In the process of investment and financing activities of private equity funds, it is usually to raise funds to set up funds, screen target enterprises to find investment opportunities, and then the target enterprises make financing business plans, detailing the required funds and investment time, as well as profit forecasts, sales and sales growth forecasts and other issues of concern to private equity funds. Then private equity funds conduct due diligence on the target enterprises according to this financing business plan and decide whether to invest. And fully negotiate the price and terms of investment. If both parties can reach an agreement, they will sign investment and financing legal documents to enter the target enterprise, provide value-added services for the target enterprise, promote enterprise development and increase enterprise value, and finally withdraw from the project enterprise by IPO, listing on the New Third Board, etc.

I. Fund Raising and Fund Establishment

Private equity funds are different from securities investment funds, and usually adopt the model of investment commitment. That is to say, when setting up a fund, fund sponsors will first choose the most suitable fund organization form according to the investment plan and various private equity investment models, and then raise capital-fund according to the requirements of the fund organization form. Generally, it is not necessary to require all fund share investors to invest a predetermined amount of capital contribution, but only to obtain the commitment of capital contribution given by fund share investors. When a fund manager finds a suitable investment opportunity, he will inform all fund share holders and investors in advance to contribute. This kind of capital commitment is particularly obvious in limited partnership private equity funds. In actual fund-raising activities, the fund-raising time usually has a certain fund-raising cycle. When the term expires, the subscription deadline of fund shares will be announced, which may be one or more.

Second, the project screening

First of all, analyze the quality and ability of the enterprise manager or actual controller who intends to invest in the project, and evaluate the management level of the target enterprise. All private equity funds attach great importance to the evaluation of the management team of the target enterprise. Private equity funds need to examine the managers, management teams or actual controllers of the target enterprises from different angles, including technical ability, market development ability, financing ability and comprehensive management ability. For enterprises investing in the rapid growth period, the sales and market share of enterprises are very important. Therefore, in the growth period of enterprises, private equity funds are more willing to invest in enterprises controlled by managers or actual controllers of sales-oriented enterprises.

Secondly, the composition of product market is analyzed.

Finally, private equity funds need to examine the intellectual property content or technical content of the products produced by the target enterprise, including judging whether the technology used by the target is the first at home and abroad, whether it is advanced, how its reserve technical strength is, the possibility of technology industrialization and market prospects.

Third, due diligence or professional evaluation.

For the alternative projects after the screening stage, private equity funds need to conduct more in-depth, complex and time-consuming due diligence and professional evaluation on the enterprise after reaching the initial investment intention with the enterprise manager or actual controller. The results of investigation and evaluation will affect the decision of whether, how and how much private equity funds invest. This process is generally completed by a professional team set up by private equity funds themselves or an external professional intermediary. The contents of due diligence and evaluation include but are not limited to: enterprise management investigation, legal due diligence, financial due diligence, etc. The investigation and evaluation team usually includes professionals such as accountants and lawyers.

The specific contents of enterprise management inspection and evaluation mainly include: the quality of the founding shareholders and management team of the enterprise, including the dedication to the enterprise, the motivation to develop the enterprise, reputation and creativity; Product differences, including product characteristics, prices and distribution channels; Enterprise innovation degree, technical team, technical level and competitiveness in the market or industry; Enterprise management mode, etc.

The legal due diligence conducted by private equity funds is mainly to understand whether the enterprise is involved in disputes or lawsuits; Whether the property rights of land and real estate are complete, the term of trademarks and patents, etc. Many financing enterprises are newly established enterprises, which often have some legal problems and institutional defects. Both private equity funds and target enterprises should gradually clean up and solve these problems in the process of investigating and evaluating the target enterprises.

Financial due diligence can be divided into the investigation of the overall financial information of the target enterprise and the investigation of the specific financial situation of the target enterprise, including the financial organization, accounting policy, tax policy, salary system and specific monetary funds, accounts receivable, inventory, long-term investment, construction in progress, fixed assets, intangible assets, bank loans, accounts payable, taxes payable, sales income and costs, other business profits, investment income and cash flow, etc., so as to have a clear understanding of the target enterprise. Financial due diligence can be divided into the investigation of the overall financial information of the target enterprise and the investigation of the specific financial situation of the target enterprise, including the financial organization, accounting policy, tax policy, salary system and specific monetary funds, accounts receivable, inventory, long-term investment, construction in progress, fixed assets, intangible assets, bank loans, accounts payable, taxes payable, sales income and costs, other business profits, investment income and cash flow, etc., so as to have a clear understanding of the target enterprise. Four. Investment decision-making and negotiation of transaction terms, so as to evaluate the possible impact on the investment of the target enterprise.

