1. Invested enterprise
All invested enterprises have an important feature-they need capital and strategic investors. Enterprises need funds of different scales and uses at different stages of development: start-up enterprises need start-up funds; Enterprises in the growth period need to raise funds necessary to expand their scale and improve their production capacity; Enterprises in restructuring or reorganization need to inject merger and reorganization funds. Enterprises facing financial crisis need corresponding working capital to tide over the difficulties; Relatively mature enterprises need some capital injection before listing to meet the corresponding requirements of the securities trading market; Even listed companies may still refinance in various forms as needed.
2. Fund management companies
Private equity investment needs to take the form of funds as the carrier of funds. Usually, fund management companies set up different funds to raise funds and then hand them over to different managers for investment operation. Fund managers and managers are the main components of fund management companies. They are usually professionals with rich industry investment experience, specializing in enterprises in specific industries and specific development stages. After investigation and study, they put their money into the equity of several enterprises with keen eyes in order to withdraw and gain capital gains in the future.
3. Investors of private equity investment funds
Only investors with private equity investment funds can successfully raise funds to set up funds. Investors are mainly institutional investors, but also a small number of wealthy individuals, which usually have a high threshold for investors. In the United States, public pension funds and enterprise pension funds are the largest investors in private equity investment funds, and their investment accounts for 30% ~ 40% of the total funds. Institutional investors usually promise a certain amount of investment to fund management companies, but the funds are not put in place at one time, but injected in batches.
4. Intermediary service agencies
With the development and maturity of private equity investment funds, all kinds of intermediary service institutions are also growing. These include: (1) professional consultants, who seek opportunities for private equity fund investors and win the trust of customers with their excellent insight into enterprise operation, technology, environment, management, strategy and business; (2) Financing agent, which manages the whole financing process. Although many investment banks also provide the same service, most agents operate independently; (3) Marketing, public relations, data and investigation institutions. In marketing and public affairs, some groups or experts provide support for private equity fund management companies, and increasingly complex marketing and social strategies constitute a huge demand for data and research for private equity fund management companies; (4) Human resource consultants, with the development of private equity investment industry, there is an increasing demand for human resource services. These institutions are engaged in recruiting management team members of invested enterprises or fund managers of fund management companies. (5) Stock brokers, stock brokerage companies provide financing services for private equity investment funds in addition to listing and selling stocks; (6) Other professional service organizations and private equity investment fund management companies also need the services of agents and consultants in property or real estate, fund custodians, information technology service providers, professional training institutions, pension and insurance actuarial consultants, risk consultants, tax and audit firms and other professional organizations. Intermediary service agencies are playing an increasingly important role in the private equity investment market. They help private equity investment funds to raise funds, connect enterprises and funds that need funds, and evaluate the performance of private equity investment funds for investors. The existence of intermediary service agencies reduces the information cost of private equity investment funds. Different from most other forms of capital, and also different from borrowing or stock investment of listed companies, private fund managers or managers provide value-added services such as management technology and enterprise development strategy while bringing capital investment to enterprises. It is a long-term investment with strategic investment as its original intention. Of course, its operation process will also be a long-term and lasting process. The operation mode of domestic private equity investment funds and overseas venture capital funds is basically the same, that is, after the fund manager raises funds in a non-public way, he invests the funds in the equity of non-listed enterprises, manages and controls the invested companies to maximize the value of the companies, and then withdraws the funds after the companies are listed or acquired, and recovers the principal and gains. Its investment operation is basically completed according to a series of steps, from the discovery and determination of the project, and then through negotiation and due diligence, the final contract terms are determined, the investment is completed, and the benefits are obtained through subsequent project management until the investment exits. Of course, different private equity investment funds have different characteristics and work processes, but they are basically the same.
