Venture capital is called VC for short.
In China, it is a conventional concept with a specific connotation. Actually, it is more appropriate to translate it into venture capital. Venture capital in a broad sense refers to all investments with high risks and high potential returns; In a narrow sense, venture capital refers to the investment in the production and operation of technology-intensive products based on high technology. According to the definition of American National Venture Capital Association, venture capital is a kind of equity capital invested by professional financiers in emerging, rapidly developing enterprises with great competitive potential. From the perspective of investment behavior, venture capital is an investment process in which capital is invested in the research and development of high-tech and its products with failure risk, aiming at promoting the commercialization and industrialization of high-tech achievements as soon as possible, so as to obtain high capital gains. From the perspective of operation mode, it refers to the process that investment intermediaries invest risks in high-tech enterprises with special potential under the management of professional talents, and it is also an investment mode that coordinates the relationship between venture capitalists, technical experts and investors, enjoys benefits and bears risks.
Operation mode of venture capital
Venture capital generally operates in the form of venture capital fund. The legal structure of venture capital fund is in the form of limited partnership, and venture capital companies, as general partners, manage the investment operation of the fund and get corresponding remuneration. In the United States, limited partnership venture capital funds can get tax incentives, and the government also encourages the development of venture capital in this way.
Six elements of venture capital
Venture capital, venture capitalist, investment object, investment period, investment purpose and investment method constitute six elements of venture capital.
First, venture capital.
Venture capital refers to a kind of capital provided by professional investors for fast-growing emerging companies, which has great appreciation potential. Venture capital enters these enterprises by buying equity, providing loans or both.
The source of venture capital varies from country to country. In the United States, 1978 personal and family funds account for 32% of all venture capital; Followed by foreign investment, accounting for18%; Third, the funds of insurance companies, annuities and large industrial companies account for 16%, 15% and 10% respectively. By 1988, the proportion of annuities increased rapidly, accounting for 46% of all venture capital, followed by foreign funds, donations, Public Offering of Fund and large industrial funds. Unlike the United States, the risk capital in European countries mainly comes from banks, insurance companies and annuities, accounting for 3 1%, 14% and 13% of the total risk capital respectively. Among them, banks are the most important source of venture capital in Europe, while personal and family funds only account for 2%. In Japan, as long as venture capital comes from financial institutions and large companies, it accounts for 36% and 37% respectively. Followed by foreign funds and securities company funds, each accounting for 10%, while individual and family funds only account for 7%. According to the investment mode, venture capital can be divided into direct investment fund and guarantee fund. The former enters the invested enterprise through the purchase of equity, mostly private capital; The latter helps the invested enterprises by providing financing guarantee, mostly government funds.
Second, venture capitalists.
Venture capitalists can be roughly divided into the following four categories:
▲ A venture capitalist.
They are entrepreneurs who want other entrepreneurs to invest. Like other venture capitalists, they make profits by investing. But the difference is that the capital invested by venture capitalists belongs to themselves, not the capital entrusted for management.
▲B Venture Capital Company.
There are many kinds of venture capital companies, but most of them invest through venture capital funds, which are generally organized in the form of limited partnerships.
▲ affiliated investment company of industry C.
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. This kind of investors usually mainly invest their money in some specific industries. Like traditional venture capital, industry-related investment companies should also evaluate the investment plans submitted by the invested enterprises, conduct in-depth due diligence and expect higher returns.
▲D angel investor.
Such investors usually invest in very young companies to help them get started quickly. In the field of venture capital, the term "angel investors" refers to the first investors of entrepreneurs, who put money into the company before its products and business take shape.
Third, the purpose of investment.
Although venture capital is a kind of equity investment, the purpose of investment is not to obtain the ownership of the enterprise, to hold shares or to operate the enterprise, but to enlarge the investment enterprise by investing and providing proliferation services, and then to withdraw through public listing (IPO), mergers and acquisitions or other means, so as to realize the return on investment of property rights flow.
Fourth, the investment period.