The main contents of negotiations between private equity funds and the management or actual controller of the target enterprise include: transaction pricing; To decide the control right of the enterprise, the types and combinations of financial instruments and the capital structure; The requirements for future financing, the intervention of management and the arrangement of capital withdrawal methods.

Four. Design and signing of investment and financing agreement

The investment and financing agreement is a formal legal document based on the letter of intent for investment, which has legal effect on both private equity funds and target enterprises, and both parties must abide by it. Investment and financing agreements include not only commercial terms such as corporate governance structure, entry strategy and launch strategy, such as valuation and pricing, arrangement of board seats, and veto power of investors, but also many complicated financial and legal terms, which require accountants, lawyers and other professionals to participate in negotiations to protect the legitimate rights and interests of both parties and avoid future disputes.

The entry strategy in investment and financing agreements usually includes two ways: equity transfer and capital increase and share expansion.

Exit strategies usually include equity transfer, buyback by shareholders or management of the target enterprise, listing and liquidation, among which the exit of the target enterprise by issuing shares is the best exit method with investment return.

Verb (abbreviation for verb) provides value-added services.

6. Withdraw cash.

Due diligence of private equity funds

Due diligence summary

The general process of due diligence is: establishing a project, setting up a working group, drafting an investigation plan, sorting out/summarizing information, writing an investigation report, internal audit, submitting a report, filing management, and participating in the design of an investment plan.

The channels of due diligence include: field investigation of enterprise assets and facilities; Negotiate with the management of the target enterprise; Consulting banks, accountants and lawyers who have business dealings with the target enterprise; Communicate with the target enterprise registration authority and relevant departments of the local government; Contact the former and present business partners, customers and suppliers of the target enterprise; Investigate the market share of similar enterprises; Views of other private equity funds in the industry; Even the competitors and other channels of the target enterprise can fully understand the real situation of the target enterprise.

Enterprise management due diligence

I. Overview of due diligence in enterprise management

Due diligence in enterprise management means that private equity funds use scientific methods to investigate and verify the personnel management, financial management, security, administrative management, contract management, R&D management, production management, procurement management and marketing management of the target enterprise, so as to better understand the real situation of the target enterprise, evaluate the management level of the enterprise, and how to determine where investment should strengthen the management of the target enterprise.

The focus of M&A investigation is the completeness of legal documents, and for private equity funds, the due diligence of enterprise management should focus on the contents related to enterprise operation and production.

Second, the content of enterprise management due diligence

Generally speaking, enterprise management due diligence includes the following aspects:

(A) the basic situation of the enterprise

1. Historical evolution of enterprises;

Background and introduction of establishment; Changes in the ownership structure, capital increase and asset reorganization since the establishment of the enterprise; The main development stages since the establishment of the enterprise, and the reasons for the changes and development in each stage;

2 major changes in business development, production capacity, profitability, sales volume and product structure since the establishment of the enterprise;

3 enterprises' foreign investment, including investment amount, investment proportion, investment nature and investment income. And the introduction of the invested unit;

4. The dividend distribution of the enterprise over the years and the current dividend distribution policy;

5. Whether the enterprise has a sound shareholders' meeting, board of directors, board of supervisors, professional committees and other institutions, what are the functions of each institution, whether the meeting system is sound, the implementation situation, the frequency of meetings, meeting minutes and other files are kept by special personnel;

6. Composition of the board of directors and the board of supervisors of the enterprise; Resumes of directors, supervisors and senior managers; Senior managers, members of the board of directors and members of the board of supervisors work part-time overseas;

7. Shareholder structure and introduction of major shareholders: including background introduction, shareholding ratio, main business, registered capital, asset status, profitability, business scope, legal representative, etc. Business dealings between enterprises and major shareholders (such as raw material supply, cooperative research and development of products, patented technology and intellectual property rights, sales agents, etc.). ), capital transactions, and whether there is a related party transaction contract to regulate the above business and capital transactions and transactions; What support does the main shareholder of the enterprise have for the business development of the enterprise, including capital, market development, research and development, technology investment, etc. ;

