Generally speaking, the business process of VC/PE can be summarized into four words, namely, offer, investment, management and exit, in which "offer" means offer, "investment" means investment, "management" means post-investment management and "exit" means exit.
We answer the questioner's questions around these four points.
The first is to "raise" to raise funds.
The form of raising funds is generally private placement, that is, raising funds for a small number of high-net-worth customers, and few people with more than 200 people are suspected of public offering. It is not allowed in China at present. Generally, private equity contract funds shall not exceed 200 persons, and limited partnership funds shall not exceed 50 limited partners, and penetration inspection shall be conducted to avoid that the number of investors does not meet the requirements due to product nesting.
The way to raise funds is to set up a sales team by yourself or entrust other qualified third parties to help raise funds.
Procedures for raising funds. Generally, we will find a good investment project, then make a roadshow report and invite investors to invest.
Organizational form of raising funds. Generally speaking, there are two types: limited partnership and contractual partnership. Limited partnership is the establishment of limited partnership. Investors are limited partners and bear limited liability for their investment. Venture capital institutions, as fund managers, are general partners and bear unlimited responsibilities. Generally, there are no more than 50 limited partners, and penetration inspection shall be carried out. Contract funds also sign fund contracts, stipulating the rights and obligations between investors and fund managers.
Custody of raised funds. Generally speaking, fund products need to be filed with fund industry associations, and the funds raised by fund products will be managed in special accounts. Usually, a special account for fund products will be opened in a third-party banking institution, which is responsible for raising funds for fund products, and then a fund investor will be set up to be responsible for foreign investment, which is called two-line management of revenue and expenditure. However, the Fund Law does not force private equity funds to open special accounts in banks, but uses the fund company's own accounts, resulting in unclear property of the company and customers. This kind of private equity fund should be avoided as much as possible.
The use of funds. Generally speaking, the company's investment committee issues investment instructions, the finance department issues instructions to the bank, and the bank pays according to the instructions. This kind of fund management is monitored and safer.
Then there is "investment" and foreign investment.
The investment process generally includes initial contact, BP communication, reaching initial intention, signing investment memorandum, project establishment, due diligence, meeting, reviewing inquiry, signing investment agreement and payment. In this process, the investment director of private equity institutions will always follow up the situation of enterprises, collect all kinds of information, write due diligence reports, form meeting reports, and submit them to the investment management Committee, the best decision-making body for private equity investment, to make decisions, accept questions, and finally decide whether to vote.
Followed by "management" and post-investment management.
In order to improve the scale and management ability of the invested company as soon as possible, private equity institutions will help connect some resources to help enterprises expand the company scale, and on the other hand, they will also introduce good practices from other excellent companies in the same industry to help you improve. This is the bright side. In addition, private equity institutions will force you to follow the goals they set and strictly monitor the actual progress of various indicators. Generally, the invested institutions will make performance commitments and sign gambling agreements. Once the gambling fails, it is easy for the founder to lose control of the enterprise and get out.
Finally, it is "retreat" and exit the mechanism.
Venture capital is not a philanthropist, they invest for profit and in pursuit of return. Therefore, they will design an exit mechanism. Generally, the best exit mechanism is to exit in the secondary market after listing, which is the most profitable. The second is to find another receiver and transfer the equity held by the risk institution to another receiver. Finally, the worst way for founders to buy back shares at a certain price is bankruptcy liquidation. In this case, private equity institutions are basically wiped out.
The above is the business process of venture capital. As can be seen from the above, in order to attract investors, we must first have excellent investment cases of venture capital in the past, and have achieved great investment performance to convince investors. Secondly, the helm of venture capital is very famous and is an industry leader. Third, the funds raised are earmarked and subject to the supervision of the third party of the bank. Fourth, the operation of fund companies is in line with the measures for the management of private equity funds, which is legal, compliant and convincing. Fifth, do not make false statements, exaggerate past performance, and be honest and responsible. In this case, investors can safely hand over their funds to venture capital.
The above is my simple understanding. If there is any fallacy, thank you for bringing it up for discussion.
thank you