Of course, you can choose not to cooperate with venture capital, but for a start-up, the support and help of venture capital can bring you a greater chance of survival.
Therefore, once you decide to cooperate with venture capital, it means that you will enter a complex and subtle dynamic game.
Why do you say that?
Because the enterprise is at different stages of development, your life and death line will change constantly, and the involvement and influence of venture capital on you will become deeper and deeper, and the related parties involved will become more and more diversified.
You need to always know where you are and where VC is; When do you need to attack, defend, be tough and compromise? You must constantly adjust your relationship with venture capitalists, adjust your matching and cooperation methods, so as to play the role of venture capitalists and avoid stepping on the pit.
This not only determines whether the value of the enterprise can be maximized, but also relates to your life and death.
In the dynamic game, the first thing you have to do is to know yourself and choose the right player.
The logic of working with venture capitalists is the same. The types of venture capital are completely different. Whether you find the right venture capital directly determines how much chance you have in this game.
On the issue of finding venture capital, the first hurdle you have to cross is to find local venture capital or overseas venture capital. You know, there is a big difference between them.
There is an interesting story in the domestic venture capital circle: a foreign venture capitalist, that is, general partner (GP), called some limited partners in our country, that is, limited partners (LP), to hold a meeting to raise funds from them.
Foreign GP said that if I set up a fund, your LP staff can't interfere with my daily management and ask about the projects I invest in; I only publish a report to you every year to let you know about my current operation.
Hearing this sentence, China LP, sitting at the bottom, walked halfway.
Then foreign GP went on to say that if you invest in my fund, the lock-up period is 10 years, that is, after 10 years, you can get a return.
After listening to this sentence, the remaining half of China LP also ran away.
Why did all these LPs in China run away?
Because the rules of the game proposed by this foreign venture capitalist are basically unacceptable in our domestic environment.
This story reveals a truth. Our local venture capital and overseas venture capital are very different in all aspects.
The first difference is that domestic investors who have invested for a relatively short time are reluctant to invest in projects in which they cannot participate deeply. They like to make quick money and don't want to wait longer to get paid.
According to international practice, for example, in the United States, the period from establishment to liquidation of venture capital funds is generally "10 2", which means that investment can be made in 10 years, and the longest period can be extended to 12 years if necessary.
In China, the duration of a venture capital fund is basically "5 2", that is to say, the investment time is five years, which can be extended to seven years at the longest. By comparison, you can see that the duration of our domestic VC is much shorter than that of international VC.
And the duration of domestic VC also changes with the valuation of the secondary market. 20 15, the secondary market is very hot, and everyone is optimistic. I see that the term of many domestic venture capitalists may be shortened to only "12".
What does "1 2" stand for? VC has been investing for just one year, and I'm about to start thinking about quitting.
Then the question is, why is there such a big difference in VC duration between China and the United States? The reason behind this is that the composition of LP in China and the United States is different.
The LP of American funds mainly comes from insurance funds and retirement funds.
An important feature of insurance funds and retirement funds is the long investment time. Their logic is to live by generation, that is, our generation keeps the previous generation and the next generation keeps ours, so they can provide VC with this so-called "long money."
Another major category of LP in the United States is university endowment funds.
You know, the best universities in the United States are private universities, and the most important financial income of private universities, besides tuition, is donations. Nearly a quarter of donations from some universities are invested in funds allocated by VC.
For example, the foundation of Yale University, 1985, started to do venture capital. In the past 30 years, its average annual return on investment has exceeded 14%, which is worse than Buffett. The investment period is very long, generally exceeding 65,438+00 years.
Therefore, only 10% of LP in the United States are individual investors, and 90% are long-term institutional investors.
In contrast, our situation is very different. More than 50% of the limited partners in China are individual investors. Imagine that you ask an individual investor to invest 30 million or 50 million in a fund, and then lock it for 10 years or even 12 years at a time. This is very difficult, resulting in a relatively short duration of domestic VC.
Therefore, relatively speaking, domestic venture capitalists are more inclined to invest in later projects, that is, relatively mature projects; Foreign venture capitalists, because they have the duration of "10 2", can invest in those very early projects, so that you can keep exploring and trying.
Therefore, if you are a start-up, you should fully measure the maturity of your project. If your project is very early, then domestic venture capitalists may not be willing to vote for you. I suggest you pay attention to foreign venture capital.
The second important difference between local VC and foreign VC is that local limited partners will actively participate in the management of the company.
In the United States, the division of labor between LP and GP is very clear. There is a saying that "those who pay don't work, and those who work don't pay". In other words, LP pays, and he can't interfere with the operation of the fund; GP works, so he can only vote for 1% at most, and the rest will be paid by LP.
But in China, it's different. Many LPs are individual investors and will actively participate in the operation of GP. LP is the investor. They not only have financial resources, but also have to intervene in project screening, investment and even post-investment management.
On the other hand, our GP should not only choose projects and watch projects, but also deal with the intervention of LP, which is a very special place for domestic venture capital-LP GP.
For example, many LPs in China will ask to join the investment decision-making committee of the fund, and some LPs even ask for a one-vote veto, which is not allowed in the United States.
For example, Donghai Venture Capital, the first private PE institution in Wenzhou, set up the highest decision-making committee, called the Joint Committee, whose chairman is an LP.
When this fund was first established, it was quite beautiful. However, only one year later, Donghai Venture Capital withdrew from the venture capital industry. Why? It is because LP has interfered too much in the operation of the fund that it has always suspected that the projects provided by GP are unconvincing and unattractive. As for GP, I also feel that LP interferes too much, so the fund soon disappears.
