Dancing with Venture Capital

Dongjiang Environmental Protection was listed on the Growth Enterprise Market of Hong Kong in January 2003, with total assets of 120 million --- approximately quadrupled compared to when the venture capital entered two years ago. The rapid growth of the company not only makes the founder Zhang Weiyang feel complacent, but also makes the investors feel very happy. "We hope to help it continue to expand its industrial environmental protection business to the whole country. It still has great profit potential." The main investor Shanghai Lianchuang Investment Company has high hopes for it.

Also in the first half of this year, Homeinns got its way to millions of dollars in a slightly sluggish venture capital market. This budget hotel chain, a joint venture between Ctrip.com and Beijing Capital Travel, has not lost the favor of VCs because it is in a traditional industry: IDG, which usually prefers the IT field, is among the two international investors it has invested in. Technology Venture Fund. Among them, CEO Ji Qi's experience in successfully establishing Ctrip.com is undoubtedly a heavy weight for Home Inns to obtain financing, and from this, it can be vaguely detected that the investment tastes of VCs are quietly changing.

Harvest: Accelerated development of value-added services

Dongjiang Environmental Protection was originally a technology company established by Zhang Weiyang in 1999 with a personal investment of 5 million yuan to provide comprehensive solutions for industrial environmental protection. "At that time, as long as I maintained the status quo, it was not a problem to earn millions of dollars every year," Zhang Weiyang recalled, "but I hoped to be able to do more."

With the continuous increase in business volume, Zhang Weiyang felt that in addition to the bottleneck of funds , the original set of paternalistic management relying on experience is increasingly unable to meet the company's development needs. In order to change this state, he began to contact venture capital in March 2001. After 8 months of investigation and running-in, the three VCs, mainly Lianchuang Investment, invested a total of 12 million yuan, accounting for 24% of the shares of Dongjiang Environmental Protection. "Actually, the resources that TK has obtained are far better than this," he said. "The business philosophy, management system and even business model have been completely improved." More than a year later, TK Environmental was listed on the Growth Enterprise Market of Hong Kong, and its development speed exceeded that of Zhang Weiyang's. Anticipate. To evaluate the value-added services brought by venture capital, he used the word "jumping the horse".

Also getting a surprise was his investor. Feng Tao, President of Lianchuang Investment Management Company, was very satisfied with the return of the project: "If we look at the stock price, our ten projects' investment has returned." And for the development of Dongjiang, Lianchuang has indeed spent a lot of effort. He continued: "We contacted strategic partners for him and set up branches in various places. We took the lead in preparing for the listing, and invited underwriters, law firms, and valuable investors. We also introduced MIT's A team will give him a feasibility analysis of international cooperation." Feng Tao believes that although most entrepreneurs have a sense of expansion, the lack of excellent talents and management experience is sometimes more restrictive than funds. Strong venture capital can provide these resources to help enterprises. growing up very fast.

Another person who is deeply touched by this added value is Ji Qi. From founding Ctrip.com to becoming president of the Homeinn hotel chain, he has been dealing with venture capital. He believes that although the directors dispatched by VCs will not interfere with the daily operation and management of the company, they often give key opinions on the company's budget, business areas, and arrangement of executives due to their macro perspective. The mutual referrals between VCs also make it easier to refinance: "IDG was the first to invest in Ctrip. When we raised our second financing in early 2000, they continued to follow up and introduced SoftBank as a new round of investment. The leader of the company."

Regarding the advantages of the joint investment method, Zhang Suyang, vice president of IDG, explained that venture capitalists generally do not seek to control a certain enterprise. "Some VCs complement each other's resources, which will increase the amount of investment and management experience for enterprises."

Financing: three basic elements

A good venture capital can be invested in capital, management , Talents help enterprises develop in all aspects, but how can they become their favored objects?

Of course the business plan is very important, and in fact, all VCs want a clear and concise introduction before deciding whether to open the plan. "The business plan has a fixed format. If you feel that you can't write it, we can provide a sample." Feng Tao emphasized, "What must be done is: clarify your strengths and weaknesses."

