The hot project right now is financed like this | Frontline

Ask AI · How will new HKEX regulations reshape primary market financing?

Hello everyone, this is the 【Frontline】column under 投中 (China Venture Capital & Private Equity Association), bringing you the closest and most authentic “water temperature” of trading.

This is the third issue of 【Frontline】. In this episode, we discuss the “sentiment” in the primary market. In a stage where investment logic is almost “clear as day,” many investors’ feelings are actually quite complex: excitement over soaring valuations and open IPO doors, but also anxiety over the lack of good projects, impatience and frustration over inability to secure quotas, mixed with doubts about the authenticity of project valuations and confusion about industry development directions.

These feelings are intertwined, and as one investor complained to me: What’s going on with projects nowadays?

This investor summarized the main features of the hot projects in the market today (similar topics are also discussed on social media):

1. Our primary market financing now goes like this: at the beginning of the year, raise 3 billion yuan and close; in April, this round’s valuation hits 4 billion yuan, but it’s oversubscribed, so you can participate in the next round, which is 8 billion yuan. This round and the next are raising funds simultaneously, and if you miss the next round, it’s pre-IPO next year.

2. When asked about revenue, the answer is 250 million yuan (mainly to meet HKEX’s Rule 18C requirements for uncommercialized companies).

3. Planning to apply for Hong Kong stock listing in the second half of this year or next year, with the specific timing depending on whether the company has been established for at least 36 months.

4. No traditional “lead investor and follow-on” model; instead, it’s “first come, first served.”

5. No open due diligence; only a unified third-party report and interview records are provided.

If your invested project meets two or more of the above characteristics, congratulations, you’ve probably invested in one of the hottest projects in recent years. This year’s performance might just depend on it.

But it’s worth warning that these five features also sketch the current behavior profile of the primary market: valuation anchoring is no longer based on business fundamentals but on listing arbitrage expectations; investment processes have downgraded from professional due diligence to a game of抢名额 (抢占名额,抢占名额,抢占名额); the seller’s bargaining power has unprecedentedly expanded, forcing buyers to abandon usual risk control measures.

What exactly is behind this? After talking with several investors, I’ve drawn three conclusions.

First, driven by Rule 18C for listing.

One of the features mentioned above, “revenue of 250 million yuan,” points to HKEX’s 2023 Rule 18C for special tech companies listing. This rule opens an IPO channel for unprofitable tech firms, with the core criterion being: a commercialized company must have audited revenue of no less than 250 million HKD in its most recent fiscal year.

The original intention of this rule was good—providing financing channels for hard tech companies. But in practice, it has been “precisely arbitraged.”

The key node is August 2024, when HKEX further relaxed the thresholds: the market cap for commercialized companies was lowered from 6 billion HKD to 4 billion HKD, and for uncommercialized companies from 10 billion HKD to 8 billion HKD. This means that as long as revenue hits the threshold and valuation is pushed to 4 or 8 billion, an IPO is within reach.

As a result, “compliance scripts” are being mass-produced: first raising funds to push valuation to 4 billion (A-share STAR Market standard) or 8 billion (HKEX standard), then claiming “pre-IPO next year.” “Valuation meeting standards” has replaced “business success” as the core logic of project financing.

So investors’ frenzy is not blind; it’s driven by this logical chain, which was significantly reinforced in 2025.

Data shows that in 2025, under the expectation of normalized IPOs, the market rebounded sharply, with accelerated new stock issuance. In the same year, HK stocks reclaimed the top spot globally with 117 new stocks and a fundraising total of 286 billion HKD. “HK stocks are no longer ‘second best,’ but the ‘best option,’” has become a consensus.

Second, big water, big fish, but limited fish.

On one hand, market sentiment was concentrated after two years of “hunger.”

From late 2023 to mid-2025, many institutions experienced a long dormancy. Now, with the IPO window reopening, these “two years of pent-up” funds are exploding in a few sectors like tech, AI, embodied intelligence, forming FOMO (Fear of Missing Out). Therefore, the market is hotter than at any other time.

On the other hand, hot money is highly concentrated in a few popular industries, leading to severe project polarization. Top-tier projects are scarce, and institutions are scrambling for market share, giving sellers absolute bargaining power. Meanwhile, mid- and lower-tier projects are ignored.

Third, the overarching background dominated by state-owned capital.

This may be the deepest framework for understanding the current chaos. China’s primary market is clearly sliding into a new stage led by RMB. Especially, the investment goals of state-owned capital are more about serving national strategies, strengthening and supplementing supply chains, and industrial integration, rather than traditional VC pursuit of short-term financial returns. This makes the狂热 (craze) for “seemingly certain” IPO projects even easier to generate.

The most typical sector is commercial aerospace. Here’s a case shared by an investor Ying: a commercial aerospace company, from 2024 to October 2025, the founder tried tirelessly, but still couldn’t raise a penny. The owner mortgaged property, even borrowed high-interest loans to keep the company afloat, teetering on the brink. “By November 2025, suddenly, like magic, a big contract was signed, prepayment received, and the company came back to life.”

The turning point was a policy document—an important national policy encouraging the development of commercial aerospace.

“Once national policies encourage it, money floods into that sector,” Ying sighed. This also made this veteran realize that current investment logic runs along two lines: one is the market’s spontaneous selection and survival of the fittest “bright line”; the other is aligning with the rise of great powers and embedding into the national modern industrial system “dark line.”

Therefore, today’s investment logic has become “clear as day.” The resulting effects include the entire investment decision chain becoming extremely simplified and de-professionalized, leading to the collapse of the “lead investor mechanism” and the disappearance of due diligence. Investment has become a very simple matter: find connections, secure quotas, and run projects.

After dissecting these reasons, I’ll summarize investors’ “views” on the current situation, which generally include both pessimistic and optimistic perspectives: in the short term, beware of FOMO and bubbles; in the long term, the seemingly absurd heat today actually completes the “saturation-style investment” task in frontier fields. Just as there was no internet bubble, there would be no today’s tech giants. After the bubble bursts, a truly deep industrialization phase will follow.