For most small and medium-sized enterprises, private equity financing is the first contact with due diligence. Under normal circumstances, the due diligence of private equity funds (PE) is much more detailed than that of commercial banks, because private equity investment is relatively illiquid and can only be withdrawn through equity transfer and IPO in the process of mergers and acquisitions.

The first stage consists of eight steps.

1 First, the enterprise signs a service agreement with the investment bank (or financing consultant). The agreement includes the overall services provided by investment banks for enterprises to obtain private equity financing. Investment banks immediately began to set up full-time teams with financing enterprises to prepare professional private equity financing materials. 3 Private equity financing materials include: a. Private equity financing memorandum-about company introduction, structure, products, business, market analysis, competitor analysis, etc. (This memorandum appears as a slide, ***20-30 pages); B. Historical financial data-audited financial reports of the enterprise in the past three years; C. Financial forecast-the growth of sales revenue and net profit of the enterprise in the next three years after the financing funds are in place (PE usually relies on this forecast for enterprise valuation, so this work is very critical). Investment banks and enterprises have set a target valuation for enterprises, that is, how many shares the boss is willing to sell and how much money he will get. The author usually suggests that enterprises sell no more than 25% of the shares and minimize the dilution of the shares to ensure the boss's operational control over the enterprise. 5 Prepare private financing materials. Investment banks began to communicate with PE partners by teleconference and introduce the company to them. At the same time, the investment bank will send financing materials to a number of PEs to discuss the financing of the project with them. The goal of this stage is to make the best PE partners interested in the company. Under normal circumstances, investment banks will answer the first round of PE questions instead of enterprises and communicate intensively with these PEs. The goal is to decide which PE has the greatest interest in the company, which is likely to give the highest valuation, and has investment experience in related industries, which can help the company successfully go public. 8. Select a few most suitable investors. These investors are very familiar with the industry in which the company is located, are very optimistic about the company and will give the best price.

The second stage includes six steps.

1 arrange face-to-face talks between PE partners and company bosses. Investment banks usually send core personnel to attend all meetings, introduce the background of PE to the boss, help the boss optimize the way to answer questions, and summarize all meetings with PE. 2 field trip-PE will go to a factory, shop or other company office for field trip. At this stage, the boss doesn't have to attend, but he can send relevant personnel to accompany him. However, investment banks will accompany PE all the time to ensure that all their questions can be answered. Letter of Intent for Investment-The goal is to obtain $ TERM forms from at least two or three private equity firms. The letter of intent for investment is a preliminary investment intention contract issued by PE to enterprises. This contract will specify the company's valuation and some terms (including how many shares to sell, the type of shares, and the timetable for completing the final transaction, etc.). ). The best situation is to obtain multiple investment letters of intent and form a bidding equivalent to auction to obtain the most favorable price for the enterprise. Investment banks will negotiate with the owners of private equity funds to help them get the best prices and terms. It is up to the boss to decide which private equity investment fund to accept and sign a letter of intent for investment.

The third stage includes six steps.

1 due diligence begins. The investment bank will coordinate and organize the whole process, and ensure the close and smooth cooperation between lawyers and auditors of the company and lawyers and auditors of PE. 2 due diligence includes three aspects: a. financial aspects-completed by an accounting firm hired and paid by PE. They analyze the historical financial data of enterprises. B. Legal aspects-completed by a law firm hired by PE and paid for. They check the legal documents, registration documents, licenses and business licenses of enterprises. C. operation-completed by PE personnel. They analyze the operation, strategy and future business plan of the enterprise. Before sending these due diligence materials to PE and its legal and financial consultants, they need to be carefully checked to ensure the accuracy of the above materials and fully reflect the positive information of the enterprise. During the due diligence process of 4PE, investment banks usually conduct daily supervision and management to ensure the smooth due diligence and answer all questions of PE and business owners. Final contract-After the due diligence, PE will send us the final investment contract. This contract has more than 200 pages and is very detailed. The investment bank will negotiate and sign an agreement with PE together with the business owner. This is a very tense negotiation process. After signing the final contract, the funds will be paid to the company account within 15 working days.