There have been many times Ji Qi, who has a successful financing experience, recalled: "I have talked to many investors. They think the project is good, and they are often overjoyed. Some even express their investment intentions on the spot, and the subsequent paperwork is only a necessary process." Venture capital field The famous "elevator rule" is: to impress investors within a few minutes of riding the elevator. How can this be done? You must describe the following three elements: team, market and technology.

Team: Venture capital often pays more attention to "people" than the project itself. They believe that the defects and deficiencies of the project can be made up by the team from the aspects of business model and marketing management. "Not one person, but some people, who can perform their own duties and cooperate with each other," Zhang Suyang said. "They must be familiar with their own entrepreneurial field and have certain experience."

Ctrip was initially favored by IDG, complementing each other The number of team members is the decisive factor. In order to start this travel network company, Ji Qi looked for entrepreneurial partners with different backgrounds: "The four of us have our own strengths in technology, management, investment, and tourism." Similarly, at the beginning of the establishment of the Home Inn chain, he A new and perfect team was also organized. "Ctrip and BTG each have a few people, including hotel management, financial control, marketing, etc., and the management has Ctrip's successful experience, and the refinancing is very smooth."

Compared with the professional experience of the team, Ji Qi believes that it is more important to focus on business ethics. After all, the investment of a large amount of venture capital first requires a high degree of trust from investors. All VCs are unanimous in expressing the most distaste for calculating selfishness. "Venture capital is your shareholder, and the fundamental interests of both parties are the same," Feng Tao said. "Too much consideration for petty profits will hurt the cooperation between the two parties, especially for some entrepreneurs who are themselves technology entrepreneurs, and pay special attention to business rules."

He emphasized that, according to the actual situation in China, sometimes it is difficult to require the team to reach the ideal state at the beginning of the business, so entrepreneurs also need to show a tolerant attitude in talent introduction.

Market: To judge whether a company has investment value, investors want to know how many people will buy your product or service and why they buy it. If you can provide the name and phone number of some potential customers, it will help increase the persuasiveness. The common problem of entrepreneurs is that the description of the target customer is too far-fetched. Zhang Suyang gave an example: "Someone once said: My product is very good. It only sells for one dollar. As long as 1% of the people in the country buy it, there will be more than ten million."

In addition to clearly targeting target users, companies must also have sufficient market capacity. Otherwise, although you have the potential to become a market leader, you may not be able to win the favor of venture capital. "There was once a high-tech product that we wanted to invest in. The unit price was more than one million yuan. It had high technical barriers and few competitors. However, there were only a dozen or so demands in the whole country throughout the year." Zhang Suyang did not accept this project. He pointed out that the scale of more than 10 million yuan per year is suitable if seeking individual investment, but it cannot meet the requirements of venture capital institutions to pursue high returns. If your market potential is attractive enough, then VCs won't be too picky about the industry. "As long as it is a fast-growing industry, investors will consider it," Feng Tao said. IDG's investment in Home Inns, which has always preferred pure technology companies in the past, can well illustrate this point. "BTG has a nationwide hotel network, and Ctrip is the largest hotel distributor in China. We have integrated resources to establish this economical hotel chain." Ji Qi explained, "Although it is a traditional industry, it has a clear positioning and sufficient customer sources. The prospects are equally promising."

Technology: Enterprises should ensure that the technology or operation is novel and unique, and can form entry barriers for latecomers. This will keep the product from losing market opportunities due to counterfeiting for a considerable period of time. "If we occupy enough shares during this period, new market barriers will be established," Feng Tao said. "For example, we invested in Hejia Software to do ERP, and Haier, Procter & Gamble, and Motorola have all become its customers. Once the marketing network is established, it will be difficult for other companies to compete."

It should be emphasized that the technology valued by venture capital must still be based on the market. "Good technology is not necessarily the most advanced technology in theory," Zhang Weiyang said, introducing his experience. "The key to Dongjiang's industrial waste collection and treatment technology is that it can meet social needs and have enough market space." For enterprises to develop new products, first of all Consider the consumption habits and understanding of target customers.