1. Find items
The important foundation for the success of private equity investment is how to obtain good projects, which is also the most direct test of the ability of fund managers. Every manager has his own professional research industry, and a more detailed investigation of industry enterprises is a way to find a good project. In addition, the contact with the top managers of various companies and the broad social interpersonal network are also one of the sources of excellent projects, such as professional service institutions such as investment banks, accounting firms and law firms, which may provide a lot of valuable information. Of course, usually the most direct way is to let the project party submit the business plan directly. After obtaining the relevant information, the private equity investment company will contact the target enterprise to express its investment interest, and if the other party is also interested, it can make a preliminary evaluation.
2. Preliminary assessment
After the project manager claims the project, under normal circumstances, the preliminary judgment of the project should be completed in a relatively short time. In the preliminary judgment stage, the project manager will focus on the following aspects: registered capital and approximate equity structure (which can be ignored if the company is not established in the seed period), industry development, competitiveness or profit model characteristics of main products, general operation of the previous year, initial financing intention and other enterprises that will help the project manager judge the investment value of the project. Preliminary judgment is the basis for further discussion and due diligence with the management of the company. In the process of preliminary evaluation, it is necessary to communicate with customers, suppliers and even competitors of the target enterprise and refer to the research reports of other companies as much as possible. Through these efforts, private equity investment companies will have a deeper understanding of the industry trends and business growth points where the investment targets are located.
3. Due diligence
After the initial evaluation, the investment manager will submit a proposal for project establishment, and the project process has entered the due diligence stage. Because the success or failure of investment activities will directly affect the future development of both investment and financing companies, investors must clearly understand the details of the target company, including its operating status, legal status and financial status. There are three main purposes of due diligence: finding problems, finding value and verifying the information provided by financing enterprises.
At this stage, the investment manager will not only hire an accounting firm to verify the financial data of the target company, check the company's management information system and carry out audit work, but also carefully evaluate the technology, market potential and scale of the target company and management team. This procedure includes contacting potential customers, consulting industry experts and holding talks with the management team to audit and evaluate assets. It may also include talking with corporate creditors, customers and related personnel (such as former employees), and their opinions will help investment institutions draw conclusions about corporate risks.
4. Design investment plan
After due diligence, the project manager shall form a research report and investment suggestions, and provide financial opinions and audit reports. The investment plan includes valuation and pricing, board seats, veto power and other corporate governance issues, exit strategy and determination of contract terms list. Due to the different starting points and interests of private equity investment funds and project enterprises, the two sides often have differences in the negotiation of valuation and contract terms list, which requires high technology and requires negotiation skills and the assistance of accountants and lawyers.
5. Transaction structure and management
Ordinary investors will not inject all the investment at one time, but invest in stages. Each investment is based on the premise that the enterprise reaches the preset goal, which constitutes an agreement-based supervision of the enterprise. This is a necessary means to reduce risks, but it also increases the cost for investors. In this process, different investors choose different supervision methods, including reporting system, monitoring system, participation in major decisions and strategic guidance. In addition, investors will also use their networks and channels to help enterprises enter new markets, find strategic partners, play a synergistic effect, reduce costs and improve profits.
6. Project exit
The withdrawal of private equity investment refers to the fund manager selling the equity of the invested enterprise in the market in order to recover the investment and realize the investment income. The withdrawal of private equity investment fund is the last link of private equity investment, which is related to the recovery and appreciation of its investment. The purpose of private equity investment is to obtain high returns, and whether the exit channel is smooth is an important issue related to the success of private equity investment. Therefore, the exit strategy is a factor that private equity investors need to pay attention to when they start to screen enterprises.
Complete the whole process of a private equity investment project from the beginning of finding the project to the end of quitting the project. In real life, investment institutions may operate several projects at the same time, but basically each project has to go through the above process. For private equity investment funds, it is very challenging to find good enterprises, good managers or management teams. Finding a project, pre-evaluation and due diligence are the basis of private equity investment, and passing the test of these three is the premise of investment. In the whole project evaluation process, each fund's preference is different, and its evaluation criteria will be different, but the following criteria are generally followed:
1. High growth of enterprises and products.
First of all, enterprises should have high growth, that is, the company can reach a certain scale of operation in a relatively short time; Secondly, the invested enterprise must have certain competitive advantages, such as advanced technological advantages or being in a leading position in the industry field; Thirdly, enterprises should have good products. A good product must have the following characteristics: (1) It should not only meet the existing market demand, but also meet the potential market demand; (2) It must be unique, with good expansibility, reliability and maintainability, and can meet some special needs of people, so as to gain an exclusive or leading position in the market; (3) The service market should be large enough to lay the foundation for the high growth of enterprises; (4) It must be difficult to be imitated. A product (or service) is very unique and meets the market demand. But if it is easy to be imitated and replaced, it will be difficult to maintain its market position.
