Since the fourth quarter of last year, Pre-IPO has become the hottest keyword in China investment circle. To exaggerate, there are two kinds of investors in the market, one is called investors, and the other is called Pre-IPO investors.
We estimate that at least 70%-80% of investment institutions have turned their energies to Pre-IPO projects. These institutions include RMB funds that used to do Pre-IPO, but later changed to VC (venture capital) or PE (private equity investment) because of the suspension of IPO, some listed companies and large enterprise groups, as well as financial institutions such as commercial banks and insurance companies, and even institutions that traditionally focused on early VC and growth PE investments began to follow up, taking out certain funds or raising special funds to join the excitement of Pre-IPO. Overall, investors will spend at least twice or twice as much time on pre-listing projects as they did in the same period last year. Individual institutions even stopped other projects and only did Pre-IPO.
Pre-IPO investors and other investors have completely different emphases and styles. Pre-IPO institutions do not care about the fundamental issues that traditional dollar funds pay attention to, such as customer acquisition cost, customer conversion rate, customer retention, efficiency and quantity.
The "three axes" of Pre-IPO investors are: first, what was the company's income and profit last year? What's the income and profit this year? What kind of growth forecast can you give in the next three years? The company must first ensure that it is profitable, and such an institution will not be seen without profit; Second, how to ensure that the company will not bear normal business risks in the future through gambling? Third, if the IPO cannot be completed for a long time, how to repurchase it, what is the rate of return, and who will guarantee the fulfillment of the repurchase obligation?
These three things make equity investment more and more like debt investment. This kind of Pre-IPO investment only needs to understand two points: first, the price-earnings ratio. At present, the pricing of A-share IPO has a policy upper limit of 23 times P/E ratio. Investors will make full use of this and try to control the P/E ratio below 20 times or even 15 times when they enter, so as to keep a certain safety belt. The other is to ensure that the company's IPO declaration is not "hard", such as no historical evolution, actual controller change and other issues.
Investment before listing is becoming less and less valuable. Basically, the multiplication within 20 is enough, and many times you don't even need a calculator. But as we all know, any occupation without gold content can't exist for a long time, just like many elevators in buildings used to have people who were responsible for helping passengers press the floor, but now there are almost no more.
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IPO should be a natural thing. When the enterprise develops to a certain stage and is mature enough to absorb public funds, it will naturally go to IPO. However, the current Pre-IPO investment boom has transformed the core competitiveness of enterprises into IPO itself.
"Banking Department" funds enter the market
The core competitiveness of Pre-IPO investors is not to look at the fundamentals of enterprises and make fundamental analysis, but to see who has the means to get lower-cost funds and earn the difference between the cost of funds and the repurchase rate of the invested company, who will have the advantage.
RMB funds flood into the primary market, and every wave will see some new players appear. This round of money is much more, and the funds are obviously concentrated in two parts: first, financial institutions, such as banks and insurance funds, especially banks; The second is the government guidance fund. These funds enter the primary market through various forms. Because their risk tolerance is relatively limited, the market mistakenly thinks that the risk of Pre-IPO is low, and a large part of the funds are flowing to this so-called Pre-IPO investment opportunity.
At present, commercial banks are becoming more and more active in the primary market. They not only actively participate in domestic primary market investment through overseas platforms, but also indirectly participate in primary market investment through domestic bank asset management and private banking channels. There are many ways for financial institutions to participate in the primary market, including direct investment and indirect investment through parent funds. Many RMB funds include M&A funds initiated by some A-share listed companies and some investment-loan linkage funds, and the fundraising work is also carried out hand in hand with banks. For example, if a listed company or enterprise group wants to raise an M&A fund of 654.38+0 billion yuan, it can invest 200 million yuan, and then the bank will help it raise another 800 million yuan through structured products. In this process, the bank actually passed the risk on to the sponsor.
Some investors in dollar funds also raise RMB funds for Pre-IPO investment, which may be mainly because it helps them raise funds. LP (Limited Partner) in China, especially private LP, is generally short-sighted, and can't wait to pay back the money today and the principal three years later. This is impossible in the normal PE market, not to mention the early VC market. This leads the fund to invest some funds in Pre-IPO projects, and the exit cycle may seem shorter, so it is easier to get the favor of LP when raising funds.
