow from operating activities of RMB210 million, representing a year-on-year growth of 165.8%. 

Since its establishment, Jushuitan has received investments from renowned institutions such as Ameba Capital, Welight Capital, Vision Plus Capital, Blue Lake Capital, HongShan, Goldman Sachs, and CICC Capital.

While many industry peers prioritise more proven but less advanced technologies to maximise customer appeal, Zelos will use its USD 100m Series A to roll out vehicles aimed at specific landing scenarios

Level-four (L4) autonomous driving technology, where vehicles are fully self-driving in certain situations, but the option of human override remains, has attracted considerable private investment in China. WeRide, WM Motor, Haomo AI, and Zhongmu Tech raised single rounds of USD 1bn in 2021 and 2022, largely on their bold ambitions for L4 robotaxis.

Now, conservatism reigns. Large tickets are no longer readily available, and start-ups are focused on near-term monetisation. The road leads in two directions: to L4 applications in industrial scenarios rather than mass-market consumers, and to L2 or partial autonomy solutions. Both offer the prospect of a quicker journey from prototype to pilot project to paying customers.

Zelos Technology, which recently received a USD 100m Series A round led by Meituan, is a case in point. Robotaxis and long-haul trucks are part of the vision, but low-speed L4-enabled freight vehicles are the company’s strategic priority. This category strikes the right balance between breadth of use – vehicles specifically designed for ports and warehouses were seen as too narrow – and commercial appeal.

“Is there market demand, a willingness to pay, and a potential route to profitability? How can we achieve commercialisation at scale? If we cannot answer these questions properly, we should not accept the risk,” said Yunjian Shi, head of financing at Zelos.

The company released its fifth-generation product, the Zelos Z5, last May. The vehicle has a capacity of 5 cubic meters, up from 1.7 cbm for the Z1, and a range of 140 kilometres. It is intended for long distance transportation between central warehouses, transfer depots, distribution centres, and stores – up a level from last-mile delivery and garbage collection in terms of technology needs and price point.

Over 90% of customers are small businesses, typically franchisors or distributors for leading logistics and retail brands like YTO Express, SF Express, CR Pharmaceutical, and Mengniu Dairy. Larger players want customised vehicles. Zelos offers standardisation, Shi explained, but the company tailored its offering based on customer feedback – for example, introducing larger load spaces for greater cost efficiency.

Blue Lake Capital estimates that China’s urban delivery market was worth CNY 1.5trn (USD 209bn) in 2023 with 20m vehicles on the roads. High operating costs and recruitment challenges are the major pain points in urban logistics, according to Haitao Wei, a partner at Blue Lake. Zelos claims to address both.

“Creating a self-driving vehicle enables greater productivity at a reasonable cost – we believe this will happen in China,” Wei added. “When assessing investment opportunities, we don’t merely focus on the technology; we also consider the commercial possibilities at the product level, driven by the transformative power of technology.”

The VC firm’s debut autonomous driving investment in China was a Series Angel round for Momenta, a provider of L2 and L4 solutions, in 2016. The company became one of China’s first unicorns in the space, closing a Series C of over USD 1bn in 2021. Blue Lake has also backed smart camera supplier Sensing, testing services provider ITImotor, chassis developer Trugotech, and sensor manufacturer Trensor.

It helped build Zelos from the ground up in 2021 by incubating a business idea developed in conjunction with Qi Kong, formerly chief scientist and head of autonomous driving at Blue Lake re-upped in the Series A, which also featured Baidu Ventures, Unicorn Capital Partners, Xianting Private Equity Fund Management, Seekdource Investment Management, and C&D Emerging Industry Equity Investment.

The venture capital firm participated through its US dollar and renminbi funds, each in its third vintage. Co-investment was offered to LPs, including Unicorn, in both currencies.

Zelos was originally a pure software developer, but now hardware specialists make up about half of the company’s 180-strong R&D team. “To achieve stable commercialisation of L4 technology, focusing solely on algorithms may not suffice; hardware development is also essential,” Shi observed. “Additionally, with a longer value chain, we can generate more profit.”

The hardware element is not straightforward. When Zelos sought to expand capacity to 5 cbm for the Z5, chassis suppliers rejected the idea. The company responded by building its own chassis. It now has vehicles in operation across 50 Chinese cities and has also entered Singapore. Sales of the Z5 reached 1,000 units in December alone. Qi has predicted a tenfold year-on-year increase in sales in 2024.

Zelos is not China’s only provider of L4 urban delivery vehicles – Rino Ai’s Baixiniu,’s HDeliver 3.0, WeRide’s Robovan, and Neolix’s X3 Plus are all available, with some differentiation in terms of landing scenario. Shi said he wouldn’t be surprised if a handful of leading players end up accounting for the majority of market share.

Expansion into passenger vehicles will only be considered once the current product offering has achieved stable implementation. Risk factors include failing to maintain technology and product advantages – and thereby failing to satisfy customer demand – before entering mass production.

Blue Lake’s Wei observed that Zelos has already navigated the riskiest stage, going from zero to one. Product safety is a key concern on the road to commercialisation – but commercialisation must happen sooner rather than later.

“The competition barrier is formidable regarding commercial landing scenarios in unconfined areas. For intelligent products, the faster companies proceed with commercialisation, the more real-world data they collect for training and the better customer experiences they can provide,” Wei said. “Achieving seamless integration of software and hardware typically requires at least 2-3 years.”

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Zelos, a global leader in R&D and application of urban distribution autonomous driving products invested by Blue Lake Capital, has recently announced the completion of its Series A financing of nearly US$100 million led by Meituan, with Baidu Venture, Unicorn, Xianting Fund and Seekdource participating. Meanwhile, existing shareholders Blue Lake Capital and C&D Emerging Industry Equity Investment make additional investments, and Lighthouse Capital serves as the exclusive financial advisor. Upon the completion of financing, Zelos will further boost technology R&D and creation of supply chain, accelerate model implementation and talent team building.Amid the continuous development of intelligent and electrification technologies, the mobility sector is actively embracing the industrial wave. Passenger vehicles are widely adopting new energy and smart driving approach, and at the same time, there is ample room for industrial upgrading in commercial vehicles, logistics and other sectors. Since 2019, the penetration rate of new energy commercial vehicles has increased from 1% to 11%, triggering the exploration of application of L4 smart driving in commercial vehicles.

In the logistics industry, urban distribution is the logistics scenario closest to end customers. Current statistics show that the total urban distribution market size has reached RMB1.5 trillion, and the number of transportation vehicles has reached 20 million. Additionally, as the scenarios of the urban environment are highly open, urban distribution scenarios become more complex than those in ports, mining areas, trunk lines and other environment. The development and mass production of new energy L4 smart commercial vehicles under urban distribution scenarios are prone to higher technical barriers. Thus, at the recent fourth meeting of the Central Financial and Economic Affairs Commission, the reform of the comprehensive transportation system was highlighted with the aim of forming a unified, efficient, competitive and orderly logistics market, and encouraging the development of new model of logistics integrating platform economy, low-altitude economy, autonomous driving, etc. Meanwhile, a number of policies have been successively issued, including the “Notice on Carrying out Pilot Work on the Access and Road Access of Intelligent Connected Vehicles”, which gradually create favorable conditions for the implementation of L4 commercialization in the urban distribution scenario. The cost of key components such as lidar and lithium battery packs has also reduced, thereby reducing the mass production cost of new energy L4 commercial vehicles.

As a global leader in R&D and application of urban distribution autonomous driving products, Zelos integrates technology R&D, product design and commercial application, and has successfully developed L4 full-stack autonomous driving technology used in mature and large-scale commercial sector. Zelos has considerable expertise in underlying systematization, including L4 algorithm R&D, product development, vehicle delivery, sales and operation and maintenance, and has internally developed all software and hardware modules, facilitating the building of three major technology platforms: intelligent platform, vehicle platform, and electrification platform.