8. Relevant information about the enterprise (factory) to which the enterprise belongs, including: name, business, assets, financial status, income and profitability, and foreign business dealings; Relevant information of the holding subsidiary, including: name, business, asset status, financial status, income and profit status, foreign business dealings, capital and business dealings; How to manage enterprises, wholly-owned subsidiaries (factories) and holding subsidiaries in administration, sales, material supply and personnel;

9. Introduction of major shareholding companies or enterprises.

Basic contents of financing business plan

The whole content of the financing business plan can be simply summarized as a central idea: I hope that private equity funds can invest in the target enterprises, and enterprises can bring feasible investment returns to private equity funds. Every enterprise that wants to raise funds should make a financing business plan according to the actual situation of its own enterprise and this idea. A complete financing business plan includes the following basic contents:

(1) Summary of financing business plan

The outline of financing business plan is the first thing that private fund managers see, so it must be the core of the main content of financing business plan and the essence of financing business plan. It must be attractive to make investors interested and hope to get more information about the enterprise. The brief content is the basic feature of the summary, so it is necessary to write the summary in concise and accurate language, and when making the summary, we must try to control the writing of the summary to about 2000 words. The summary mainly includes the following contents:

1. Basic information and contact information of the enterprise;

2. Commercial operation;

3. Enterprise summary;

4. Management team and management organization;

5. Industry status and market of products;

6. Description of financing;

7. Financial planning and analysis (including capital use and profit forecast);

8. Exit mechanism.

(b) Enterprises and their future

This branch covers most of the business scope of the enterprise. The core content that private equity funds want to know is the uniqueness of enterprise business and its dynamic influence on the future profit prospects of enterprises, that is, private equity fund managers can determine the key factors for enterprises to win in the competition of the whole industry through their unique understanding of enterprises. The content of enterprise and its future covers a wide range, mainly including the following contents:

1. Enterprise profile: refers to the name, establishment time, registered capital, actually paid-in capital, proportion of cash and intangible assets in shares, place of registration, nature of the enterprise, main business, historical evolution, development stage, ownership structure, etc.

2. Business nature: briefly introduce the main business of the enterprise, and briefly describe the corresponding products or services, so that the private equity fund manager can know the products or services of the enterprise as much as possible.

3. History of enterprise development: including the time of producing products or providing services, the important stages of enterprise development and major events in the development process.

4. Enterprise prospect: It can describe the future business development plan of the enterprise in chronological order and point out the key development stages. In this part, investors such as private equity funds generally need to know the business development direction of the enterprise in the next few years and the reasons for its changes. If an enterprise expects that its future business will be tested by many changing factors, it should explain the necessary conditions for its development success.

5. Originality of products or services: The uniqueness of an enterprise can be manifested in the management team, products or services, financing structure and arrangement. In short, an enterprise can have a good profit prospect only if it is unique in its products or services.

6. Product or service price: a description of the pricing strategy of the enterprise's products or services, including product price, price formation basis, cost, profit and profit composition, etc. Private equity funds need to know whether the product pricing has fully considered all the influencing factors, including the composition of the price, whether it is logically accepted by the market, whether the product pricing reflects the price trend under competitive conditions, whether the price can resist the pressure of price reduction from the market, and so on.

7. Customer group characteristics: including customer characteristics description, purchase motivation, main buyers of products and their purchase amount, and single batch purchase amount.

8. Product market description: mainly describe the product market. Including the total sales to the industry, growth rate, market share and so on. Private equity funds can grasp the market share of enterprises accordingly.

9. Competitors or substitute products: mainly describe and analyze all competitors and manufacturers, especially analyze their market share, annual sales and financial strength. In addition, we need to analyze the advantages of our products. Some enterprises may have no competitors temporarily because they have certain patent rights or franchise rights, but stronger competitors or substitute products may appear in the future investment period. Therefore, private equity funds must know about potential competitors and choose the time and way to enter the market. If companies don't know much about competitors, private equity foundations carefully evaluate the sustainability and reliability of their growth.

10. marketing strategy: describe the product sales process and distribution channels, and the basic links include: enterprise sales model, advertising strategy, market penetration strategy, sales obstacles, sales personnel composition, etc. Based on this, private equity funds analyze and evaluate the marketing strategy of enterprises to understand the whole process of products from the production site to the hands of users.

1 1. production technology: the manufacturing process of products and its influencing factors, focusing on the production capacity, key production links, quality control and production process of enterprises, and on this basis, confirming the production cost and sales cost of enterprises.

