I. Definition of venture capital

Venture capital refers to an investment method in which professional financiers invest venture capital in emerging and rapidly growing unlisted companies (mainly high-tech companies) with great competitive potential, provide long-term equity capital and value-added services for financiers on the basis of taking great risks, foster the rapid growth of enterprises, and withdraw their investment through listing, mergers and acquisitions or other equity transfer methods several years later and obtain high investment returns.

investment object: emerging, fast growing and with great competitive potential

capital attribute: equity capital (medium and long-term investment)

investment purpose: pursuing high return (financial investment)

II. Basic characteristics of venture capital

1. It is an equity investment

Venture capital is not a loan capital, but an equity capital; Its focus is not on the current profits and losses of the investors, but on their development prospects and the appreciation of assets, so as to achieve the purpose of divesting capital and obtaining high returns through listing or selling. Therefore, a clear property right relationship is a necessary prerequisite for venture capital intervention.

2. It is an unsecured and high-risk investment.

Venture capital is mainly used to support high-tech enterprises or high-tech products that have just started or have not started. On the one hand, there is no fixed assets or funds as collateral and guarantee for loans, so it is impossible to obtain funds from traditional financing channels and only to open up new channels; On the other hand, the risks in technology, management, market and policy are very high. Even in developed countries, the success rate of high-tech enterprises is only 2% ~ 3%, but because of the high return rate of successful projects, it can still attract a group of investors to speculate.

3. It is a medium-and long-term investment with less liquidity.

Venture capital is often invested at the start-up of venture enterprises, and it usually takes 3-8 years to obtain benefits through capital reduction, and during this period, it is necessary to continuously increase capital for enterprises with hopes of success. Because of its low liquidity, some people call it "sluggish funds".

4. It is a highly specialized and programmed portfolio investment.

Because venture capital is mainly invested in high-tech industries, and the investment risks are high, venture capital managers are required to have high professional standards, highly specialized and programmed in project selection, carefully organized, arranged and selected, and locked in investment risks as much as possible.

in order to spread risks, venture capital usually invests in a project group with more than 1 projects, and uses the high returns of successful projects to make up for the losses of failed projects and gain profits.

5. It is an investment in which investors actively participate.

Venture capital and high-tech constitute the two wheels to promote the venture capital, and both are indispensable. Venture capitalists (companies) inject capital into venture enterprises, at the same time, in order to reduce the investment risk, they must intervene in the management of the enterprise, provide advice, participate in the decision-making on major issues, and even fire the company manager when necessary, take over the company personally, and try their best to help the enterprise succeed.

6. It is a kind of financial investment that pursues excess returns

Venture capital is an investment behavior with the main purpose of pursuing excess profit returns. The ultimate goal of investors is not to gain a strong competitive position in a certain industry, but to use it as a means to achieve excess returns, so venture capital has strong financial investment attributes.

three, the four elements of venture capital

1 venture capital

venture capital refers to a kind of capital provided by professional investors to invest in emerging companies with rapid growth and great appreciation potential. Under normal circumstances, because the financial situation of the invested enterprises can not meet the needs of investors to withdraw funds in a short period of time, it is impossible to obtain the required funds from traditional financing channels such as bank loans. At this time, venture capital enters these enterprises by purchasing equity, providing loans or both.

China, USA

annuity foreign funds

insurance companies, industrial companies (mainly listed companies)

industrial companies, venture capital companies (with strong government background)

individuals and families

funds, non-bank financial institutions

investment banks

non-bank financial institutions

foreign funds

2. Screening investment projects; Decide on investment; Promote the rapid growth and exit of venture enterprises. After the funds are screened by venture capital companies, they flow to venture enterprises, and then return to investors through venture capital companies.

Venture capitalists can be roughly divided into the following four categories:

The first category is called adventure capitalists. They are entrepreneurs who invest in other entrepreneurs. Like other venture capitalists, they make profits by investing. But the difference is that all the capital invested by venture capitalists belongs to themselves, not the capital entrusted for management.

the second category is Venture Capital Firm. There are many types of venture capital companies, but most of them invest through venture capital funds (venture capital companies not only raise venture capital by setting up venture capital funds, but also directly raise capital from investors, and the company itself also adopts limited partnership system, in which investors become limited partners and company managers become general partners). Generally, these funds are organized in the form of limited partnership [although limited partnership (LP) is the main organization form, in recent years, the United States tax law also allows limited partnership (LLPs) and limited liability company (LLCs) as another alternative organization form for venture capital companies].

the third category is corporate venture investors/direct investors. This kind of investment companies are often independent venture capital institutions under some non-financial industrial companies, and they invest on behalf of the interests of the parent company. Like professional funds, such investors usually mainly invest their funds in some specific industries.

the fourth category is called Angels. Such investors usually invest in very young companies to help them get started quickly. In the field of venture capital, the word "angel" refers to the first investors of entrepreneurs, who put money into the company before its products and business take shape. Angel investors are usually friends, relatives or business partners of entrepreneurial entrepreneurs. Because they are convinced of the entrepreneur's ability and creativity, they are willing to invest a lot of money in the entrepreneur before the business comes in.

3. Venture enterprise

If the function of venture capitalists is value discovery, the function of venture enterprises is value creation. Venture entrepreneur is the inventor or owner of a new technology, new invention and new idea. They seek the help of venture capitalists because of the lack of follow-up funds when their inventions and innovations are carried out to a certain extent. Apart from lack of funds, they often lack management experience and skills. This also needs the help of venture capitalists.

4. Capital market

The capital market is the only way to realize the value-added realization of venture capital. Without a developed and perfect capital market, it is impossible for venture capital to obtain excess returns, thus making venture capitalists lose the source power for venture capital.