It may be a "fake pre-listing"
The market now generally believes that the A-share IPO will open the floodgates and accelerate overall. As long as the company has profits, it seems that it is possible to go public no matter what industry, how senior it is and whether it has core competitiveness. So investors flocked back to the wooden bridge before IPO.
Today's Pre-IPO boom is a huge trap, and a large number of RMB investment institutions will be trapped in it.
Although the IPO issuance speed is accelerating after the opening of the gate, the number of companies coming in later is also increasing rapidly. Many companies that originally planned to go to the New Third Board didn't go, and they all changed their IPOs directly. In other words, the speed of IPO queuing is accelerating, but the queuing time has not changed much. For example, it was reported to the CSRC in the fourth quarter of 20 17, and there was no major accident. I'm afraid the IPO will wait until the end of 20 18 or the beginning of 20 19.
In fact, even for Pre-IPO projects, it takes about three to four years from investment to real exit, which is not as fast as investors think. At the same time, there are several risk points that are often ignored by investors. First of all, these pre-IPOs are likely to be "fake pre-IPOs", and there may be one or two rounds of financing demand before the IPO, so today's so-called pre-IPOs are likely to be pre-IPOs, or even pre-pre-IPOs. Institutions don't know how long the next road will be, how long it will take, how many things will happen in the middle, and whether the relevant policies of the regulatory authorities will be adjusted at any time.
Secondly, many Pre-IPO investors still hold the traditional mindset that no matter how the quality of the company is, as long as they can IPO, they will be able to "carp yue longmen" and the price will be multiplied several times. This is a wishful fantasy, and it is likely to be completely shattered by the cold reality. In the future, not only will the overall valuation level of A shares decline, but the price-earnings ratio gap between first-tier companies and second-tier companies will be very large, and polarization will become more and more serious. Take the film and television industry as an example. In the past, when the market was in full swing, the P/E ratio of the first phalanx companies in the industry, such as Huayi, Guangli and Huace, might be 80-90 times, while the P/E ratio of some less well-known, featureless and less core competitive companies might be 50-60 times, with a difference of only 30%-40%. However, in the future, the price-earnings ratio of the "head company" in the film and television industry is likely to drop to 30-40 times, and the valuation of the second phalanx company is likely to drop to 10- 15 times. What does this mean? It means that the valuation difference between the two has changed from 30%-40% to 3-4 times.
Therefore, even for the Pre-IPO investment, the fundamental analysis of the company is very important, because it is bound to determine whether the invested company will enter the 30-40 times PE phalanx or 10- 15 times PE phalanx after the future IPO. As a Pre-IPO investor, all the accounts may be correct, and all the gambling clauses protect themselves well. The only thing wrong is whether the company you voted for is an excellent first-tier company or a mediocre second-and third-tier company. The price-earnings ratio of this company after listing may be 10 times instead of 40 times, and your most important assumption may be outrageous.
Third, because investors in Pre-IPO only multiply their profits by less than 20, and they only care about the price and don't mind buying old stocks, the invested companies also understand that they are easily forced into prostitution and make up their income and profits in order to reach the initial high valuation. Since investors can only look at figures, the company can only "fight poison with poison": it was originally 30 times, but the organization only gave me 15 times, and my real profit was 30 million. Now, in order to meet my valuation expectation, I can only find a way to turn the profit into 60 million. Anyway, in the end, both parties are counted in the general ledger, and the valuation becomes a pure number game. Some companies that don't have the quality of IPO originally suddenly see investors rushing in and finally wait for the opportunity, so let's talk about it first, regardless of whether it can really be an IPO in the future.
Once the IPO, all Pre-IPO repurchase obligations are automatically cancelled, and whether the P/E ratio is 40 times or 10 times can only be handed over to the market, and no one can guarantee it. In addition, even if the company or major shareholder has a repurchase commitment, how many companies and major shareholders really have the ability to fulfill the repurchase commitment in the case of unsuccessful IPO?
The road of Pre-IPO in the future must be a chicken feather, not only financial fraud, but also a large number of defaults.
A-share IPO exit is not the only way out
The direction of IPO liberalization is good, but before the secondary market investors have fully established the ability to distinguish good from bad, the companies queuing for IPO are mixed, so investors need to be extra cautious.
