● There is no listed transaction, because there is no ready-made market for the transferor and acquirer of unlisted companies to directly reach a transaction. Therefore, investors who have money to invest and enterprises that need to invest must rely on personal relationships, industry associations or intermediaries to find each other.
● There are many sources of funds, such as wealthy individuals, venture funds, leveraged buyout funds, strategic investors, pension funds and insurance companies.
● There are three main ways of return on investment: public offering, sale or merger, and reorganization of enterprise capital structure. For foreign-funded enterprises, private equity financing not only has the advantages of long investment cycle and increased capital, but also may bring professional skills needed by enterprises in management, technology and market. If investors are large-scale well-known enterprises or well-known financial institutions, their fame and resources will also help to raise the price of listed stocks and improve the performance of the secondary market when enterprises go public in the future. Secondly, compared with the volatile and unpredictable open market, the equity investment capital market is a more stable source of financing. Third, in the process of introducing private equity investment, competitors can be kept secret, because information disclosure is limited to investors, not as public as listing, which is very important.
Enterprises can choose financial investors or strategic investors to cooperate, but enterprises should understand the characteristics, advantages and disadvantages of financial investors and strategic investors, as well as their different requirements for investment targets, and choose suitable investors according to their own conditions.
Strategic investors-enterprises in the same industry or related industries that attract foreign investment. If the attracting enterprises want to get the support of investors in corporate management or technology while reducing financial risks, they usually choose strategic investors. This will help to improve the company's credit reliability and position in the industry, and at the same time, it can obtain the complementarity of technology, products, upstream and downstream business or other aspects, thus improving the company's profitability and profitability. Moreover, when enterprises need further funds in the future, strategic investors have the ability to provide further funds.
The investment period of strategic investors is usually longer than that of financial investors, because any equity investment made by strategic investors must conform to their overall development strategy, out of comprehensive consideration of production, cost, market and other aspects, rather than just focusing on short-term financial returns. For example, many multinational companies invest in China because they take a fancy to China's market, scientific research resources and cheap labor costs. Therefore, strategic investors will have greater control over the company, have more requirements for the proportion of the board of directors, and will participate more in management, which may increase the difficulty of running-in between management and corporate culture.
One risk that foreign-invested enterprises need to pay attention to is that strategic investors may become potential competitors. If a multinational company shares several enterprises in China, it may be contrary to the long-term development strategy or goal of the foreign-funded enterprise to arrange its own products and markets or set up a wholly-owned enterprise for the overall consideration of the headquarters. In addition, strategic investors can also set up the "preemptive right" when the company is sold in the investment terms (that is, investors have the right to buy the shares to be transferred by the original shareholders under the same conditions) and other terms to protect their investment interests. Therefore, foreign-funded enterprises need to understand the real intentions of investors and use negotiation skills to strive for favorable conditions for long-term development.
Financial investors refer to private equity investment funds. Funds are not necessarily industry experts. Some investment funds have industry tendencies and have rich industry experience and resources. Financial investors and strategic investors have different requirements for invested enterprises in the following three aspects:
● Control company
● Importance of return on investment (relative to other long-term strategic considerations, such as market share)
● Exit requirements (time length and method)
Most financial investors only contribute capital, generally do not participate in the daily management and operation of enterprises, and are unlikely to become potential competitors except for participating in major strategic decisions of enterprises at the board level. Once investing, it is difficult for financial investors to control their own investment, so it is very important to choose investment objects with good management, high growth and reliable management team. In China, many foreign investment funds often ask themselves to appoint the chief financial officer of the joint venture company to ensure that they can create their own understanding of the real financial situation of the enterprise.
Financial investors pay attention to the medium-term (usually 3-5 years) return of investment and quickly withdraw from the mechanism space with listing as the main space. Only in this way can the funds they manage be liquid. Therefore, when choosing investment targets, they will examine whether the company's performance after three to five years can meet the listing requirements, which market its shareholding structure is suitable for listing, and their financial experience and contacts are also conducive to the company's future listing.
Types of private equity investment funds-There are four types of private equity investment funds invested in China: one is specialized independent investment funds with diversified sources of funds. Second, investment funds under large diversified financial institutions. Both of these funds have the nature of trust, and their investors include pension funds, universities and institutions, wealthy individuals, insurance companies and so on. Interestingly, American investors prefer the first independent investment fund, thinking that their investment decisions are more independent, while the second fund may be interfered by the parent company; European investors prefer the second type of funds, thinking that they are safer because the parent company has a good reputation and sufficient capital. Private equity investment fund. The fourth is the investment fund of large enterprises, whose investment serves the development strategy and portfolio of their group, and the funds come from within the group.
Different sources of funds will affect the structure and management style of investment funds, because different funds need different investment purposes and strategies and have different risk tolerance.