Venture capitalists help enterprises grow, but in the end they seek channels to withdraw their investment in order to achieve proliferation. The investment cycle of venture capital is called the time interval from venture capital investment to investment withdrawal. As a kind of equity investment, venture capital has a long term. Among them, venture capital in the initial stage usually enters maturity within 7~ 10 years, while the follow-up investment is mostly only a few years.
Verb (abbreviation of verb) investment target
The industrial field of venture capital is mainly high-tech industry. Take the United States as an example, 1992 also accounts for 27% of computers and software; Followed by the health care industry, accounting for17%; The communication industry is the third, accounting for14%; Biotechnology industry accounts for 10%.
Investment mode of intransitive verbs
From the nature of investment, there are three ways of venture capital: first, direct investment. The second is to provide loans or loan guarantees. The third is to provide some loans or guarantee funds and invest some venture capital to buy the equity of the invested enterprise. But no matter what kind of investment, venture capitalists generally provide multiplication services. There are two different ways to enter venture capital. The first is to put venture capital into the invested enterprise in stages, which is relatively common, which can not only reduce the investment risk, but also help accelerate the capital turnover; The second is one-time investment. This method is not common, and ordinary venture capitalists and angel investors may adopt this method. After an investment, subsequent financial support is difficult and unreasonable.
Characteristics of venture capital
1, the investment target is small and medium-sized enterprises in the initial stage, mostly high-tech enterprises;
2. The investment period is at least 3-5 years, and the investment method is generally equity investment, which usually accounts for about 30% of the equity of the invested enterprise, and it does not need a controlling stake or any guarantee or mortgage;
3. Investment decision-making is based on high specialization and procedure;
4. Venture capitalists generally actively participate in the operation and management of invested enterprises and provide value-added services;
In addition to seed financing, venture capitalists generally meet the financing needs of invested enterprises in the future development stage;
5. Because the purpose of investment is to pursue excess returns, when the invested enterprise adds value, venture capitalists will withdraw their capital through listing, mergers and acquisitions or other equity transfer to realize value-added.
Characteristics of venture capital
Venture capital is a kind of equity capital and debt capital. Venture capital generally accounts for more than 30% of the total invested capital of venture enterprises. For high-tech innovative enterprises, venture capital is an expensive source of funds, but it may be the only feasible source of funds. Although bank loans are relatively cheap, they avoid risks and put safety first, which high-tech innovative enterprises can't get.
The venture capital mechanism is completely different from bank loans. The differences are as follows: firstly, bank loans stress safety and avoid risks; Venture capital, on the other hand, prefers high-risk projects and pursues high returns hidden behind high risks, aiming at managing and driving risks. Secondly, bank loans are based on liquidity; However, venture capital is characterized by poor liquidity and seeks growth in relative poor liquidity. Third, bank loans pay attention to the current situation of enterprises, their liquidity turnover and repayment ability; And venture capital focuses on future income and high growth. Fourth, bank loans are assessed by physical indicators; Venture capital examines whether the management team of the invested enterprise has the management level and entrepreneurial spirit, and examines the future market of high technology. Finally, bank loans need mortgages and guarantees, which are generally invested in growing and mature enterprises, while venture capital does not need mortgages and guarantees, but invests in emerging enterprises and high-growth projects.
Venture capital is a long-term (average investment period is 5-7 years) equity capital with poor liquidity. Under normal circumstances, venture capitalists will not put all the venture capital into venture enterprises at one time, but will continue to inject funds in batches with the growth of enterprises.
Venture capitalists are both investors and operators. Unlike bankers, venture capitalists are not only financiers but also entrepreneurs. They are both investors and operators. After investing in a venture enterprise, venture capitalists will join the management of the enterprise. In other words, venture capitalists provide venture enterprises with not only funds, but also professional knowledge and management experience.
Venture capitalists hold about 30% of the shares of venture enterprises, and their interests are closely linked with those of venture enterprises. Venture capitalists not only participate in the long-term or short-term development planning of enterprises, the determination of enterprise production targets and the formulation of enterprise marketing plans, but also participate in the capital operation process of enterprises, add investment or create capital channels for enterprises, and even participate in the employment and dismissal of important personnel of enterprises.
