VC/PE - 风险投资|私募股权

VC/PE

What's Venture Capital?

Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies that have the potential to develop into significant economic contributors. Venture capital is an important source of equity for start-up companies.

Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the venture capitalists themselves.

Venture capitalists generally:
•          Finance new and rapidly growing companies;
•          Purchase equity securities;
•          Assist in the development of new products or services;
•          Add value to the company through active participation;
•          Take higher risks with the expectation of higher rewards;
•          Have a long-term orientation

When considering an investment, venture capitalists carefully screen the technical and business merits of the proposed company. Venture capitalists only invest in a small percentage of the businesses they review and have a long-term perspective. Going forward, they actively work with the company's management by contributing their experience and business savvy gained from helping other companies with similar growth challenges.
Venture capitalists mitigate the risk of venture investing by developing a portfolio of young companies in a single venture fund. Many times they will co-invest with other professional venture capital firms. In addition, many venture partnership will manage multiple funds simultaneously. For decades, venture capitalists have nurtured the growth of America's high technology and entrepreneurial communities resulting in significant job creation, economic growth and international competitiveness. Companies such as Digital Equipment Corporation, Apple, Federal Express, Compaq, Sun Microsystems, Intel, Microsoft and Genentech are famous examples of companies that received venture capital early in their development.
What are the advantages of venture capital?
•   Young companies without strong track records may experience difficulties obtaining funds to finance the expansion of their businesses. Banks may grant them credit facilities but would usually require collateral, which the companies may not be able to provide.

•   Venture capital firms usually inject fresh capital into companies rather than providing commercial loans. This enhances the liquidity of the company without the burden of collateral or interest payments.

•   Venture capital firms may take majority or minority equity positions in a company and are long term investors. They usually require board representation and will take an active interest in the investee companies' affairs. While they are not involved in the day to day management of the company, the venture capital firms are able to add value to the company by their advice on business strategy, management, organization, financial systems, and their global network of contacts.

•   Professional venture capital firms, with their considerable experience in other ventures, serve as useful sounding boards for the companies in many strategic and management areas. They also provide senior level counsel on key issues facing the company. The infrastructure support of the venture capital firms can also assist young companies.

•   Having sound venture capital partners enhances the credibility to the investee companies. This would help in their business operations and in securing future financing.

•   Venture capital firms are business partners to the investee companies, sharing the risks and the rewards of the venture.
What are the stages of investment?
Most successful companies follow a similar pattern of growth. They pass through several phases of development and each phase requires financing of a different size and structure.

Seed
A business idea is conceived and the initial concept of the business is formed. The project is initially funded by the entrepreneur's own resources.

Startup/Development
The service or product is produced at this stage, but it has not been sold commercially. Investment in fixed assets and equipment for commercial production is now necessary. As the product has not been widely marketed and tested, its success is still in question. The risk is highest at this stage as funding commitment is large and the rate of failure is high.

Expansion
The company is now established. Its products or services have been successfully sold and a track record has been built. The company is ready to expand and additional funds are required. At this stage, bank loans may be available but will likely require a level of collateral, which is beyond the means of a young company. As the company is growing rapidly and is branching out to new markets, it may require a series of fund raising. Equity investment at this stage is sometimes termed "expansion capital".

Mezzanine
The company has now built a track record over a few years with a trend for continuing success. In preparing for listing on the stock exchange, there may be a need to restructure and strengthen its balance sheet. At the same time, an endorsement by a reputable venture capital firm will attract greater investor interest. This is the last stage of venture capital investment where the risks are relatively lower.
MBI and MBO
Management buy-in (MBI) - When a team of managers buys into a company from outside, taking a majority stake, it is likely to need private equity financing. An MBI is likely to happen if the internal management lacks expertise or the funding needed to 'buy out' the company from within. It can also happen if there are succession issues - in family businesses, for example, there may be nobody available to take over the management of the company. An MBI can be slightly riskier than a MBO because the new management will not be as familiar with the way the company works.

Management buy-out (MBO) - A private equity firm will often provide finance to enable current operating management to acquire or to buy at least 50 per cent of the business they manage. In return, the private equity firm usually receives a stake in the business. This is one of the least risky types of private equity investment because the company is already established and the managers running it know the business - and the market it operates in - extremely well.

Investor Types
•   Corporate funds: Subsidiaries of financial or industrial corporations.
•   Government funds: Agencies or crown corporations owned by government.
•   Institutional investors: Funds managed inside certain large institutions.
•   Retail Funds: Funds (e.g., LSVCCs, PVCCs) established with benefit of government tax credits to individuals.
•   Private-Independent Funds: Funds structured on Limited Partnerships and related vehicles.
•   Angel investors may either be wealthy people with management expertise or retired business men and women who seek the opportunity for first-hand business development.
•   Limited Partner (LP): Institutions or individuals that contribute capital to a private equity fund. LPs typically include pension funds, insurance companies, asset management firms and fund of fund investors.
•   General Partnership (GP): This can refer to the top-ranking partners at a private equity firm as well as the firm managing the private equity fund.
Exits
Private equity professionals have their eye on the exit from the moment they first see a business plan. An exit is the means by which a fund is able to realise its investment in a company - by an initial public offering, a trade sale, selling to another private equity firm or a company buy-back. If a fund manager can't see an obvious exit route in a potential investment, then it won't touch it. Funds have the power to force an investee company to sell up so they can exit the investment and make their profit, but venture capitalists claim this is rare - the exit is usually agreed with the company's management team.

IPO -- The initial public offering is the most glamorous and visible type of exit for a venture investment. In recent years technology IPOs have been in the limelight during the IPO boom of the last six years. At public offering, the venture firm is considered an insider and will receive stock in the company, but the firm is regulated and restricted in how that stock can be sold or liquidated for several years. Once this stock is freely tradable, usually after about two years, the venture fund will distribute this stock or cash to its limited partner investor who may then manage the public stock as a regular stock holding or may liquidate it upon receipt. Over the last twenty-five years, almost 3000 companies financed by venture funds have gone public.

Mergers and Acquisitions -- Mergers and acquisitions represent the most common type of successful exit for venture investments. In the case of a merger or acquisition, the venture firm will receive stock or cash from the acquiring company and the venture investor will distribute the proceeds from the sale to its limited partners.