In 2023, Zelos launched the world’s first L4 urban distribution mass-produced product, Zelos Z5 series, which keeps the three indicators at the highest level in the industry: loading space, operating mileage and load weight, covering a wide range of urban business scenarios such as express delivery, on-site logistics and fresh food delivery. By integrating new energy and intelligent driving, Zelos products can significantly reduce the energy and labor costs of commercial vehicles, helping customers to reduce costs and raise efficiency by over 50%.

Leveraging its robust vehicle design capabilities, Zelos Z5 series iterated quickly and finalized the mass production of the world’s original 5m3 flagship model within one year, and developed different vehicle models such as standard, multi-grid and cold chain to cater for different scenarios such as logistics, express delivery, and retail. Over the past year, Zelos has upgraded five models, and its key indicators such as single-vehicle carrying capacity and average car speed far exceed the level of peers.

Zelos has established an L4 autonomous driving R&D team with expertise in both technology development and commercialization, which is not commonly found in the industry. The team has developed full-stack L4 autonomous driving technology, as well as core algorithms and software and hardware modules, including map and positioning, perception and decision-making, computing platform, operating system, simulation system, vehicle execution, chassis control and other key links. It also promotes algorithm iteration through real-time driving data to create the data flywheel characterized by “driving data-algorithm iteration-feedback verification-product iteration” in order to continuously improve L4 algorithm capabilities.

Currently, Zelos urban distribution autonomous vehicles are traveling in over 50 cities. L4 series has been running with the cumulative operating mileage exceeding 2 million kilometers. Taking the advantages of coping with complex road conditions such as rain and snow, complex intersections, elevated tunnels, etc., its core indicators are leading in the industry. Zelos has also planned and established a vehicle production system that meets market demand.

Wei Haitao, partner of Blue Lake Capital said, “I am delighted to work with Zelos to explore L4 autonomous driving products and accompany Zelos to build a world-class autonomous driving technology team. Blue Lake Capital is firmly optimistic about autonomous driving in the future. I believe that Zelos will be able to bring the industrialization of L4 autonomous driving to new heights.”

As the first-ever L4 smart urban distribution vehicle company in the industry that can secure positive gross profit by adopting the “turnkey car sales” approach, Zelos will further enhance the technology R&D and products for urban distribution scenarios ranging within 180 km, bringing more powerful autonomous smart vehicle products to the urban distribution market. In the near future, Zelos will successively explore and study smart logistics products supporting longer range and more scenarios, keep on promoting the optimization of efficiency of the logistics industry, and help create a more convenient, smarter, and greener logistics ecosystem.

Blue Lake Capital has been deeply developing the autonomous driving and new energy vehicle industry chain in recent years. In June 2021, it made an exclusive investment in Zelos Angel Round, and has continued to make several additional investments in subsequent rounds.

The 2023 Blue Lake Capital Annual General Meeting (AGM) was successfully held in Shanghai on 11 September 2023. This event brought together more than a hundred investors, entrepreneurs and experts in the industry around the globe, with the spotlight turned on the development of advanced manufacturing, enterprise service software and other fields, allowing in-depth discussions on industry development prospects and investment opportunities.

Ray Hu, Founder & Managing Partner of Blue Lake Capital, delivered an opening speech at the start of the meeting, in which he extended his cordial welcome to investors who travelled long distances for the event. In 2023, countless investment opportunities are hidden behind the constant fluctuations and changes in the capital market, and Blue Lake Capital actively embraces technology and industry development trends, with an aim to bring long-term value and returns to investors.

At this meeting, the distinguished guest speaker Chen Li, chief economist of Soochow Securities, was invited to share insights into the latest developments and prospects of China’s macroeconomics. He analyzed the current macroeconomic situation from the perspectives of domestic demand, external demand, capital flow, investment environment and more, providing investors with important insights into China’s economic trends.

The meeting also invited Huang Yiquan, CEO of Hand Enterprise (300170) to discuss with Ray Hu the current situation and future of China’s software industry. Huang Yiquan believed that enterprises’ demand for SaaS software is mainly driven by two major factors: first, the expansion of enterprises in the international market sparks demand for collaborative operation of global supply chain systems; second, enterprises actively promote digital transformation and seek various solutions to improve efficiency, reduce costs and improve business procedures.

Regarding the future development direction of SaaS companies, Huang Yiquan said SaaS enterprises should focus on specific fields, scenarios or industries as China’s software market matures, in order to provide customers with thought-provoking products and meet the diverse needs of the market. Whether it is personalized requirements or standardized products, they are expected to find their places in the Chinese software market.

Ray Hu indicated that the wave of digitalization has given rise to opportunities in the information technology industry, especially in the industrial field, where the trend of digitalization has become increasingly apparent, in turn bringing development opportunities to SaaS companies. Although there are changes in valuation and investment sentiment of the software industry recently, the rapid growth of the SaaS market demand continues. In addition, as the ChatGPT technology penetrates into various business operation scenarios, the SaaS industry has also been provided with new opportunities for its development.

In a panel discussion hosted by Haohui Chen, Partner of Blue Lake Capital, Liu Luyao, CFO of Jushuitan, Zhang Changzheng, CEO of Cloud Helios and Lu Chengtong, CEO of Thinking Data had a wonderful conversation on how to improve corporate operating efficiency and maintain healthy growth under the new environment as well as how to evaluate and embrace the changes brought about to the industry by AI.

Assessing the impact of AI on business and products, Liu Luyao, CFO of Jushuitan indicated that AI is very helpful in improving the human resources efficiency of customer service teams in the ERP field. The company was already testing the use of AI and big data models such as ERNIE Bot and ChatGPT to share its customer service team’s workload, maintaining the size of the customer service team while achieving business growth.

Zhang Changzheng, CEO of Cloud Helios, pointed out that the company has made many attempts based on the technology of Open AI and continues to evaluate its effectiveness and commercialization. Among such attempts, the use of Open AI technology in financial audit scenarios can help customers improve audit efficiency by 50%.

Lu Chengtong, CEO of Thinking Data, indicated that Thinking Data has added capabilities of ChatGPT to its upcoming product version, which mainly provides applications in three aspects: 1) translation of international application versions; 2) AI-generated internal knowledge base system as customer service to answer questions raised by customers; 3) extract and directly generate data.

Subsequently, Haitao Wei, Partner of Blue Lake Capital, shared the current developments of China’s advanced manufacturing industry and the layout of Blue Lake Capital.

Opportunities constantly emerge amid the rapid and high-quality growth in the manufacturing industry, such as electric vehicles, lithium batteries, solar energy and more. Digital transformation is already taking place in industrial production, and there are extensive investment opportunities in smart manufacturing and digitalization.

Blue Lake Capital has been actively deploying industrial digitalization and intelligence since 2016. Taking electric vehicles and autonomous driving as examples, Blue Lake Capital has been seeking opportunities of digitalization along the industrial chain as well as upstream and downstream business. Currently, it has deployed in subdivided areas such as control, execution, and perception. Representative companies include: Momenta, Zelos, TruGo and more.

Subsequently, Ray Hu reviewed the investment portfolio and performance of the fund. Since the establishment of USD Fund I, Blue Lake Capital has adhered to its original intention of technology investment in the face of the ever-changing market, with a focus on the investment ideas of digital transformation and upgrading, serving as a lead investor in multiple projects.

The investment portfolio of the USD Funds I, II, and III had outstanding performance, and have invested in various industry-leading companies, such as Momenta, Zelos, Jushuitan, Cloud Helios, Thinking Data, Zhenyun Technology. These businesses have shown a trend of rapid growth and impressive investment returns.

In the new USD Fund IV, Blue Lake Capital focuses on industrial digitalization and continues to actively develop its layout into the rapidly developing autonomous driving and electric vehicle industries. It has successfully promoted a number of investment cases before the end of the fundraising period. In addition, in the face of market changes that varied from the fund’s expectations, Blue Lake Capital is also seeking more flexible and prudent ways to enhance the fund’s risk resilience.

In the afternoon, participants had a thorough experience of the products of two star companies, Momenta and Zelos. Zelos connected to the unmanned city vehicle distribution system at the scene, allowing participants to experience the unmanned vehicle commercial operation developed by Zelos in real time. Momenta specially set up a self-driving test ride session, in which participants were invited to get on the vehicle and experience the charm of self-driving, strengthening interaction and communication in the immersive activity.