Venture capital will eventually withdraw from venture enterprises. Although venture capital is invested in equity capital, their purpose is not to obtain enterprise ownership, but to make profits, and to withdraw from venture enterprises in order to obtain rich profits and excellent performance.
There are three ways for venture capital to quit venture enterprises: initial public offering (IPO); Merger and acquisition or share repurchase by other enterprises; Bankruptcy liquidation. Obviously, it is the goal of venture capitalists to make venture enterprises reach the initial public offering. Bankruptcy liquidation means that venture capital may lose part or all.
How to quit is a sign of the success of venture capital to a certain extent. Venture capitalists have formulated specific exit strategies before making investment decisions. Exit decision is a profit distribution decision, and how and when to exit can maximize the return of venture capital as the best exit decision.
Ten Lies of Venture Capitalists
1. "I like your company, but my partner doesn't." In other words, it is "no". The person in charge of this project just wants entrepreneurs to believe that he is a good man, a smart man and a person who can really understand what entrepreneurs do. "Others" is not, so don't blame him. This is shirking responsibility; Don't believe his story that other partners don't like this project as much as he does. If he really likes it so much, he will definitely invest in this deal.
2. "If you can find other venture capital investments first, we will follow up." In other words, as an old Japanese proverb says, "No", "If your aunt has courage, she will be your uncle." Aunt, of course not, so this is bullshit. The VC who said this actually said, "We are not optimistic about this business, but if Sequoia invests first, we will follow up." In other words, once an entrepreneur doesn't need money, venture capitalists will be willing to give him more—it's like saying, "Once you see Larry Csonka stop shaking, we will help you deal with him." What entrepreneurs want to hear is "If you can't find other VCS to invest first, let's invest." This is an investor who trusts you.
3. "Show it to us first, and then we will invest." The implication is "no". This lie can be translated as "I don't believe the pie you described, but if you can earn a lot of money to prove it to me, then you may be able to convince me." However, I don't want to tell you that I'm not going to invest, because I may make a mistake in judgment, and then, my god, you may get a fortune 500 customer. At that time, I will be like an asshole. "
4. "We like to invest jointly with other venture capitalists." It's like the law that the sun always rises and Canadians just like to play hockey. You have to believe that venture capitalists must be greedy. In the venture capital industry, greed means "if this is a good project, I will win it all myself." What entrepreneurs want to hear is "We won this round of investment." We don't want any other investors to join us. "So, the task of entrepreneurs is to convince them why other investors can make the cake bigger instead of reducing the piece in their hands.
5. "We want to invest in your team." This sentence is not finished yet. The investment team is right. What the entrepreneurs hear is "We won't fire you-if we invest entirely because of you, how can we fire you?" This is not what venture capitalists mean at all. She means, "as long as things go well, we will continue to invest in your team, but if things don't go well, we will kick you out." Who is indispensable? "
6. "I will put a lot of energy (originally bandwidth) into your company." Maybe he is talking about the T3 line in his office, but he is by no means referring to his schedule, because he has been at the tenth board for a long time. Count how many times he will attend the board meeting. Entrepreneurs should assume that a venture capitalist spends 5- 10 hours on a company every month. That's it. Let's face the reality. Shorten the board time as much as possible!
7. "This is an ordinary investment letter of intent." There is no vanilla investment letter of intent. Do you think that professional investment and financing lawyers who charge as much as $400 an hour just get some standardized investment letters of intent? If entrepreneurs insist on using the smell of ice cream to describe the letter of intent for investment, the only applicable smell is the smell of "rugged road", which is why venture capitalists need professional investment and financing lawyers who charge $400 an hour in addition to divorce lawyers.
8. "We can help you knock on the door of our client company." This is a double lie. First of all, a venture capitalist can't always open the door for others in the client company. Frankly speaking, his client company will hate him for it. The worst thing is to let him introduce you. Second, even if venture capitalists can open the door for you, entrepreneurs can't seriously expect those companies to become your loyal customers-that is, some things are just talk at best.
