1. The return on equity investment is very rich. Unlike debt investment, which gets a certain proportion of invested capital, equity investment gets dividends from the company's income according to the proportion of capital contribution. Once the invested company is successfully listed, the profit of private equity investment fund may be several times or dozens of times.
2. Equity investment is accompanied by high risks. Equity investment usually needs to go through several years of investment cycle, and because it is invested in developing or growing enterprises, the development risk of the invested enterprises themselves is very high. If the invested enterprise ends in bankruptcy, the private equity fund may lose all its money.
3. Equity investment can provide all-round value-added services. Private equity investment not only injects capital into the target enterprise, but also injects advanced management experience and various value-added services, which is also a key factor to attract enterprises. While meeting the financing needs of enterprises, private equity investment funds can help enterprises improve their management ability, expand procurement or sales channels, integrate the relationship between enterprises and local governments, and coordinate the relationship between enterprises and other enterprises in the industry. All-round value-added services are the highlight and competitiveness of private equity investment funds.
The profit model of private equity investment funds is the same as that of securities funds, buying low and selling high, buying for selling, and obtaining long-term capital appreciation income. Specifically, the profit of industrial funds is divided into five stages:
1. Value discovery stage: finding high-quality projects with investment value through project search, and reaching an understanding of investment cooperation with the project parties.
2. Value holding stage: after the fund manager completes the due diligence on the project, the fund completes the investment in the project company, becomes the shareholder of the project company, and holds the value of the project company.
3. Value promotion stage. Fund managers rely on their own advantages of capital aggregation and resource integration to upgrade the strategy, management, market and finance of the project company in an all-round way, so as to improve and optimize the fundamentals of the enterprise and effectively enhance its intrinsic value.
4. Value amplification stage. After 2-3 years' cultivation, the value of the projects invested by the fund will be improved, and the value will be enlarged by publicly issuing shares in the capital market or selling them to industrial groups and listed companies at a premium.
5. Value realization stage. After the project invested by the fund is listed in the capital market, the fund manager should choose the right time and reasonable price to sell the shares of the project enterprise in the capital market to realize the ultimate value.