This AGM has strengthened the close connection between investors, entrepreneurs and Blue Lake Capital. Looking ahead, Blue Lake Capital will continue to seize the development opportunities of industrial digitalization and explore more valuable opportunities in order to empower more technology companies in all aspects, injecting new impetus into further prosperous development of the industry.

4th July 2023 saw the opening of the Intelligent Driving Technology Congress 2023 in Jinqiao, Pudong. The event is held under the guidance of the Pudong New Area Government and the organising committee of the World Artificial Intelligence Conference, organised by the Science & Economic Committee of Pudong New Area, Shanghai and the Shanghai Jinqiao Economic & Technological Development Zone Administration Committee, and jointly co-organised by Golden Bridge Ltd (金桥股份) and SAE International, with an aim to adapt to the trend of digitalisation and industry innovation, thoroughly put into practice the national strategy to raise competitiveness in the transport sector, and actively promote the innovative development and demonstrative application of intelligent connected vehicles (ICVs).

At the conference, Blue Lake Capital and Golden Bridge Ltd signed a Letter of Intent on Ecosystem Building, according to which both parties will leverage their own resources to support the creation of a mobility ecosystem of the future in Jinqiao, jointly build a networking circle for the industry, foster its development, and explore building technology incubation and innovation service platforms, such as innovation centres for large firms and testing platforms for ICVs. The goal is to jointly nurture Jinqiao’s automotive ecosystem for the future and turn it into a world-class automotive industrial centre.

13 leading investment institutions, including HongShan, GGV Capital, Shenzhen Capital Group, Loyal Valley Capital, FTZ Fund, DHLT Investment and Oriental Fortune Capital, also signed agreements.

Haitao Wei, Partner of Blue Lake Capital, attended the signing ceremony (third from right)

As the core powerhouse of Shanghai’s development of ICVs, Jinqiao in Pudong is committed to building a world-class automotive industrial centre and becoming an international front-runner in ICV development. The Jinqiao Future Mobility Industrial Park will be built around the automotive industry to provide solid backing for the development of ICVs, as a crucial foundation for building the industrial ecosystem, increasing the concentration, and expanding the circle.

The opening ceremony officially kickstarted the Jinqiao Future Mobility Industrial Park, which is comprised of the “twin parks”, namely the Office Park “Jinke” and the Office Park “Jinhai”, with a total area of around 360,000 square metres. A large number of key frontier industries, important investment institutions and ecosystem partners signed agreements to settle in the park, while ecosystem partnerships have been announced between Golden Bridge Ltd and 12 leading enterprises, including SAIC-GM, UAES, Bosch (China) Investment, Changan Automobile, China Mobile and BlackBerry.

Blue Lake Capital has a long-standing focus on advanced manufacturing. In recent years, with in-depth planning in areas such as autonomous driving and the NEV industry chain, it has invested in under-appreciated top runners of the industry, such as Momenta, Zelos, SENSING, and Trensor.

Armed with trusted partnerships, Blue Lake Capital will continue to seize the opportunities brought about by technology innovation, provide comprehensive services to help more intelligent manufacturers achieve solid development, actively build the industrial digitalisation ecosystem, and inject vitality into the industry in the future.

Source: Wechat official account IPOzaozhidao    Author: Stone Jin

JST Group Corporation Limited (hereinafter referred to as “Jushuitan”) officially submitted an IPO application to the Hong Kong Stock Exchange on 19 June 2023 for listing on the main board. CICC and J.P. Morgan are joint sponsors.

Founded in 2014, Jushuitan has now developed a comprehensive suite of cloud-based e-commerce SaaS products that help merchants upgrade their business capabilities, improve performances and develop business across platforms seamlessly while reducing the costs for deployment and operation.

As of 31 December 2022, Jushuitan has connected its merchants to over 350 e-commerce platforms and more than 700 logistics and warehouse service providers across the globe, making it one of the providers with the most extensive e-commerce platform coverage in China’s e-commerce SaaS industry. Jushuitan have become the solution of choice in China’s e-commerce SaaS ERP, in terms of the number of merchants served across key Chinese e-commerce platforms.

In particular, Jushuitan ERP is the company’s core SaaS product, which serves and meets the key needs of merchant customers related to the processing of e-commerce orders on e-commerce platforms. Through Jushuitan ERP, merchants can integrate, synchronize and coordinate all their operational or financial data across platforms, and enjoy a seamless cross-platform business experience. The key functions currently provided by Jushuitan ERP include order management system (OMS), warehouse management system (WMS), procurement management system (PMS) and distribution management system (DMS). According to China Insights Consultancy (CIC), Jushuitan ERP has become the most popular e-commerce Saas ERP brand among Chinese merchants.

As China’s most efficient e-commerce SaaS ERP for processing orders, in 2022, Jushuitan ERP processed approximately 50 million orders daily with the highest processing volume of nearly 170 million in a single day.  Jushuitan ERP is one of the fastest iterating e-commerce SaaS ERP products in China in terms of the number of iterations, according to CIC. During the track record period, Jushuitan ERP maintained an average response time of less than 50 millisecond and an uptime of more than 99.5%.

On the basis of ERP, Jushuitan has further extended its products and services to other e-commerce operation SaaS products. As of 31 December 2022, it has launched four e-commerce operation SaaS products (exclusive of ERP) such that the company’s SaaS tools are able to serve various needs of e-commerce participants to equip them with capabilities in financial accounting, management reporting and analytics, workflow management, wholesale market procurement, among others.In 2022, customers who purchased two or more of Jushuitan products contributed 30.6% of its total SaaS revenue for the year.

Jushuitan was China’s largest e-commerce SaaS ERP provider in terms of revenue in 2022, with a market share of 20.7%, according to CIC. In China’s e-commerce operation SaaS market, it also ranked first with regard to total SaaS revenue in 2022.

From 2020 to 2022, Jushuitan served 22,600, 33,100 and 45,700 SaaS customers, respectively.

It is worth mentioning that in the two sets of data reflecting the viability of a SaaS company, Jusuitan achieved a relatively impressive result – from 2020 to 2022, the LTV/CAC ratio of Jushuitan was over 6 times, which measures the relationship between customer lifetime value and customer acquisition cost; in 2021 and 2022, the net customer revenue retention rate was 122% and 105%, respectively.

In terms of financial data, the revenue of Jushuitan from 2020 to 2022 reached 294 million, 433 million and 523 million, respectively, with a CAGR of 33.4%. Its gross profit margin for the same period was 46.2%, 50.5% and 52.3%, respectively, also showing a year-on-year rising trend.

Merchants in China’s e-commerce market are increasingly willing to pay for digital solutions. According to CIC, Chinese e-commerce merchants’ IT spending reached a total of RMB116.0 billion in 2022, which is expected to further grow to RMB231.2 billion by 2027; the penetration rate of e-commerce SaaS ERP among these merchants was at a relatively low level of 1.3% in 2022 and is expected to grow steadily.

Since its inception, Jushuitan has acquired investments from renowned financial institutions including Ameba Capital, Welight Capital, Vision Plus Capital, Blue Lake Capital, Sequoia Capital China, Goldman Sachs and CICC Capital.

In its prospectus, Jushuitan indicated that the net IPO proceeds will be primarily used to enhance its R&D capabilities to enrich its product offerings; strengthen its sales and marketing capabilities; make strategic investments with the aims of developing the product offerings, expanding its customer base and reinforcing its technological capabilities; and for general corporate purposes.

“Zknow” announced that it has completed a new round of financing of several tens of millions of RMB, co-invested by a group of renowned entrepreneurs. The funding will be used for product R&D and market expansion.

Founded in May 2021, “Zknow” was spun off from HAND Enterprise Solutions, providing medium and large enterprises with an “intelligent service management platform” that helps them transform into service-oriented organizations. The product is based on shared business components and a low-code platform that can be swiftly configured for application scenarios to meet the individual needs of clients. The Company focuses on public SaaS and continuously invests in the development of new modules and capabilities, alongside its AI capabilities that continues to empower multiple scenarios.