Choose: Comparing with Reasonable Judgment

If your business meets these basic conditions for obtaining financing, then picking the right venture capital for you will make you do more with less. Zhang Weiyang said: "The three VCs selected by TK have complementary resources and value-added service capabilities. Geographically, they are located in Shanghai, Beijing and Shenzhen, which also facilitates business expansion."

Currently active in the domestic market There are more than 300 venture capital funds at home and abroad. Although many VCs pursue high profit returns as their ultimate goal, there are still various differences in investment fields and styles.

Fields: In order to diversify investment risks, VCs will be involved in many fields, including IT, biotechnology, medicine, energy, etc. But they usually have a certain industry (or some) that they are particularly good at. "You know, you don't have to get money to be successful," Zhang Suyang said. "It's important to choose investors who have successful experience in similar fields."

In addition, most VCs hope that their companies in related fields will A strategic partnership can be established between them to achieve common development. "For example, among the IT companies we invest in, if China Netcom wants to develop broadband users, Huanuo Technology can provide them with set-top boxes. Such investment portfolios can promote each other." Feng Tao said.

Stages: The development of an entrepreneurial enterprise is usually divided into four stages: seed stage, entrepreneurial stage, growth stage and mature stage. Different VCs have different stages of preference. Generally speaking, well-known overseas VCs are relatively tolerant of early-stage projects, but the recent market environment has changed somewhat. "We are very cautious about projects in the R&D stage now," Zhang Suyang said. "Although international venture capital like IDG can accept investment periods as long as three or five years, there are too many uncontrollable risks in early-stage projects."

As a leader among domestic VCs, Lianchuang Investment frankly prefers some companies that have shown a good momentum of development. "We generally don't look at the R&D stage now." Feng Tao also explained from the perspective of capital management, "and in the early stage The amount of capital required for the project is very small, and we manage more than 1 billion funds. If we keep investing in these projects, our money will not be able to be invested." He pointed out that the technology and market demand of start-ups are not yet determined, and the cycle The long-term risk is high, so usually VCs with government background will consider more from the perspective of support.

Valuation: Venture capital is a kind of equity capital. VCs need to value startups to determine the investment amount and equity ratio. Since some start-ups have not yet produced actual profits, such valuations are largely based on forecasts of future development prospects and asset appreciation. There is a saying that the biggest difference between domestic and foreign venture capitalists is the difference in valuation methods.

Domestic VCs with government background mostly use conservative valuation methods of net assets or total assets. An industry veteran pointed out: "While this approach appears to be based on hard book data, it lacks a vision for growth, and startups are generally limited in size when they seek financing."

International VCs usually It will estimate the expected cash flow that the investment project may generate in the future. In addition to the model analysis of statistical data, it will often refer to the valuation of comparable companies in the same industry and make judgments based on experience and intuition. "The burden of our valuation is small, unlike some domestic VC funds that are government funds. If the valuation is too high, there is a risk of the loss of state-owned assets." Zhang Suyang explained, "IDG valuation is mainly based on price-earnings ratio (Price/Earning, PE), It also needs experience and analogy, and it is more flexible." He believes that some emerging VCs in China have recently begun to adjust their valuation plans from the perspective of protecting the rights and enthusiasm of entrepreneurs, which can reduce some concerns for companies when choosing venture capital.

Exit: One of the main ways for venture capital to exit and make a profit is to package a company for listing. Feng Tao said, "Most of the companies we invest in are registered in China and invest in RMB. They can be withdrawn from the domestic main board and the Hong Kong ChiNext. Overseas VCs are mainly on the Nasdaq, and there are relatively few in the Hong Kong ChiNext."

"In principle, foreign-invested companies limited by shares are not restricted from listing in my country," an official from the China Securities Regulatory Commission pointed out, "but so far, the domestic listing of foreign-invested companies has been slow, as far as I know. , only one foreign-funded enterprise that has submitted an application for issuance and listing in accordance with the domestic A-share listing application procedures has just passed the meeting." Therefore, if the purpose of the enterprise's search for venture capital is to list on the domestic main board, it is obviously not appropriate to choose an overseas VC.

Dancing with Venture Capital

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