9. "We like to invest in early projects." The real fantasy of venture capitalists is to invest10 million dollars in a company that was already worth 2 million dollars before investing, and then hold a 33% stake in the next Google. That's early venture capital. Do you know why we are all familiar with Google's amazing return on investment? This is the same reason that we all know Michael Jordan: Google and Jordan are both amazing and rare. If they are ordinary, no one will write their stories. Looking at the essence through the phenomenon, you will find that venture capitalists like to invest in successful teams (note 7, such as the founder of Cisco), successful technologies (note 7, such as the technology that won the Nobel Prize) and mature markets (note 7, such as e-commerce). We are extremely risk-averse, especially because the money in hand does not belong to us.
10. I am writing this diary in Starbucks, Hawaii. It's been 90 minutes. I don't have a power plug, so my PowerBook laptop is dying. You should like the nine lies I just told until God sends you a new Apple notebook rescued by Sony Vaio team.
Several key links in the process of venture capital investment
1, search for investment opportunities.
Investment opportunities can come from venture capital enterprises, entrepreneurs or third parties.
2. Preliminary screening.
According to the investment proposal submitted by the entrepreneur, the venture capital enterprise conducts a preliminary review of the project and selects a few interested people for further investigation.
3. Investigation and evaluation.
Venture capitalists will spend about six to eight weeks to conduct a very extensive, in-depth and detailed investigation on investment proposals to test the accuracy of the materials submitted by entrepreneurs and find important information that may be missed; While understanding the investment projects in an all-round way, we should analyze the management, products and technology, market and finance of the investment projects according to various information, so as to make investment decisions.
4. Seek common ground with an investor.
Venture capitalists usually look for other investors to invest together. This can increase the total investment and spread the risks. In addition, through the syndicate, we can share the experience of other venture capitalists in related fields and achieve mutual benefit.
5. Negotiate investment conditions.
Once investors and financiers have reached an understanding on the key investment conditions of the project, venture capitalists, as leading investors, will draft an "investment clause list" and make initial investment commitments to entrepreneurs.
6. Final transaction.
As long as the facts are clear and the terms and details of the transaction are agreed, both parties can sign the final transaction documents and the investment will take effect.
Now some famous venture capital companies are:
IDG Technology Venture Capital Fund (the first VC introduced to China, and the VC with the largest number of domestic investment cases so far, successfully investing in Tencent, Sohu and other companies).
Investment fields: software industry, telecommunications, information, electronic semiconductor chips, IT services, network facilities, biotechnology, medical care and health preservation.
Softbank China Venture Capital Co., Ltd. (Japanese Masayoshi Son Capital, invested in Alibaba, Shanda and other companies)
Investment fields: software industry, IT services, semiconductor chips, network facilities, network industry and telecommunications.
Zhejiang Zheshang Venture Capital Co., Ltd. (Private Enterprise)
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Investment field: focus on (but not limited to) outstanding small and medium-sized enterprises that have undergone major changes in electronic information, environmental protection, medicine and chemical industry, new energy, culture, education, biotechnology, new media and other industries and traditional industries. (For more information about investment companies, please refer to: /leesias)
"A history of venture capital in China is a history of Internet in China", many Internet celebrities have quoted this precise language, because the story behind them is a history of blending with venture capital. When 1996, Zhang Chaoyang, with his persistence and simple imitation of foreign Internet companies, came to China and founded an Internet company that no one could understand. People understood a simple truth: business plans can be exchanged for venture capital.
In the United States, the success rate of a venture capitalist (VC) is controlled at around 10%, which has been very successful. Because any successful venture project may bring tens or even hundreds of returns to venture capitalists. In this way, the success of one project can often be much higher than the cost of the failure of the other nine projects.
However, such a simple math problem is still incredible in the traditional economic field of China from 65438 to 0996. So that the venture capital industry, which was born in Silicon Valley in the United States in the late 1980s, was either deified or demonized in China for a period of time-whether venture capitalists are smart or stupid, people outside the industry may come to these two different conclusions from different angles.