With yqcloud as its core product and Zknow Platform driving the development of business module application, ZKNOW is deeply engaged in domestic ITSM, assisting enterprises in integrating IT and business capabilities as well as establishing a new IT service management model that is service-value oriented, highly collaborative, pre-emptive, automated (reducing manual operation) and intelligent.

The intelligent service management platform of yqcloud provides proactive and efficient closed-loop services through technologies such as tickets, call centre, intelligent assistant and integration engine, achieving organic linkage between various departments. Its main advantages are: the linkage of online customer service/ call centre/ intelligent assistant/ knowledge base with ITSM; port automation capability (IM); linking and embedding capability to third parties; precipitation, reuse and recommendation of knowledge; analysis and aggregation capabilities of recurrent problems.

As a corporate digital intelligence development management platform of Zknow, Choerodon provides tools for collaboration, testing, DevOps and containers to facilitate the full process of software development and project management. In June 2023, Choerodon released version 2.0 of its open source software, which has upgraded its DevOps capabilities and significantly improved its R&D effectiveness.

At the same time, Zknow released a new version of Yan Xiaoqian Intelligent Assistant, which digs into treasures of enterprise knowledge with AIGC. Its core is to integrate the knowledge of internal private domain of the enterprise with the large model of AIGC language so as to provide users with one stop Q&A services.

At present, more than one-fifth of China’s top 500 companies and half of the top 500 private enterprises have become users of Zknow.

Looking ahead, Zknow has devised plans to gradually expand its business from IT service management to enterprise service management and customer service management, eventually covering the entire internal and external service management of enterprises. It will also promote the development of the platform with its AI capabilities as well as building an intelligent and high-level enterprise service management platform AITSM, becoming the ServiceNow of China.

After this round of financing, the company will continue to invest in R&D, enhancing the core competency of its products. The average annual business growth rate is expected to exceed 70% and the number of clients will reach 1,000 in 2027, with cumulative ARR contract value and revenues of over hundreds of millions and profits above tens of millions.

Yifan Zhang, Investment Director of Blue Lake Capital said, “In the past, innovation in the IT operations and maintenance field has focused on monitoring tools and data analysis, while the ITSM application field has rarely been explored. We believe the reason is that good ITSM requires a team with rich IT operations and maintenance business experience, strong development capabilities of management software and product innovation. The Zknow team possesses all the above capabilities that lead to success. In an era where the number of enterprise applications is proliferating and the complexity of IT operations and maintenance is rising at a rapid pace, Zknow has continued to launch new products. We look forward to Zknow becoming the ServiceNow of China in the near future.

On 20 May, Cyzone released its “New Youth Venture Capitalists 2023″ list, in which Haitao Wei, partner of Blue Lake Capital, was honorably named as one of the ” 2023 Cyzone Top 40 Investors under 40 years old” for his in-depth planning and outstanding performance in investing in the intelligent manufacturing field.

Cyzone has published the “Top 40 Investors under 40 years old” list for 11 consecutive years since 2013, with the aim of finding top capitalists who are active at the forefront of venture capital. Over the past 10 years, a total of 246 outstanding young investors have been named (excluding those who are repeatedly named), who are knowledgeable, diligent and insightful, capturing opportunities in their own investment fields and are pillars of strength in the venture capital field.

Mr. Haitao Wei is a partner of Blue Lake Capital. He holds a Bachelor’s Degree in Electronic Engineering from Shanghai Jiao Tong University and a Master’s Degree in Business Administration from Antai College of Economics and Management, Shanghai Jiao Tong University. Having over 10 years of experience in the venture capital industry, he has been practicing the investment philosophies of “industry and research driven”, “deeply explore the market” and “finding and continuously creating value”, and has long been focusing on the investments in the fields of intelligent manufacturing and corporate software.

During his time at Blue Lake Capital, Mr. Haitao Wei, with his forward-looking perspective and deep understanding of the industry, extensive and close entrepreneurial connections, excellent negotiation and execution skills, as well as his determination to work alongside entrepreneurs, has led his team to identify numerous high-quality projects and achieved lucrative exit returns. Representative examples include Chaozhuo Aviation Technology (688237), Zelos, P&R Measurement, Zhenyun Technology, Cloud Helios, Yiheda (301029), Raise3D and more.

The ” 2023 Cyzone Top 40 Investors under 40 years old” were selected through a two-month call for applications and interview surveys, which was based on a comprehensive assessment of four dimensions: investment experience, investment performance, exit performance and industry influence.

The 2022 CVAwards was announced on 19 May 2023, in which Blue Lake Capital was named as one of the “Top 50 Best Foreign Venture Capital Firms in China 2022”, for its outstanding performance in the full process of capital raising, investment, management and exit in 2022.

CVInfo has published the “CVAwards”, a series of lists of Chinese venture capital firms and private equity investments, as an independent third party organization for 17 consecutive years. Based on data from CVSource standardized by the China Venture Capital Research Institute, recipients of the Awards were selected from more than 1,000 active investment institutions in the private equity sector according to the rankings of overall points. Divided into several categories by strict criteria, the event is known for its professionalism, authority and rigour. It is therefore also known as the wind vane of the domestic equity investment industry and is currently an important funding basis for many large institutional LPs.

The Awards announced included the “Best Foreign Venture Capital Firms in China 2022”, “Best Venture Capital Firms 2022”, “Best Private Equity Firms 2022”, “Best Early Stage Venture Capital Firm 2022”, “Best Limited Partners 2022” and “Best Sectoral Investment Firms 2022”.

Since its inception in 2014, Blue Lake Capital has been focusing on China’s digital transformation and upgrading from a multifaceted perspective of “research + industry”. It has captured industry changes as well as identified and assisted insightful entrepreneurs in the fields of intelligent manufacturing and corporate software, promoting the industry development as an investor, entrepreneur and operator. To date, Blue Lake Capital has been named as one of the “TOP 50 Best Foreign Venture Capital Firms in China” of CVAwards for a total of eight times.

Recently, Blue Lake Capital has completed a Series C round of investment of nearly 100 million in Trensor Co., Ltd (hereinafter referred to as “Trensor”), a leading automotive pressure sensor manufacturer. The funds raised in this round will be mainly used for capacity building for Trensor’s new factory and continuous expansion into domestic and overseas markets.

Established in 2009 with its headquarters and manufacturing base in Wuxi, Jiangsu Province, Trensor is principally engaged in the design and manufacture of pressure sensors and pressure temperature combination sensors. It is one of the very few manufacturers in the pressure sensor industry that specialises in technologies across the pressure scale from micro-pressure to ultra-high pressure (thick film, MEMS, thin film, SOI micro-melting) and develops proprietary ASIC chips. It also holds dozens of domestic and international invention patents.

As one of the very few Chinese sensor suppliers to enter the global mainstream automotive OEM sector and the first-tier supply chain of factory-installed products, Trensor has earned itself a place at the forefront of the industry in terms of production scale, degree of automation and process chain integrity. With over 80% of its products exported to Europe and North America, it has become an important or strategic supplier for global mainstream automotive OEMs and system integrators such as Cummins, Ford, Hanon Systems, and Valeo.

Trensor’s full-automatic production line for pressure temperature combination sensors

Pressure sensors are widely used in automotive, home appliances, aerospace and industrial fields, with a market size of tens of billions. Among others, the automotive sector is the single largest market for pressure sensors with an average of 15 installed on each passenger/commercial vehicle. Trensor’s pressure sensors and pressure temperature combination sensors have covered almost all systems of traditional and new energy vehicles.

Pressure sensors involve multiple disciplines including mechanics, electronics and materials, and demand high requirements for production and testing equipment as well as manufacturing processes which results in high technological barriers. Trensor is an industry leader in areas including signal conditioning chip design, production automation, production precision and reliability. In 2017, the US authoritative automotive magazine “MotorTrend” listed Trensor’s SensorCap™ technology as one of the twelve future car technologies worth talking about for the year.