Now there is an interesting phenomenon. Some Public Offering of Fund, who have experience in the secondary market, are now actively involved in the primary market. They have been in the secondary market for many years, have a sense of risk, know the scope of risk, but do better. Those funds that originally focused on investing in the primary market, due to the lack of investment experience in the secondary market, thought that everything would be fine as long as the IPO was completed, which was a huge misjudgment.
Traditional VC exits mainly through IPO and M&A, but in the RMB investment market, some rational investment institutions will choose to put IPO exits behind, such as M&A exits and follow-up financing exits, because RMB investors don't mind buying old stocks. If you only look at the IPO exit, you must look at the following projects.
Even if investors enter the Pre-IPO, it may take one and a half years to get the IPO, and then the shares will be locked for another year, at the earliest, it will take two and a half to three years. Three to four years is a relatively normal exit time, and the cycle is not short.
Before reporting to the CSRC, companies usually sell some old shares, because once reported, they can't move any more. Since the founder will be locked up for three years after IPO, he will often consider cashing out some before filing.
Because of the Pre-IPO fever, it is very popular to sell old stocks in the primary market. Traditional VC and PE depend on the company's future business model and development space, and generally don't want to buy old shares, because buying old shares means that money flows between new and old shareholders, and taking over is equivalent to making a "wedding dress" for old shareholders, so that old shareholders can cash out to make money and can't be used for company development. But now, some companies, especially popular companies, sell off their old stocks in large quantities during Pre-IPO.
Under the domestic regulatory framework, once entering the IPO process, everyone shares the same rights, so there is little difference between the purchase rights of old shares and new shares, and newcomers often pay special attention to the price because they only calculate the price difference. Old stocks can generally be discounted, mostly by 20% to 10%, which is very attractive to Pre-IPO institutions.
With the increasing liberalization of IPO, the overall value of shell resources shows a downward trend. For backdoor listing, especially those disguised backdoor behaviors called mergers and acquisitions, the regulatory scale will become stricter and stricter. The company's willingness to buy shells has also been greatly reduced, because it is better to queue up for listing, which makes shell companies valuable and have no market.
Finally, we will find that there are still many companies stuck in the IPO road and can't get on. It wasn't necessarily because the CSRC wouldn't let it. Probably because no one wants to buy it in the secondary market. Investment banks have to be able to sell stocks, otherwise how can they IPO?
At this time, the shell company is likely to get back on fire. But what is more noteworthy is that if these so-called Pre-IPO companies really queue up to complete the IPO, how many will become new shell companies in the future?
New economic companies began to look at Hong Kong stocks.
Because A shares have rigid requirements for profitability, it is likely that a group of "old kinetic energy" companies will enter the listing queue first. There are also some profitable Internet companies, but some profitable Internet companies may not meet the IPO conditions of other A shares.
This year, US stocks also have a time window for listing. The IPO market of technology companies accelerated obviously in the first half of the year, which is related to the overall large capital market environment in the United States. The American capital market thinks that the growth of emerging markets slowed down the year before and last year, and it is very worried about emerging markets, so a large amount of funds returned to the United States.
But now many China companies don't want to go to the United States. They find their stories difficult to tell in America. In addition to A-shares, these companies often look at Hong Kong stocks.
Last year and the year before last, Hong Kong was considered as a "chicken rib" IPO market, but this year many people began to look to Hong Kong. Recently, the price of Meitu has soared after its listing. The market feels that there are many uncertainties in A-shares, and companies going to US stocks will often become "abandoned children". At the same time, many business models are not suitable for going to the United States, and the American market does not understand. In addition, the Hong Kong market is beginning to pick up, so I think Hong Kong is also a substitute worthy of serious consideration.
Consumer goods companies used to be relatively mature in the Hong Kong market; In the past, there was only Tencent online, but now there are beautiful pictures; Entertainment companies, such as Alibaba Pictures, China and Hongkong, may become a direction for more and more mainland new economic companies to consider.
Of course, some businesses can only be in A shares. For example, there are many companies that do big data now, which will involve data security issues. Basically, they can only develop at home with the domestic structure. Moreover, judging from the overall valuation level, for a long time to come, truly first-class companies will definitely have more advantages in A shares than in US stocks and Hong Kong stocks.