12. Composition of human resources: including the labor resources and present situation of the enterprise, and the forms of employees required for producing and selling products. The main contents include: theater geographical distribution, employee education, employee training plan, salary cost, allowance and year-end bonus, employee-management relationship, trade union situation, working time arrangement, proportion of technicians, confidentiality contract and non-competition contract, employee incentive mechanism, etc.

13. Supplier: the supply status of raw materials and necessary parts of the enterprise, including the suppliers of raw materials, the supply channels of raw materials and whether the supply of special external parts is timely and reliable. A list of some suppliers should also be provided, including their names, addresses, telephone numbers, main contacts, largest suppliers and supply balances, as well as information on key suppliers and sole raw material suppliers.

14. Equipment: the basic conditions of equipment necessary for the production of an enterprise, including the main equipment that the enterprise has or plans to purchase, the total amount of fixed assets and its realized value, the output and output value realized by using the existing equipment, the procurement cycle of equipment, the difficulty of equipment procurement, the difficulty of equipment installation and the special technical requirements arising from operation, the specificity and mortgage value of equipment, the maintenance cost of equipment, the depreciation speed of equipment, the speed of equipment technical update and so on.

15. Asset composition and capital: including existing fixed assets types and future fixed assets investment demand, asset mortgage status, fixed assets depreciation, existing production capacity and income, fixed assets related to financial leasing and lease agreement documents.

16. Intellectual property rights such as patents and trademarks: information such as patents and trademarks held or to be applied by an enterprise, so as to judge whether the enterprise is truly unique.

17. research and development: including research and development expenditure, funds invested and planned in the future, and the enterprise's explanation of the purpose and effect of investing these R&D funds.

18. Disputes involved: Does the enterprise involve or may involve various disputes, such as commercial debt relations, user litigation, patent disputes, etc.

19. government control: in some special industries, government control may have a significant impact on the future development of enterprises, such as the production of drugs or special import and export products, and it is necessary to disclose relevant laws and regulations on government control.

(3) Enterprise management team

The status of the enterprise management team, including directors, supervisors, managers and other key personnel (such as core technicians).

1. management resume: the list of senior management personnel and key personnel such as the general manager, deputy general manager and chief financial officer, including their names, ages, positions, experiences and education levels.

2. Professional ethics of managers: Enterprises need to provide materials on lawsuits and disputes involving managers in the past, especially whether the management, directors, supervisors and major shareholders have bankruptcy or bad credit records.

3. Salary expenses of managers, that is, the income of directors, supervisors and senior managers, as well as directors' fees, consulting fees, commissions, bonuses, wages and other expenses.

4. Equity arrangement: whether the enterprise arranges stock options for the internal managers of the enterprise. For the management members who have enjoyed stock options, the number of options, the average exercise price, the exercised number and the unexercised number shall be listed, and the reasons for the unexercised number shall be explained.

5. Employment contract: labor contract involving key employees, reasons and years of employment, and various welfare arrangements for employees.

6. Conflict of interest: fully disclose whether there are conflicts of interest such as kinship and family management between senior management personnel and shareholders.

7. Consultants, accountants, lawyers and loan banks: a list of consultants, including the names, addresses, contact numbers and fees of accounting firms, law firms, loan banks and related personnel who provide services for enterprises.

8. Enterprise management organization, departmental functions and corporate governance structure.

9. Information about the construction of corporate culture system.

(4) Financing needs and relevant explanations.

1. Suggested financing method: The enterprise's intention to choose investment tools and the details of the corresponding conditions should provide targeted solutions to provide a basis for subsequent financial arrangements and structural design. If ordinary shares are sold, it should be clear: the type of ordinary shares, whether dividends are distributed, whether dividends can be accumulated, whether shares can be redeemed, the price of shares and the attached voting rights. If the preferred shares are sold, it is necessary to explain: the payment method of dividends, whether there are repurchase arrangements, whether they can be converted into common shares and the corresponding conversion price, the rights of preferred shareholders, etc. Where convertible bonds are sold, the term of creditor's rights, interest rate, conversion price and proportion shall be specified; If it is a stock option, list: purchase price, exercise price of the option, number of shares purchased and limited term of the option, etc.

2. Capital structure: the change of capital structure after the enterprise obtains the private equity fund.

3. Financing mortgage and guarantee: whether the enterprise is willing to provide corresponding collateral for obtaining private equity funds; Whether the enterprise provides personal or company guarantee for financing: if it is personal guarantee, provide personal property certificate; If it is an enterprise guarantee, provide the capital verification report of the enterprise.