A selection of Trensor’s sensor products

The global market for automotive pressure sensors is currently dominated by international corporations like Sensata from the United States and Bosch from Germany. Chinese pressure sensors manufacturers are still catching up and only a few possess the ability to conduct product research and development and mass production. Trensor is undeniably one of the strongest performers.

It is worth mentioning that Trensor completed the R&D and production line construction of pressure temperature combination sensors suitable for the thermal management system of new energy vehicles two years ago in anticipation of the development trend of the automotive market. It has successively won orders of designated procurement by a number of international and domestic top suppliers of thermal management system of new energy vehicles since last year, and some projects have achieved mass production, becoming the latest highlight of Trensor’s new energy vehicle business growth.

“With the rapid development of the domestic automotive industry, we firmly believe in and support outstanding Chinese automotive suppliers,” Ray Hu, founder and managing partner of Blue Lake Capital, said. “Pressure sensors have an important value both in the era of fuel cars and new energy vehicles, and given that Trensor is one of the few names in China with mass production experience in the passenger vehicle industry, we have great anticipation for the company to become a top-tier in-vehicle parts manufacturer in the next few years.”

Hubei Chaozhuo Aviation Technology Co., Ltd. (“Chaozhuo Aviation Technology”, hereafter referred to as Chaozhuo) invested by Blue Lake Capital begins trading under the stock code “688237” on the STAR Market on July 1.

Founded in 2006, Chaozhuo has since been engaged in the aviation industry for more than a decade, dedicated to customizing additive manufacturing and repairing airborne equipment with military and civil aircraft maintenance as its major business. It is among the few enterprises in China that master the technique of cold spray additive manufacturing (CSAM) and apply the technique to aircraft maintenance and remanufacturing.

Chaozhuo has been committed to providing repairing services of airborne equipment, with years of technological accumulation and innovation in techniques. Its business now covers military and civil aircraft pneumatic accessories, hydraulic accessories, fuel accessories and electrical accessories. 

In 2015, Chaozhuo made it a key objective to develop the CSAM technique before expanding its business to the remanufacturing of airframe structures and the production of aircraft parts, as it anticipated the technique would hold out great promise and recognized the limited role played by conventional maintenance techniques in the repair of aircraft parts made of materials like magnesium alloy. 

In 2017, Chaozhuo participated in an aircraft renewal project in China as the major stakeholder providing technical support for repairing longeron cracks of landing gear of fighter aircrafts. It has developed the capability of using the CSAM technique to repair fatigue cracks in longerons of fighter aircrafts by giving its first try in the project. Later, it started repairing fatigue cracks in longerons of fighter aircrafts and remanufacturing the needed parts for repairing purposes in batch.

Chaozhuo is the only supplier of the A and B base overhaul plant under the Equipment Department of China PLA Air Force when it comes to the repair and remanufacturing of fatigue cracks in longerons of multi-type military aircrafts.

As a pioneer in remanufacturing with CSAM in the aviation industry, Chaozhuo will rely on its first-mover advantage in its core technology to continuously expand its businesses. It will proactively adopt additive manufacturing technologies in various scenarios as enablers to advance domestic industries for a rapid development.

The prospectus shows that Chaozhuo generated a revenue of CNY 140 million in 2021, and reported a CAGR of 66% during 2019-2021, with CNY 70.7311 million in net income attributable to stockholders of the parent company in 2021.

Chaozhuo’s business continued to grow rapidly in the first quarter of 2022, with its revenue reporting CNY 42.42 million, rising 63.87% YoY, and net profits reaching CNY 25.77 million, up 67.43% YoY.

Today, Chaozhuo Aviation Technology started trading, with its opening price up 42.86%. Its stock traded at CNY 74.37 per share by the time of publication, 80.2% above its listing price of CNY 41.27, giving it a market capitalization of about CNY 6.66 billion.

From right to left: Ray Hu, Founder & Managing Partner of Blue Lake Capital; Guangping Li, Chairman & General Manager of Chaozhuo Aviation Technology; Yihan Li, Director & Deputy General Manager of Chaozhuo Aviation Technology; Aimee Zhou, Investment Director of Blue Lake Capital

To be in line with China’s national strategy of transforming and upgrading the domestic manufacturing industry, Blue Lake Capital has been deeply involved in the field of smart manufacturing in recent years, and invested in Chaozhuo Aviation Technology in 2020. Its investment portfolio in smart manufacturing involves other industry leaders, including Avove Electronic, Cospower, PR Measurement, Raise3D, YHDA(SHE: 301029) and EMPOWER.

Although the past two years have witnessed great changes in the world, the digitization trend remains unchanged. Of all the uncertainties facing us, digitization is still the surest opportunity nowadays.

Exclusive interview on Blue Lake Capital

Editor’s note: China’s venture capital and private equity industry have undergone huge shifts over the past few years, thanks to a sea change in the global and domestic socio-economic climate.

As Chinese businesses struggle to adapt to the new normal, marked by more stringent regulatory oversight against overseas listings, a Covid-battered economy, dwindling household consumption, and stronger headwinds as startups move up the value chain, so will their financial patrons.

How are VC/PE investors faring in these turbulent times? What are the challenges they deem the most intractable and what are their solutions? Conversely, which are the emerging areas of opportunities that can be turned into the next money-spinner with their Midas touch? More generally, how do they expect China’s entrepreneurial scene to evolve in the next couple of years? And most importantly, after having their finger on the pulse of the country’s innovations, are they still China bulls or have turned perhaps into China bears?

These are defining questions to which no one has the exact answer. But we at EqualOcean believe that one can at least get a glimpse into the future of the Chinese economy by looking at how VC/PE investors are planning and making their moves.

With this in mind, we start a new series called “China VC Interview,” in which our analysts will sit down with frontline industry practitioners to hear their opinions about China’s VC/PE industry.

The following is the second in this series, conducted after interviewing Ray Hu, founder and managing partner at Blue Lake Capital(Chinese:蓝湖资本).

2022 VC Interview Series.jpeg.jpeg

About 「Blue Lake Capital」 and Ray Hu

Blue Lake Capital is a next-generation, research-driven venture capital firm, founded by Mr. Ray Hu in 2014, which focuses on big market opportunities primarily on cloud software with a strong portfolio of investments including Meicai, Momenta, JST, Leyan Technologies, Zhenyun Technology, Cloud Helios, Moka, Thinking Data, Zaihui, Asinking, etc.

Ray Hu has 15 years of experience in venture capital investing. Before founding Blue Lake Capital, Ray worked at GGV Capital and the Boston Consulting Group. Ray holds a bachelor’s and master’s degree in economics from Fudan University and an MBA Degree from the Kellogg School of Management of Northwestern University.


Part Ⅰ Retrospect| Locating relevant variables and knowable questions

EqualOcean:What are the different types of venture capital firms?

Ray Hu:Relatively speaking, some firms tend to source their deals extensively while Blue Lake Capital focuses on two lanes: intelligent manufacture and SaaS. Of course, extensive sourcing is a precondition for finding quality deals. The purpose of doing research is to raise the efficiency and accuracy of investment decision-making after quality deals were found through early-stage sourcing and to be more targeted when sourcing deals.

My team was able to build a set of methodologies through research that promises lesser time and lesser decision-making in the future. After all, our investments — the startup companies — are high-risk assets. Oftentimes, their products are yet to be formed, the competition landscape unclear, and many variables awaiting in line. We research so we can locate the relevant variables to investment ROI and rule out the irrelevant ones. After that, we still need to distinguish between the knowable and the unknowable within the relevant range. Focusing on the relevant and knowable parts could bring about a small lift in investment success rate in one deal. That way, our fund as a whole could embrace a giant leap in return over time.

EqualOcean:Are you satisfied with the work of these eight years since Blue Lake Capital was founded in 2014?

