Summary of the Core Content
This news article vividly depicts a ridiculous drama in the primary market (private equity investment) involving a frantic rush to secure investment opportunities. A leading quantum computing company announced that available funds were scarce, due-diligence was not required, and the minimum investment amount was 50 million yuan, which triggered a frenzy among institutions seeking to participate. In order to secure a spot, one fund abandoned the usual due-diligence process (relying on AI-generated reports and using negative information about competitors as evidence of scarcity). The investment committee even broke its own rules by making decisions on a case-by-case basis, but in the end, the opportunity was snatched away by a more aggressive family office. The entire incident exposes various issues in the primary market, such as the practice of “securing a spot first before evaluating the project,” “flawed due-diligence processes,” and “rules that exist in name only.”
Detailed Analysis
1. Reversed Investment Logic: “Securing a Spot” Is More Important Than Evaluating the Project
The normal investment process would involve conducting thorough due-diligence (assessing company data, team capabilities, and risks) before deciding whether to invest. However, in this case, the situation was reversed: the company claimed that funds were scarce and did not allow due-diligence, yet institutions were eager to secure a spot. Mr. Hu even suggested, “Next time we encounter such a project, don’t wait for the investment committee’s decision; just bring the agreement and try to push your way in.” He emphasized that valuation was unimportant; what mattered was getting in on the deal.
This is similar to buying milk tea: if the seller says, “The last cup is available, no tasting allowed,” you might rush to buy it without considering the taste, driven by a fear of missing out—essentially, “scarcity anxiety” overtook rational judgment, and everyone was betting on the potential for profit, not on the value of the product itself.
2. Due-Diligence as a Form of “Making Up Stories”: A Self-Deceiving Approach
How perfunctory was Xiao Li’s due-diligence?
- Lacking data? He asked existing shareholders about the founder’s personality and turned the refusal to provide due-diligence information into a sign of “high confidence in the business model.”
- Missing reports? He generated a 30,000-word industry analysis using AI to meet the required length.
- Gathering competitor information? He used negative comments from financial advisors about competitors as proof of the project’s scarcity (implying jealousy from rivals).
This is like a student writing an essay without proper research, using criticism from teachers as a justification for its “ uniqueness”—it was not genuine due-diligence but merely a pretext to justify the investment committee’s decision.
3. The Hidden Pitfalls in Profit Distribution: LPs Loss Before Even Making a Profit
The project team demanded a 6% upfront fee and a 20% profit-sharing fee, with the fund also charging LPs the same amount. This means that for every 1 million yuan invested by an LP, 120,000 yuan (6% + 6%) was deducted before the remaining funds could be used for the project.
It’s like paying a 12% “seat fee and service charge” before even ordering food at a restaurant—regardless of the quality of the food, you have to pay first. This is extremely unfair to LPs who provide the capital, but institutions are too focused on securing opportunities to care about these details.
4. The Investment Committee Becomes a Formality: Rules Are Flexible
The company had three strict rules: no investment in projects without due-diligence, no investment in companies where the actual controller is unknown, and no investment in SPVs (companies set up solely for investment purposes). However, these rules were all ignored this time:
- When asked if due-diligence had been conducted, Xiao Li gave a perfunctory answer, which Mr. Hu glossed over by saying, “Xiao Li worked overtime on the report.”
- When asked about how to determine the valuation, Xiao Li proposed three scenarios (optimistic, neutral, and pessimistic), and Mr. Hu added that “this case was special and could be decided on a case-by-case basis.”
The decision was ultimately approved unanimously. This is like a school rule against cheating being temporarily waived by a teacher due to “special circumstances,” turning the rules into mere formality and decisions based on personal connections and impulse.
5. The Illusory Nature of Scarcity: A Hunger Marketing Strategy
The project team’s claim of scarce funds and priority for industry insiders, along with the refusal to allow due-diligence, were designed to create anxiety among institutions, making them believe they would miss out if they didn’t act quickly. The fact that the opportunity was ultimately snatched by a family office suggests that this scarcity might have been artificially created—similar to a merchant claiming only 100 units are available when there are actually 1,000 in stock, aiming to drive buyers to buy hastily.
In the end, the fund wasted half a day without securing the investment opportunity, and Xiao Li’s report turned out to be nothing more than a demonstration of manipulative tactics. The real winners were the project team, which employed this “hunger marketing” strategy, and the more aggressive family office. This incident highlights the impatience in the primary market: everyone is focused on quick profits, yet they forget that the essence of investing is to invest in good projects, not just to secure a spot.
(The entire analysis is written in plain language, without technical jargon, making it easy for non-financial professionals to understand this absurd episode in the investment world.)