Jing Hong, the founding partner of Gaocheng Capital, a private equity firm based in Beijing, asserts that the growth potential of Chinese enterprise software companies has been significantly underestimated by investors. Speaking at the Forbes Global CEO Conference in Bangkok, Hong described Gaocheng Capital as the “last man standing” among investors still actively engaging with this sector. Despite the low stock prices causing many investors to withdraw, Hong maintains that her firm is positioned to become China’s leading enterprise Software-as-a-Service (SaaS) index. Her confidence is rooted in a significant track record, having been the lead investor in major firms like Meituan and Alibaba, and she sees an even larger opportunity within the enterprise software sector amid the current economic challenges and the rapid advancements in generative AI technology.
Hong describes the trajectory of enterprise SaaS companies in China as having transitioned through a period of overexpansion, entering a phase that she terms the “slope of enlightenment.” She believes investors are underestimating the compounding growth potential of these companies as they now find themselves priced attractively for investment. Gaocheng Capital, which manages approximately $1.8 billion in assets, selectively invests in Series B to pre-IPO phases of these software companies. Their portfolio includes various successful enterprises, leading to Hong being featured on Forbes’ Midas List for three consecutive years before last year. The firm’s focus remains unwavering in spotting revenue-generating potential and reshaping the perception of software from a mere capital expenditure to a crucial operational asset.
Furthermore, while the Chinese enterprise software market still lags behind the United States in maturity, Hong foresees a shift towards more outsourcing as companies successfully navigate current economic downturns. She notes that the median revenue for Gaocheng Capital’s portfolio companies has quadrupled over five years, reaching around 400 million yuan or approximately $55 million, with around 80% of these firms becoming profitable or cash flow positive. Companies in China are increasingly recognizing software as a vital component to enhancing operational efficiency rather than just a depreciated fixed asset.
The surge of artificial intelligence (AI) also plays a key role in shaping the landscape for Gaocheng Capital’s portfolio companies. Hong expresses strong confidence in the capabilities of these firms to leverage their technology, industry knowledge, and customer insights to harness AI effectively. For instance, Beisen Holding, previously a small stake in the firm, has recently launched AI-powered recruitment solutions, notably cutting costs significantly in the hiring process. Bairong, another key investment, has developed its proprietary large language model to enhance customer service through AI applications, leading to notable financial growth year-on-year.
Despite a notable slowdown in deal-making activities across China’s investment landscape, Hong remains optimistic regarding the future prospects of her investments. Since 2021, she has encouraged her portfolio companies to prioritize sustainable growth over rapid expansion. By maintaining a focus on key product lines and profitability, Hong believes that the current economic climate can ultimately reveal a cluster of leading Chinese SaaS companies exhibiting strong cash returns once capital market conditions stabilize.
In conclusion, Jing Hong’s perspective highlights a pivotal moment for Chinese enterprise software, marked by both challenges and significant potential. As Gaocheng Capital continues to back innovative companies in this space, Hong’s unwavering belief in their ability to create tangible value through advanced technology, coupled with a strategic focus on healthy growth, underscores the transforming dynamics of the sector. With this approach, she anticipates that these firms will emerge as robust players within the software industry, poised for enduring success in the competitive landscape post downturn.