Ray Hu:I’d give it a pass, but not without regrets. We’re not depressed for missing deals worth hundreds of billions of dollars, but we feel sorry for locking down on some deals in later rounds rather than earlier when their valuations were lower, which means more return for us. For example, we had a chance in a SaaS startup during their angel plus fundraising. But we ‘thought’ that the founding team had no sales team management experience which could leave them vulnerable. At the round following angel plus, when the team had proved their ability to manage the sales team, we then worried that their future expansion might hit a rock. This has given our team a lesson: base our decisions on the knowable and not waste time on the unknowable.

The success probability and achievement ceiling of a startup lie heavily on its founding team. But as investors, we can hardly reach a reliable judgment of the founder’s capacity based solely on several hours of communication and that would be meddling with the unknowable. Since then, we’ve made a turn towards objective and knowable questions, such as business progress, client contracts, price level, client conversion rate, and efficiency per capita. Venture capital firms need to look for universal patterns that could quantify a startup’s levels and risks.

EqualOcean:In the two sectors you’re experienced, intelligent manufacturing and SaaS, are founders’ backgrounds relevant to what they later do?

Ray Hu:Not so much as for academic degrees. But of course, more founders of intelligent manufacturing startups are of science and engineering background and have experience in relevant industries. It would be rare for a total stranger to come into this industry. Most SaaS founders also come from within the industry. For example, the CEO of JST was once CTO of a shoe company with the experience of ERP development and the founder of Thinking Data worked previously as a developer at Tencent Interactive Entertainment Group. They were aware of certain needs underlying the industry, and how to design products accordingly, hence successful companies.

EqualOcean:In hindsight, are there commonalities among successful founders?

Ray Hu:Of course. First, successful founders are good learners. They will find themselves in an emerging industry in China with a perplexing marketplace and few predecessors to learn from. Besides, SaaS founders mainly worked as PMs or programmers before and lacked experience in managing a functional organization. Things such as managing a sales team, issuing performance indexes, remaining independent, recruiting partners, and constantly adjusting to the external environment could be challenging.

Another important quality would be to get ahold of the Pareto Principle — the law of the vital few. It’s both tricky and essential for founders to recognize with accuracy the fundamental issues of the given moment right in the given business line. The first half-year after getting financing would be a dangerous period for many startups when they tend to proceed too aggressively. The familiar financial condition for most SaaS startups in China would be in deficit. To ration limited resources while losing money and expanding quickly could be complicated. Different companies face different situations such as whether to expand territories or to expand product lines and how. In the meantime, a lot of opinions coming from investors and from within the team are interfering with the founder constantly.

Part Ⅱ Status quo| Discerning certainties among uncertainties

EqualOcean: Is the plummet of major SaaS indexes in the US stock market a hit on your confidence?

Ray Hu: I wouldn’t worry about the stock market too much because I am optimistic about the fundamentals of the SaaS industry on solid grounds. When we look into some holistic indicators, we would see a fast growing market. The companies in our portfolio have acquired a lot more business leads this year than those of two to three years ago with more and more potential clients showing up with a clear budget and project. Based on companies’ communication with clients, we have the confidence to say that the market maturity has lifted prominently. Two to three years ago, clients would raise concerns about data security which hardly anyone would mention nowadays. What the buyers frequently bring about is whether the software could meet their operation standards and allow for flexible deployment suiting their organizational features. No longer is SaaS deemed mere “paperless tools”, but also a booster of elevated core competitiveness. Lots of industries do appear to move forward towards what the Chinese government calls for — digital transformation.

Here let’s raise an example of a contract management SaaS company we’ve invested in. In the past, we assumed contract management as helping companies to draft, approve and ratify contracts. Much more than that, lots of companies have procured the system to improve operational efficiency. Salespersons used to bring back a contract from clients to their direct leaders and district managers along with financial and legal departments within. Several weeks have passed before a contract could be finalized. Not to mention there might be hundreds of clients for a company and thousands of contracts involved. Now, using SaaS, the average contract signing period could be reduced to two to three days. That’s a huge lift of efficiency and motivation for salespersons to lock clients. We now see more SaaS applications have been approved by clients as of their value to businesses and have become a must to companies. That’s why I wouldn’t be too worried about stock performances since the SaaS business models are getting more recognition.

EqualOcean: How does the market view SaaS nowadays?

Ray Hu: When I started to talk about SaaS when raising funds in 2016, 90% of limited partners were not optimistic on it. Now, most of them do. With some SaaS companies going publicly listed and the frenzies about consumer internet cooling down, most importantly all general partners believing in the future of SaaS, limited partners are more open to this business model.

The same situation has befallen publicly listed SaaS companies over the past few years. Stock prices went high at first, then dropped. This implied that the market held expectations toward SaaS companies. Investors voted with money when companies with quality benchmarks went public, then vetoed when they were disappointed by bad performances. The currently listed SaaS companies derive their revenues mainly from customization, but the majority of their incomes go to building SaaS businesses. So they’re in transition. We do need eight to ten IPOs of high-quality and fast-growing SaaS companies to boost market confidence. Based on my evaluation, there are currently over 20 SaaS companies with Annual Recurring Revenue or ARR over CNY 100 million. It takes them two to three years to grow to the size qualified for IPO — which is USD 100 million of ARR at least.

EqualOcean: What would be your suggestion for fundraising SaaS companies?

Ray Hu: The financing environment may not be very friendly to SaaS companies this year. At the end of the last year, the valuation of SaaS companies in the US stock market was at its peak, most of which reached a dozen to twenty times Price-to-sales(PS). Now that number has dropped more than half. SaaS companies with a growth rate over 50% are valued eight to ten times PS, yet those with less than 50% are valued only six to seven times PS. This means for SaaS companies seeking financing this year that revenues need to be doubled than that of the previous year only to get a valuation equal to the previous year’s. For many entrepreneurs and former investors, mentality needs to be modified and the market status quo needs to be recognized. For worse, the fund is not guaranteed even if revenues double and valuation is equalized. Many VC investors are so overwhelmed by the turbulence in the stock market that they haven’t had the time to rebuild a sound evaluation pattern. We’re all in the process of adjustment.

I would recommend SaaS startups to hold a steady expanding pace, be prudent on cash flow planning, and resume financing the next year unless they were willing to bear the extended fundraising duration and harsher valuation and terms. We are hoping that long-term economic policies could be more explicit after the 20th CPC National Congress. We’ll see if it would be possible for some companies to seek IPO in the US stock markets. The HKSE is at a relatively low spirit for an IPO now. We’ll wait and see what happens next. We expect some good news to boost the market.

Part Ⅲ Prospect| Reacting promptly with prudent optimism

EqualOcean: Do you believe that Chinese SaaS companies could win global markets?

Ray Hu: Mostly I do. Firstly, there are a bunch of Indian companies with ARR of USD 30 to 50 million that live in Western markets. So SaaS companies from non-Western countries can open Western markets. Chinese SaaS companies usually start in domestic markets. The adaptability to global markets varies with product types. But it is reassuring that one SaaS startup in our portfolio that develops reimbursement systems has successfully won several Japanese key accounts despite all the obstacles, such as gaps in finance and taxation administration, approval procedures, FMIS, and HRMIS — that would be Financial Management Information System and Human Resources Management Information System.

Since startups themselves are in the process of probing, it would be hard for me to make assertions. But we can deduce from experiences that expansion would not be too quick for SaaS companies serving key accounts since they need time to adapt to the complicated operation procedures of global markets. While things could be different for SaaS companies who provide tools for small and medium-size companies in emerging industries, such as e-commerce and games, tools are often more applicable in a universal sense and they could bring about quantitative outcomes which help speed up clients’ decision-making process.

EqualOcean: What would be the challenges and opportunities of business service SaaS companies when going global?

Ray Hu: Building local teams would be the most challenging part, much more than mere recruitment. For example, SaaS companies targeting key accounts need at least pre-sales, delivery, and customer success departments to work together. In China, companies may win over a client with a broad tender and make modifications throughout the delivery process. But in Japan, they may need to submit a 300-page pre-sales proposal that wholly displays every interface of the software to the client. Once the proposal is agreed upon, there will be no modification commands from the clients. The whole team needs to cooperate functionally, including the local teams abroad and domestic supports. Besides, conditions in every market vary from each other. It may take six to nine months on average to recruit one employee in Japan!