4. Operating report: It mainly introduces the ways in which an enterprise intends to report its operation and management to private equity funds after obtaining investment from private equity funds, such as providing monthly income statement, balance sheet or annual audited financial statements.

5. Capital utilization plan: the detailed plan of the enterprise for the funds needed in the next few years and the use of these funds.

6. Ownership: The financing business plan shall list the number of shares held by existing shareholders and the number of shares held by private equity funds after investment, and give the price for obtaining ownership; The equity ratio of each shareholder; If land, buildings, machinery and equipment or venture shares are considered, the current market value of these markets should also be stated.

7. Payment of expenses: the amount and payment method of consulting fees, attorney fees and other expenses incurred in the investment process.

8. The involvement of private equity funds in enterprise management: Private equity funds generally require a certain seat on the board of directors of enterprises. If enterprises want private equity funds to participate more in enterprise management, they can explain again what value-added services enterprises need and the fees paid for providing these value-added services.

(5) Risk factors

Explain the main risks faced by enterprises. Although private equity funds will doubt the objectivity of enterprises and make independent judgments based on their own evaluation experience, the questions raised by enterprises are helpful to the evaluation of private equity funds. Generally speaking, risks include:

1. Short operating cycle. If the enterprise has just been established, short operating history will be the main risk content discussed by both parties.

2. Management experience, which may lead to inexperience if the management is young or just entering this field.

3. Market uncertainty, market uncertainty related to sales.

4. Production uncertainty, any production uncertainty should be explained.

5. Debt risk, the enterprise should analyze the debt situation of the enterprise, whether it has sufficient solvency, and let the private equity fund confirm how much investment it can recover if the enterprise is in trouble and has to go bankrupt.

6. For the dependence on the core figures, the enterprise should explain to the private equity fund that if any core figure of the enterprise leaves or dies, it will bring negative impact to the enterprise; Who can replace this person; Who will lead this enterprise?

(VI) Return on investment and withdrawal

Private equity funds don't invest for investment's sake, but to get the return on investment, so enterprises should describe to private equity funds the way to finally withdraw from investment. For private equity funds to withdraw from investment enterprises, enterprises should also look at the issue of investment withdrawal from their own point of view, especially the possible impact of the non-stop choice of withdrawal methods on enterprises.

1. Stock issuance and listing: Stock issuance and listing is undoubtedly the most desirable result for investors and financiers, but it is also the most difficult. After the company went public, the socialization of share capital enabled some or all of the shares held by private equity funds to be cashed out. A financing enterprise shall formulate a plan for issuing shares for listing, such as listing time, listing place and listing method.

2.M&A: M&A is also an important way for private equity funds to withdraw from the target enterprises, especially when the capital market is depressed and it is difficult for enterprises to go public through public offering in a short time.

3. Repurchase: It means that after the private equity fund has invested in the target enterprise for several years, the invested enterprise repurchases the shares owned by the private equity fund in the enterprise at the price agreed in advance or calculated by the pricing method, so as to realize the withdrawal of the private equity fund.

4. Liquidation: After the private equity fund invests in the target enterprise, under what circumstances can the private equity fund recover its investment through enterprise liquidation, nor can it conduct mergers and acquisitions between enterprises and repurchase the target enterprise.

(VII) Business analysis and forecast

An enterprise should comprehensively analyze its current operating conditions and project prospects, that is, according to its financial data, describe its financial conditions in recent years, including net income, sales costs, operating expenses, interest expenses and interest income, and classify these data, so that private equity funds can clearly understand its operating conditions and future development prospects.

(8) Financial statements

For growing and mature enterprises, it is very important for private equity funds to provide a complete set of financial statements, especially the financial statements have not been audited by independent audit institutions. Financial statements generally include consolidated balance sheet, consolidated income statement, cash flow statement and off-balance sheet items. Through financial statements, private equity funds can grasp the financial ratio, operating results, solvency, accounts receivable and payable, liabilities and other contents of the enterprise.

(9) Explain the financial forecast of the enterprise in the next five years and the detailed monthly cash flow statement for the next year, so that private equity funds can roughly grasp the cash flow trend of the enterprise and lay the foundation for the next prudent investigation of enterprise value evaluation.

(ten) the basic situation and financial content of the relevant enterprises.

In order to let the private equity fund know the basic situation of the enterprise more intuitively, the documents mentioned in the financing business plan are attached to the plan in the form of attachments.