Relatively speaking, our domestic VC prefers to invest in that kind. To put it mildly, it is called "consumption upgrade", which is actually an industry of eating, drinking and having fun.
This is supported by data-from June 2065438+07 to June 201August, the service industry was the most invested industry in our country, with more than 2700. What kind of service industry?
In fact, it is an entrepreneurial project such as delivery, manicure, decoration and beauty. Behind it are the cultural, entertainment and media industries, and there are also nearly 2,000 entrepreneurial projects.
From the data, we can see what the investment preference of local VC is.
This means that as the founder of an enterprise, you should also correctly judge your product category and industry nature.
You have to find out, is the battlefield you are going to fight more hard-core cutting-edge technological innovation or relatively soft business model innovation?
This also determines the path you choose for venture capital.
Finding the right venture capital at least means that you have a good starting point before the game can continue.
tactics
Well, when you understand the characteristics of VC, you can decide whether to find a local VC or a foreign VC. Finally, you get a VC $ Term sheet, and you will find that there are many clauses in this investment sheet. So, how do you negotiate with VC?
In the process of cooperation with venture capital, the strategy includes two parts, one is the negotiation strategy when you sign the framework agreement, and the other is the management strategy-after the agreement is signed, you and venture capital begin to "live". How do you handle and deal with all kinds of management problems together?
As I said before, in this framework agreement, the two most important rights are financial rights and administrative rights.
Generally speaking, many terms in a framework agreement are standard terms. For example, VC generally requires the rights of preferred shareholders, that is to say, it can not be responsible for the daily operation of your enterprise, but it must have the right to speak when making major decisions.
Also, VC will generally inject capital in stages. For example, if a project needs100000 yuan, it will never be given to you at the beginning. It will give you100000 first, which is called a round of investment, and set a phased goal for you. After you realize it, it will give you the second and third round of follow-up investment.
Also, VC will set up an "anti-dilution clause" in the agreement. When you absorb the next round of investment, investors have priority to ensure that their shares will not be diluted.
Clauses like this are actually VC's protection for itself. These terms are basically standard terms. As an entrepreneur, there is almost no room for negotiation on these terms.
power of sale
When you sign a contract with a foreign VC, you often give up the sales right carelessly. What does the right to sell mean? What it says above is that when your VC decides to sell your business, as long as you sign the sale right, he has the right to sell your business even if you don't agree.
The second clause to pay attention to is the gambling agreement, which is called share repurchase agreement abroad. What is a gambling agreement? It means that when entrepreneurs and VC can't talk about the company's valuation, for example, I give my company a valuation of 100 million, but VC gives my company a valuation of only 50 million, which is a big gap. Since the valuation can't be negotiated properly, shall we take a gamble?
How to gamble?
Then we will make an agreement on the performance of the enterprise or the development goal of a certain stage of the enterprise. If I achieve this agreed goal, VC will continue to invest in me; If I don't realize it, then I will buy back your shares.
This is equivalent to VC arranging a retreat and exit mechanism for itself.
Related questions and answers: What does venture capital mean? Venture capital generally refers to venture capital, which is mainly a financing method to provide financial support for start-ups and obtain shares in the company. Venture capital is called venture capital because there are many uncertainties in venture capital, which bring great risks to investment and its return. Venture capital (VC) is the abbreviation of venture capital, which refers to 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 of investment in high-tech enterprises with special potential by investment intermediaries under the management of professional talents, and it is also an investment mode to coordinate the relationship between venture capitalists, technical experts and investors, enjoy the benefits and bear the risks. The rise of venture capital in China stems from the outstanding economy of China after entering the new century. The rapid economic development in China has attracted more and more China students studying abroad to return to China to develop their business. A high-tech project, a small entrepreneurial team and a small start-up fund. This is the situation when the vast majority of returnees just started their business. Don't say that Internet companies like Baidu and Sohu are communication companies like UT Starcom. At the beginning of their business, they were just three or two people with seven or eight guns. It is only because of the continuous financing of venture capital funds that these companies finally stand out from a large number of similar companies. Venture capital returnees venture capital has experienced nearly ten years of development, and its scale is increasing day by day. There are more than 40 China enterprises listed on NASDAQ, with a total market value of over $30 billion. In China enterprises listed on NASDAQ, most executives have overseas study background. China enterprises listed on NASDAQ are promoting the development of new technologies and traditional industries, creating a new model for enterprises to develop in China and raise funds overseas. China enterprises listed on NASDAQ have broken through the category of Internet and high-tech companies. Companies in many industries and fields are landing on Nasdaq. In this regard, Xu Guangxun, chief representative of NASDAQ China, pointed out, "These companies are listed on NASDAQ, and their China concept has been accepted by the international market, which is undoubtedly a good thing for China enterprises. Most of the China companies listed on NASDAQ have overseas study background. " Among them are Tian Suning, founder of AsiaInfo Technology and chairman and CEO of Baidu, Deng Zhonghan, chairman of Zhongxing Microelectronics Co., Ltd., Yang Ning, president of Kongzhong.com, Deng Feng of Northern Lights, Zhu Min, founder of WebEx, Shen Nanpeng, founder of Home Inns, Liang Jianzhang, chairman of Ctrip.com, Xu Xiaoping, director of Beijing New Oriental Education Group, and Wu Ping, president of Spreadtrum Communications Technology Co., Ltd., and many overseas returnees who have successfully led enterprises to land on Wall Street.