From people's early memory, venture capital is like "crazy money" and "stupid money". In the era of 1998 ~ 1999, many people tell vivid stories to investors with business plans in cafes, and it is not impossible to melt millions or even tens of millions of dollars in a few weeks. More interestingly, foreign venture capitalists will take the initiative to demand that it is best to take a major share in the project, and the invested funds must be spent within a period of time. These are investment principles that traditional investors can hardly imagine.
Just as an insider once described the scene of the first wave of Internet craze: in the office of a well-known foreign venture capital company, there is a large project statistics table hanging on the wall, but only a few of the nearly 100 projects are marked with profit symbols. But this venture capitalist is very proud, because he has occupied an important position in China's Internet market, and more importantly, companies listed on NASDAQ have no profit requirements.
In fact, there are many venture capitalists who made a lot of money from Sina, Sohu and Netease in the early days. Pioneers like IDG and Walden Lake have become the lucky ones and beneficiaries of the Internet industry in China.
Without these generous donors, China's Internet industry would not be where it is today. Even today, almost all large commercial websites in China are supported by venture capital:
February, 1999, Sina. Com, which just raised the banner, announced that it had obtained 25 million US dollars of overseas venture capital including Goldman Sachs, which was definitely the largest investment that domestic Internet companies got at that time, thus opening the prelude for China Internet service companies to enter the overseas capital market at the end of last century.
1999 19 On July 4th, China successfully went public independently on NASDAQ, raising $96 million for the first time, which created the concept of Internet stock in China and also indicated that venture capitalists successfully cashed in.
As a result, venture capital began to boil. 1999 since the second half of the year, a large number of returnees have set up thousands of internet companies with tens of millions or even hundreds of millions of venture capital. Just followed by overwhelming advertisements, all kinds of free services, high salary temptation, luxury office buildings and so on.
However, the later reality poured cold water on the enthusiastic venture capital. With the collapse of Nasdaq Internet stocks, these foreign venture capital companies come and go rashly in China.
To a great extent, this painful history comes from China's copy of the Nasdaq model. During the internet boom of 1997- 1999, the Nasdaq stock market generally believed that in the take-off stage of an industry development, what really mattered was not profit, but growth speed and market share. An analyst on Wall Street once said: "At this stage, profit doesn't mean anything. Investors can understand that in the early growth process of the industry, maintaining rapid growth and occupying a leading market share have extremely important strategic advantages. "
In fact, at the beginning, as expected, the number of netizens doubled, and the number of users of Internet companies continued to expand. But soon, the industry fell into a trough, and venture capitalists followed suit.
Some people have analyzed the effect of venture capital on the Internet in China, which at least taught many people to surf the Internet and trained many Internet elites in China, making the Internet in China rise again after 2003. Moreover, the advantage of the bursting of the internet bubble is that it has expelled the shotgun speculators in venture capital and ushered in the real VC regular army.
Industrial cycle, the moment of change. After several years of silence, the venture capitalists who invested in China became active again as soon as the Nasdaq economy recovered. Masayoshi Son of Softbank, Japan, became the biggest loser during the Internet bubble because he was optimistic about the application of Internet broadband many years ago. So far, Softbank's financial statements are still ugly. However, Softbank's investment in Shanghai Shanda Network is a classic-at that time, Shanda had grown in the online game circle, only the last sum of money was needed, and Softbank made a move in time. In less than two years, Shanda was sent to Nasdaq and successfully cashed out.
When as many as nine China Internet companies, such as Ctrip, Shanda Network, Tom, E-Dragon, Ninth City, Pocket Smart, Kong Zhong, Worry-Free Future and Finance, successfully listed on NASDAQ in 2004, another group of venture capitalists who didn't persist in the low tide of the industry lamented why they didn't have foresight at the beginning.
Venture capital "wind vane" reveals a signal: the current low tide is by no means an eternal low tide. For a real investor, as long as the market is large enough, there will be investment opportunities.
According to relevant statistics, in 2004, the number of American venture capital transactions in China reached 43, the highest level since 10. In 2005, the venture capital accumulated on the Internet in China is said to be as high as 2 billion dollars, which makes people wonder whether the bubble era is coming again. Some entrepreneurs under the banner of WEB 2.0 began to flirt with venture capitalists frequently, and various forums with the theme of entrepreneurship and investment were once again overcrowded. It can be said that "flowers are similar every year, and people are different every year."