2. The market the enterprise faces is good enough.
A good market is the first condition to achieve a good product. Enterprises face the best market: (1) it can provide enough development space for risky products; (2) High growth; (3) It is easy to accept products (or services) that are about to enter the market, and at the same time it can form a high barrier to the imitation of followers of products (or services); (4) The market can maintain a certain level of competition, and the competition faced by enterprises includes both the competition of similar products and the competition of substitutes.
3. Have an excellent team of entrepreneurs.
"I would rather invest in first-class talents and second-class technology than first-class technology and second-class talents." The slogan of private equity investment is enough to see the importance of enterprise management team. The evaluation of the leader of an enterprise, that is, the entrepreneur, requires him to have the following qualities: (1) Strategic thinking, which is generally reflected in corporate culture and business philosophy. Therefore, choosing an entrepreneur with long-term strategic vision will play a very important role in ensuring the expected future return of investment; (2) Resource integration ability, including management ability, marketing ability, market adaptability, public relations ability, risk foresight and prevention ability and technological innovation ability; (3) Personal qualities. An entrepreneur with good personal qualities should be loyal, upright, courageous, quick-thinking, firm-minded, persistent, energetic, optimistic, open-minded and pragmatic.
The enterprise is in good financial condition.
An enterprise without financial planning is an enterprise without financial direction. To analyze and evaluate the financial situation of small and medium-sized enterprises, at least the following aspects should be considered: (1) the asset-liability ratio and equity ratio of enterprises; (2) Changes in assets, liabilities and rights and interests of the enterprise in the last three years; (3) The ratio of assets, liabilities and equity after providing investment; (four) the plan for the use of funds; (5) The break-even between relevant profit and loss and cash flow; (6) Other financing plans; (7) Profit forecast and return on assets analysis; (8) Possible ways, opportunities and benefits for investors to recover funds. Investment withdrawal is the ultimate goal of private equity investment and an important link to achieve profitability. The withdrawal of investment needs to be completed through capital management. Generally speaking, private equity investment funds have three exit ways, namely initial public offering (IPO), equity sale (including repurchase) and enterprise liquidation. Public listing is the best way to withdraw from private equity investment funds, which can convert the non-tradable shares held by capitalists into shares of listed companies and realize liquidity profit; Equity sale includes equity repurchase, management buyout and other mergers and acquisitions; Enterprise liquidation is an exit method when the future profit prospects of investment enterprises are worrying.
1. Initial public listing
Initial public listing is the most desirable exit mode of private equity investment funds, which can bring huge economic and social benefits to private equity investors and invested enterprises. In the development history of private equity investment funds, IPO has a proud historical record. In the United States, many successful IPO companies are supported by private equity investment, such as Apple, Microsoft, Yahoo and AOL. Domestic examples include Focus Media, Ctrip.com, Home Inns, etc. The listing of these enterprises has brought huge return on investment. Of course, the management of the enterprise also welcomes this exit method, because it shows that the financial market recognizes the company's good operating performance, maintains the company's independence, and at the same time enables the company to obtain a channel for continuous financing in the securities market. However, IPO exit also has certain limitations. A year or two before the IPO, the project company must do a lot of preparatory work, announce the company's management status, financial status, development strategy and other information, so that investors can understand the real situation of the company, expect positive evaluation, and avoid the underestimation of the stock price caused by information asymmetry. Compared with other exit methods, the procedures of IPO are more complicated, the exit cost is higher, and there is a lock-up period after IPO, which increases the risk that the income cannot be realized or delayed.