There are not as many challenges at the technical level as in the product sense. Again take Japan as an example. Japanese companies hold zero tolerance for interface and language imperfections. They emphasize data security and compliance. The clouding environment is different there. So we’re talking about a lot of localization to be done.

Challenges aside, Chinese companies still stand a chance with better services. The western SaaS giants are somewhat slow speaking of their response time to Japanese clients’ needs. After all, it’s just a regional need of a regional market to them. But Chinese companies can be quick to respond when it comes to meeting clients’ demands. Besides, just like to China, Japan is also a foreign market to the west. So we’re equal in terms of localization.

EqualOcean: Do you think that this round of the Covid-19 epidemic would hurt entrepreneurs’ morale? How about the influence on your following investment allocations?

Ray Hu: Their morale appears to be higher than I thought. Since June 1(the day the city-wide quarantine was called off), I had been going around about the companies in our portfolio. Founders are generally in positive spirits based on the fact that over 90% of sales leads acquired before quarantine are still in pipeline. Market needs are not erased, maybe a little postponed. There would not be many changes to my investment allocations. CNY funds would be divided pretty much evenly between intelligent manufacturing and SaaS. USD funds would flow mainly to SaaS. In all, the SaaS industry would take up around 60% of the fund and intelligent manufacturing about 30%. The remaining 10% is for consumer Internet.

EqualOcean: While the economic growth has slowed down, what new Chinese narrative would you bring about to global investors?

Ray Hu: I would speak frankly to investors. The current environment may seem discouraging, but the future is bright. Economic policies could be more explicit after the 20th National Congress and the customs administration could be more liberal at the end of this year. In terms of asset allocations, it would be impossible for global investors to ignore an economy with such size and growth rate as China. Their perception of China needs adaptation: it is no longer the wasteland as ten to fifteen years before. The environment for investment has changed. Every VC firms, and every investor, need to have this question constantly in mind: how to better design their investment portfolios.

The science and technology innovation system(STAR) is still full of fast-growing opportunities. Big firms like Sequoia Capital, Hillhouse Capital, and GGV Capital tend to source from broader ranges and distribute their resources in sectors from consumer technology, and industrial technology, to even more advanced ones. For more compact organizations like ours, we focus on two fields so that the personnel and funds assigned to each field still have an edge in competition with big firms.

All in all, we hold a prudently optimistic attitude toward the economic trend. But this is not drawn from anything. We would keep a close eye on the companies in our portfolio as of their performance in the following two quarters. Being a venture capital investor is just like being an entrepreneur, “you gotta stay alert and react promptly to the outside world, and all the time.”


Author: Lina Peng Editor: Yiran Xing

In a recent online talk organized by Blue Lake Capital, SaaS operators of the Blue Lake portfolio had a discussion on topics of common concern to SaaS entrepreneurs, such as the investment and financing environment under the new cycle, improving company management and HR efficiency during the pandemic, and post-pandemic era business layout and sales management.

Ray Hu, Founder & Managing Partner of Blue Lake Capital, shared his views on the SaaS Valuation Environment in 2022 and the Pace of Investment and Financing in VC Circles:

Below are condensed and edited shareable highlights:

The changing market environment instigated this valuation correction.

Bessemer’s SaaS index in the US outperformed the stock market by a wide margin until November 2021 because of two substantial reasons. First, unlike traditional businesses hit by the pandemic, the software sector had been buoyed by the storm to a certain extent. Some SaaS enterprises reported positive changes in their fundamental secondary markets. Second, amid the high-risk environment, investors preferred assets with high certainty, such as SaaS products featuring recurring revenue and visibly compelling business. As a result, tech growth stocks, especially SaaS stocks, had attracted considerable attention since 2020.

However, the market turned around considerably after November 2021.

As the pandemic alleviates, traditional businesses become less uncertain and show high PS, thus regaining distribution from growth stocks. Therefore, without much correction in the general index, SaaS companies ’stocks have retreated.

A further driver is the correction in valuation multiples for these SaaS companies. SaaS entrepreneurs seeking funding this year are more likely to suffer from the effects of the secondary market. There has recently been a sharp retracement in valuation multiples for SaaS companies overseas. According to Meritech, the average EV/NTM Revenue has fallen from over 30x to 11x, and the median has fallen from nearly 20x to 7x.

If there is no major rebound by the end of this year, mid- to late-stage investors will generally anchor SaaS companies at around 10x PS. Of course, higher valuation multiples are available if the company grows at a rate of 70-80%, and even higher if over 100%. Take the US market as an example. US-listed SaaS companies generate a median revenue of $500 million. Under such a scale, these companies maintain a YoY growth of nearly 30% on average, and those with faster revenue growth have naturally obtained a higher PS premium (about 20x).

I believe that halving valuation multiples from last year will become the market norm. If a company has closed a round of funding in 2021 at a valuation of 25-30x PS, during its next round this year, the valuation amount will not differ greatly from last year, even if revenues have increased by 80-100%.

At this point, management needs to timely adjust their mindset. In the case of relatively abundant funds, the financing window can be adjusted for the first half of next year with a more optimistic macro environment. The process is certainly subject to uncertainty. Or, with expected valuation cuts this year, we raise money at the expense of diluting more shares.

Liquidity in the primary market has tightened

The liquidity of the primary market faces an even more severe situation than the valuation. There was a significant QoQ decline in both the number of investment projects and the funding amount over the first quarter of 2022. When communicating with some of our peers, we noticed that this year, institutions focusing on early-stage and growth projects invested in less than 1/3 of the number of projects in the same period in the previous year, and the investment pace of the whole market is going to be very slow. This is partly due to the macro environment (like the pandemic) and partly because some software companies with mediocre performance, or that were packaged as SaaS companies, also got financed last year. And when their performance this year falls short of expectations, investors will react against the attitude of the whole industry.

In addition, the delisting risk of Chinese concept stocks from the US stock market also has a negative impact on the macro environment of the primary market. Especially for mid- to late-stage investors, a potential for delisting was not previously taken as the main risk—the business itself was. When this factor became a risk item, as it is today, institutional investors’ willingness to invest was further affected. This should be defused by valuation reduction.

Therefore, we do not have an optimistic financing environment this year. From a quantitative perspective, the valuation multiple is estimated to be only half of last year, and the number of projects expected to be closed in the market is 1/3 to 1/4 of last year.

Be realistic and return to focus on long-term profitability.

Earlier, I shared that the US market has also seen a drop in SaaS valuations and a slowdown in the pace of investment, which is being hotly discussed in Silicon Valley. Here are the tweeted opinions of Bill Gurley, the managing partner of Benchmark and a well-known American investor, who has been involved in venture capital for nearly 25 years and who has gone through several cycles. His advice is objective and to the point:

Opinion 1: Forget last year’s market madness.

The market price throughout last year was very unreasonable, and we must learn to forget the institutional offers of last year.

Opinion 2: Lower expectations for valuations.

If you stick to a measure of company valuation, 10x PS is ideal.

Opinion 3: Focus on cash flow and profitability.

Tech companies will ultimately return to focus on cash flow and profitability. Facebook has a YoY rise of 23% in revenue but only 14x PE.

Opinion 4: Ultimately, return to revenue and profitability.

Always keep in mind that the revenue and long-term profitability of the company remain the priority in the end.

Despite the recent gloom in capital markets, we are fortunate to be in a very appealing industry today. SaaS business is attractive to investors for its distinctive highlights, such as sustainable revenue, high gross margin, high growth, etc. Once the competitive landscape of the software market is established, there are usually only 2-3 top companies left in the end. If one becomes the market leader, they will enjoy a higher dominance and market share. SaaS businesses can generate strong operating cash flow after growth stabilizes.

From an investment perspective, SaaS business has a big competitive edge and high entry threshold and deserves long-term bullishness.

Amidst the overall market slowdown in investment pace this year, investors are expected to continue focusing on software projects in the technology sector, and in frontier technology, such as semiconductor and unmanned technology. The company’s management simply needs to adjust valuation expectations.