Hidden Rules of Venture Capital in China;
Rule 1: VC also talks about grades.
Rule 2: The more you invest, the more expensive you invest.
Rule 3: Pay attention to contacts.
Rule 4: Approach
Rule 5: VC is the most expensive financing method.
Rule 6: VC misses are common.
Rule 7: pull out the seedlings to encourage, and drop the bags for safety.
Rule 8: Don't give up the right restriction on VC.
Rule 9: stay awake and don't believe VC's praise.
Rule 10: VC is a utilitarian economic animal and may change his face at any time.
Rule 1 1: The imagination of an industry is so big.
Rule 12: China's Alienation of Venture Capital
How to screen and contact venture capitalists
1. Filter
Enterprises seeking venture capital should know the venture capital market in advance. Venture enterprises can refer to the encyclopedia of venture capital companies and other reference materials? In these documents, there are often some information about the preferences of these venture capital companies. You can also consult the list of investors of companies that are about to go public in the industry, or visit the managers of other companies in the industry directly. After that, venture enterprises can choose a number of possible investment companies according to their own characteristics and capital needs. When screening, the factors that venture enterprises should consider include: the investment scale that enterprises need; The geographical location of the enterprise; The development stage and status of the enterprise; Sales and profitability of the enterprise; The business scope of the enterprise, etc. Usually, lawyers and accountants play a great role in this process.
2. Major investors
In the process of raising venture capital, sometimes venture entrepreneurs need to find a major investor who will work with entrepreneurs to promote, evaluate and construct this transaction. In addition, this major investor will organize surrounding investors to form an investor group. A venture entrepreneur should choose his main investors from the most powerful investors.
contact
In most cases, contact with venture capitalists can be started through electronic activities? Just to explore whether your new idea is suitable for the business scope of venture capital companies. Most venture capitalists will pick up the receiver because they don't know where the next good project will come from. But because there are many people seeking funds, venture capital companies also need a screening process. If a venture entrepreneur can get the recommendation of a lawyer, accountant or "authoritative person" in a certain industry and make the venture capital company trust him, then his possibility of obtaining funds will be much higher.
However, most venture capital companies are more accessible than people think. Some enterprises often complain that they can't find venture capitalists and can't do this or that. Imagine if a venture entrepreneur can't even find a way to contact venture capitalists. Then, how can investors expect him to successfully sell products to customers? Therefore, in the process of contact, entrepreneurial entrepreneurs should have a tenacious spirit.
In the process of contact with venture capital companies, if an entrepreneur finds that his project is difficult to attract the attention of those investors, he can ask himself such questions repeatedly; Is the management team of the enterprise capable of completing its mission? Can an enterprise's products win a large enough satisfied market? Can enterprises guarantee that investors' investment will not be wasted? Of course, a venture capital project cannot guarantee the investor 100% profit, and there are always risks of one kind or another. Therefore, even if the entrepreneur's business plan is not perfect, the entrepreneur can send it out without hesitation. Because venture entrepreneurs are often willing to cooperate with those pioneers to help them realize those beautiful ideas.
In order to ensure the success of fund-raising, some venture entrepreneurs like to contact venture capitalists as much as possible, but the results are often unsatisfactory. In fact, if you contact twenty or thirty venture capitalists, people will think that this is not a good business, so they will not take the time to consider this project (because it may have been taken away by others). Conversely, if a venture entrepreneur goes to venture capitalists one by one every time, then he may never raise funds. Therefore, the most reliable method is to select 8 to 10 possible venture capitalists as the target, and then start to contact them. Before accepting the project, it is necessary to carefully understand the situation of venture capitalists who may be interested in the project and prepare a backup list. In this way, if no one shows interest, the entrepreneur can not only know the reason, but also find another candidate investor to contact. In short, entrepreneurs should never introduce their projects to too many venture capitalists. Venture capitalists don't like the form of product fairs. They prefer to look for good business opportunities that are abandoned by people on the roadside without being noticed.