1. Risks of private equity investment
In private equity investment, due to the high principal-agent cost and the uncertainty of enterprise value evaluation, private equity investment funds have high risks. Its risk problems mainly include the following categories:
(1) Risk of value evaluation
In the operation of private equity investment funds, the value evaluation of the invested projects determines the final equity ratio of investors in the invested enterprises, and too high evaluation value will lead to a decline in the return on investment. However, due to the poor liquidity of private equity investment, irregular cash inflow and outflow in the future, high investment cost and great uncertainty in future market, technology and management, investment valuation risk has become one of the direct risks of private equity investment funds.
(2) Intellectual property risks
This is of special significance to scientific and technological enterprises. Private equity investment, especially venture capital, values the core technology of the invested enterprise. If the ownership of the core technology is flawed (such as the invention of the technology by the entrepreneur at the original employer), it will obviously affect the entry of venture capital, and even bear the responsibility for breach of contract or contracting negligence. For this kind of risk, enterprises must confirm the ownership of core technology through professional evaluation.
(3) Risks caused by principal-agent
In private equity investment funds, the principal-agent relationship mainly has two levels: the first level is the principal-agent relationship between investment fund managers and investors, and the second level is the principal-agent relationship between private equity investment funds and enterprises.
The first-level principal-agent problem is mainly caused by imperfect laws and regulations related to private equity investment funds and low information disclosure requirements. This can't rule out the infringement, breach of contract or violation of the obligations of good managers by some bad private equity investment funds or fund managers, such as black-box operation, excessive trading, reverse operation, etc., which will seriously infringe on the interests of investors.
The second-level principal-agent problem is mainly "moral hazard" problem. Because of the information asymmetry between the investors and the financiers, the interests of the investee as an agent are inconsistent with those of the investors, which leads to the problem of "moral hazard" in the principal-agent and may harm the interests of the investors. With the help of professionals, we can make a standardized investment and financing contract and clarify the rights and obligations of both parties, such as the choice of investment tools, the arrangement of investment stages and the allocation of board seats of investment enterprises, which can prevent this risk to a certain extent.
(4) Risks in the process of exit
China's main board market has strict listing standards, which have strict requirements on the total share capital of listed companies, the amount of share capital subscribed by sponsors, the operating performance of enterprises and the proportion of intangible assets. It is difficult for small and medium-sized enterprises to land on the main board market, and the newly established GEM market is "too many porridge" to meet the listing needs of enterprises; The unclear nature and function of the property rights trading market and the lack of unified, transparent and scientific trading mode and unified supervision undoubtedly increase the exit risk of specific private equity investment fund investors.
2. Risk management
Private equity investment is a high-yield investment method, but also accompanied by high risks. With the continuous development of private equity investment industry, many effective risk control methods have been formed.
(1) contract binding mechanism
It is a legally effective risk avoidance measure for all commercial activities to stipulate the responsibilities and obligations of all parties in advance. In order to prevent enterprises from harming investors and protect investors' interests, investors will formulate various clauses in the contract in detail, such as affirmative and negative clauses, conditions for adjusting the share ratio, remedial measures for breach of contract, priority clauses for additional investment, etc.
(2) Sectional investment
Segmented investment means that private equity investment funds control the investment progress by segments in order to effectively control risks and avoid the waste of enterprise funds, only provide the funds necessary to ensure the development of the enterprise to the next stage, and reserve the right to give up additional investment and the right to purchase the shares issued when the enterprise raises additional funds first. If the enterprise fails to reach the expected profit level, the investment ratio will be adjusted in the next stage, which is a way to supervise the operation of the enterprise and reduce the operational risk.
(3) Share adjustment clause
Similar to other commercial activities, private equity investment can stipulate share adjustment clauses in the contract to control risks. Stock adjustment is an important risk control means in private equity investment. By adjusting the conversion ratio of preferred stock and common stock, the equity ratio between investors and enterprises can be changed accordingly, thus restraining the invested enterprises from making objective profit forecasts and setting realistic performance targets, and at the same time encouraging enterprise managers to be diligent and conscientious, pursuing the maximum growth of enterprises, thus controlling investment risks.
(4) Comprehensive securities instruments
Composite securities instruments usually include convertible preferred stocks, convertible bonds and convertible bonds. It combines the advantages of debt investment and common stock equity investment, and can effectively protect the interests of investors and share the growth of enterprises.