Despite the wave of dramatic changes the world has undergone in the past two years, the digitalization trend has not changed. Whereas digitalization was previously just a way to improve the business of some enterprises, today it is necessary for survival.

It was supposed to take 30 to 50 years to go digital, but now the process has been greatly accelerated as a result of the pandemic. Amid all the uncertainties ahead of us, digitalization remains the most certain and the biggest opportunity.

On June 15th, Shanghai Zhenling Technology Co., Ltd., a SaaS solution provider of CVLM (Contract Value Lifecycle Management), announced the completion of a Series A financing round of 53 million RMB, the second financing within six months. The financing round was led by Yunqi Partners and followed by the old shareholder Blue Lake Capital. Yiren Capital was the exclusive financial advisor. And all funding of this round will be used mainly for product development to deepen the value management of the performance phase of the contract.

As a leading contract management solution provider in China founded in 2021, Zhenling Technolgy’s core team was developed from HAND, a well-known enterprise digitalization service provider, having been equipped with digital service capability. “One Contract Cloud”, a self-developed product by Zhenling Technology, through controlling major nodes of CVLM—before signing, during signing, during performance, and after performance— organically integrates the three major processes of enterprise operation: business operation, financial accounting, and contract management. One Contract Cloud can better verify enterprises’ real business and financial data, implement upgrades from business finance to business finance law, help enterprises control operational risks, and improve their management systems.

Xie Weihu, CEO of Zhenling Technology, said, “Contracts are the carriers of economic activity and naturally carry all aspects of an enterprise’s economic activity, especially the liquidity management of funds. From time to time, enterprises will have various troubles in the actual performance process, which greatly impacts funds. Coping with these situations faster and more efficiently is a lesson (and a headache) for every business owner. Therefore, contract management is not the goal, but rather the solution.”

Considering that, Zhenling Technology has positioned its product as a “Contract Value Lifecycle Management.” While other vendors focus on contract signing and provide solutions to improve the efficiency of signing contracts from offline to online, One Contract Cloud extends its service focus to contract performance. By linking enterprise business and financial systems, One Contract Cloud sees each node of contract performance as a key, drives the execution of these key nodes, provides real-time feedback on the current situation, and exerts positive and timely influence.” Business owners may not have time to find out every detail, but now they can find the key points and deal with the difficulties in advance by watching the overall situation through the dynamic feedback of the contract,” Xie Weihu explained.

“This is a hungry market,” Xie Weihu added. “After beginning to operate independently, business opportunities have increased 2.5-3 times on average, with the number of customers signed in the first half of this year approaching the whole of last year.”

Since its establishment, Zhenling Technology has cooperated with nearly 130 large enterprises, including LVMH, Siemens, BECKMAN COULTER, Hello Inc., 360, Moka, and China Resources Capital. It has accumulated considerable experience in several industries and has been implementing productized solutions to certain professional cases, which can be rapidly promoted and applied to more enterprises in the future.

Zhang Yifan, Investment Director of Blue Lake Capital, said: “After our first round of investment, Zhenling Technology has exceeded expectations in team-building and market expansion, winning contracts from many major clients. The product has also been quite ahead of the game. We are very optimistic about the future of contract management and One Contract Cloud.”

This article is reproduced with permission from 36 Kr, written by Wu Sijin and edited by Wang Yutong.

The SCC (Supply Chain Collaboration) platform ZONE (Shanghai Zhenyi Technology Co., Ltd.) announced the completion of Series A financing of 70 million RMB, led by Blue Lake Capital, followed by Redpoint, INFAITH GROUP, and YI Capital, with Yiren Capital as the exclusive financial advisor.

“Complete supply chain digitization should internally improve the efficiency of departmental collaboration while supporting multi-party collaboration with the external supply chain. Disappointingly, the fact that enterprises prefer to apply IIS (Inside Information Systems) + SRM (Supplier Relationship Management) while in the integration of internal and external SCM (Supply Chain Management) means they still need to arrange people to be stationed at the production sites of offline suppliers and OEMs to monitor real-time progress, inspect quality, manage costs, support business upgrades, establish traceability systems for multi-party collaboration plans, and regularly dispense feedback to concerned departments using relevant business systems (or by sending word or excel documents via email or WeChat). All of this not only takes time and effort, but requires plenty of manpower,” explained Zheng Xiangtian, CEO of ZONE.

Considering that, ZONE—incubated in China’s well-known IT consulting service provider, HAND—started using SCC to further its SCM in 2020. Its core product, Zone Cloud, an SCC SaaS platform, connects the demand side (large manufacturing enterprises or brands) with the supply side (suppliers and OEMs). Besides the application, customers can connect to the business systems of suppliers through the Octopus connector—a real-time production schedule tracker developed by ZONE to reduce internal waste, minimize conflict between supply and demand sides, and achieve common goals through early warnings (and timely control) of problems with delivery time, quality, and cost.

Specifically, ZONE proposes solutions for various cases, including master data collaboration, multiple suppliers, OEM manufacturing process, inventory management, change management and statistical analysis, quality forwarding and traceability, supply chain planning, supplier logistics, checking, supply chain exception sensing, analysis, and other cases that require supply- and demand-side collaboration.

Within two years of independent operation, ZONE has over 50 cooperative customers in various fields, including equipment manufacturing, lithium support, 3C, footwear, central kitchen pre-prepared dishes, and other fields, and over 1,000 linked supply-side enterprises.

Revenue mainly comes from two areas: SaaS subscription fees, including the basic and deep collaboration versions, with an average unit price ranging from 100,000 to 300,000, and an SaaS service fee, which is calculated separately, according to demand.

There are nearly 200 members of ZONE, of which 60% are product researchers. It’s reported that this round of financing was mainly used for product development and marketing.

Ray Hu, the founder and managing partner of Blue Lake Capital, had this to say:

“Enterprises have a higher demand for monitoring OEMs and suppliers with the digitization of the supply chain. However, a complete solution that satisfies enterprises well does not exist in this field.

ZONE aims to meet these needs by building a software platform that involves understanding production processes, adapting multiple business systems, and polishing out-of-the-box tools. It seems to be simple but requires continuously integrating diverse customer scenarios into a standardized SaaS product.

ZONE has accumulated over ten years of relevant experience. We are optimistic that ZONE will help Chinese companies build a tighter supply chain network to improve efficiency.”

On June 6, Blue Lake Capital received the certificate of the “TOP 20 Investment Firms in Enterprise Services that are Most Focused by LPs in 2021.” made by FOFWEEKLY on the first day of returning to office work  after the Shanghai lockdown.

After exploring the ways of building a core driving force for the GPs that are surviving and thriving in the new cycle of global economic development environment and local market development stage, FOFWEEKLY has put forward a relevant evaluation system and found many active firms including LP and LP-recognized GP.

Based on the above principles, FOFWEEKLY compiled a FOFWEEKLY “2021 Annual Investment Firm Ranking List” through its research on China’s equity investment industry. This listfocuses on leading firms with the most sustainable development in the new ecological environment. Important indicators include  length and prosperity of Firm, continuous return on investment, and social responsibility. In addition, it publicly recognizes the leading investment Firms that play an exemplary role in advancing social development.

As a new generation of research-driven venture capital funds, Blue Lake Capital has been closely following tech innovators in China’s digital transformation. Upgrades and enterprise services have been the key areas that Blue Lake Capital has focused on. With years of extensive and in-depth communication and engagement with entrepreneurs, the Blue Lake team has accumulated a broad base of know-how in the field of enterprise services. A multi-dimensional analysis mechanism has been established from products, implementation, sales, competitors, and cash flow, as well as administering a post-investment service system with unique Blue Lake characteristics. This was accomplished by creating a Blue Lake enterprise service ecosystem and integrating post-investment resources. In recent years, Blue Lake has invested in many industry-leading projects including JST, Zaihui, HELIOS, Momenta, and Moka.

Moving forward, Blue Lake Capital will continue to seek investment opportunities in the field of enterprise services and cooperate with outstanding entrepreneurs to create value for Chinese enterprises.

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