Nine Rules Of Venture Capital That Entrepreneurs Must Know

Rule 1: the original VC also spoke about the hierarchy, the capital market itself is multi-storey, and the location of investment institutions and enterprises is clear.

In terms of wisdom, big funds and small funds are not necessarily different, just like truck drivers are not necessarily superior to sports car drivers.

The difference between the two is that first, the scale of capital movement is large. The amount of private equity in large projects is quite considerable. When IPO is involved, billions of shares are underwritten.

Secondly, the cost is different. The operating cost of funds at different levels is far from the same. The investment gains from heavy weight projects can not cover the cost of large funds.

Large investment institutions such as Morgan, Caire, Softbank, mainland China, Hong Kong and Taiwan venture capital institutions such as Lenovo, and overseas funds that have just entered China to test water, are mostly large investment institutions.

It is self-evident that in the field of venture capital, although there is no explicit regulation, it is clear that specific enterprises are suited to that level of venture capital institutions.

Rule two: the more expensive you invest, the more expensive and the more you want to invest. The investment that venture capital first invested in the "test water" stage in the country is usually only hundreds of thousands, and one million is rare.

With the Chinese concept gaining fame in the international capital market, the amount of VC raised by patent investment in China is increasing.

For VC, the investment of 2 million US dollars is basically the same as that of 20 million US projects.

In general, the more expensive, the more expensive the investment is.

But the investment organization also has the idea of risk diversification. It is much less risky to invest in the IT industry in China for 100 million US dollars than to invest 50 in 5 industries.

For this reason, venture capitalists chose to go hand in hand, for example, in October 2002, Morgan, British League and Ding Hui jointly invested three dollars in Mengniu investment.

The three investment institutions, which manage billions of dollars respectively, do nothing but risk diversification.

Another motive is to hitch a ride. An organization spends energy on testing projects and other agencies directly follow up.

The hitchhiking institution not only does not think disobedient, but regards it as a lever of 42 points.

For example, after the completion of the examination of the project, the investment was 10 million, and the other 3 agencies followed up 10 million (the total number of enterprises was 40 million). For the lead agency, it was equal to 1 yuan to drive 4 yuan, and the leverage ratio was 1:4.

Rule three: pay attention to the business plan which is sent by email, and more than 80% will be rejected in 5 minutes.

The rules and regulations of the VC industry are few and far between. Although there are rules, it is often a bad idea to vote.

Moreover, enterprises that are introduced to friends under risk everywhere are stronger than those who are totally reluctant to go to the bottom.

There are several overlapping circles between investment institutions, professional intermediaries (accountants, lawyers, financial advisors), financial media and invested enterprises.

Looking back, more than 90% of successful investment companies benefit from insiders' recommendation.

Another important reason is that venture capital attaches great importance to entrepreneurs.

Therefore, the information from the familiar and trusted people will get great attention from venture capitalists.

Rule four: Beijing and Shanghai are favored by venture capital funds and venture capitalists.

And overseas experience, such as in Silicon Valley, ordinary venture capitalists only invest in a company of 30 kilometers or so. If you want to get the money from this venture capitalist, you can't move in.

In fact, it is not difficult to understand why the venture capital investment is in itself, because venture capital itself is how to establish a company. If venture capitalists visit the company once every 3 months and communicate with management by telephone, then it is certainly inefficient.

You have to have very close contact with other directors or senior managers of the company, visit once a week, discuss business development and so on.

Therefore, the general venture investment enterprise orientation is to invest in some enterprises near his office.

Rule five: VC is the most expensive way of financing. Financing is essentially a system arrangement between enterprises and investors on risk sharing and income distribution.

Companies are looking for ways to care about the valuation of the fund, and they do not know that the fund has its own valuation.

This price is the expected rate of return: the internal rate of return obtained from the successful exit of the investment enterprise is multiplied by the probability of successful exit.

The expected rate of return depends on the degree of greed of capital owners. The mainstream quantitative model is called CAPM (CapitalAssetPricingModel).

For example, the average return on investment of an enterprise is 33%, and the interest rate of treasury bonds is 3%. Through this calculation, investors expect a return rate of 48% per year. Generally speaking, if 3 years later, they can successfully withdraw from enterprises (listed on the enterprise or sell at a high premium), the total return rate demanded by investors is above 324%.

That is to give you 10 million or 3 years to take 32 million 400 thousand.

In fact, because of China's strong economic growth and its excellent performance, venture capital's return from successful listed companies is much higher than 300%.

Obviously, accepting VC is the most expensive financing method in the world. The formula of capital valuation objectively illustrates the basis of high return rate of venture investment.

Rule six: VC mishandling is common.

VC may invest in enterprises that are assessed to have 40% probability of dumping.

Because once the company succeeds in giving VC a 500% return, the expected return rate of the project is 300% (i.e. 500%X60%).

VC, which seems to be courageous in pursuit of risks, pursues high returns in essence.

If the investment success rate of the fund is higher than 95%, the total internal rate of return (IRR), which is the discount rate of zero net value of the project, is less than 10%, and the investment success rate will be reduced to 80%, and the total internal rate of return may exceed 30%.

From the past general performance of venture capitalists, they have two or three losses and three or four equity in every ten projects, and only two or three have become stars.

Therefore, measuring the success of venture capitalists depends on how high he has made a star project and the total yield of the fund, rather than whether he has had any investment failure.

In order to pursue the high success rate and reject the investment application of enterprises too much, it is inevitable that there will be "good seedlings" such as Ctrip and the public.

A successful VC expert never flaunts that he has never missed a game. He will make a joke.

In short, the bright assets of entrepreneurial enterprises are few and intangible assets are difficult to quantify. The bright spot is only one: high growth.

Risk abusers such as banks can not avoid it. Only those who have a risk preference will invest in such enterprises if they pursue high returns.

But venture capitalists must first confirm that they can get profits that match risks.

To put it simply, your business is worth risk taking. The rule seven is: to spoil the growth and to invest in the safety of investors, I believe that one bird in hand is better than ten birds in the forest.

Moreover, the vast majority of venture capital institutions are limited partnership companies established by collection, with a duration of 5 to 10 years.

Limited partners who only provide funds and do not participate in the business are liable only for their capital contributions, while the venture capital experts are general partners.

It is their ideal to advance quickly and quickly. Only when they withdraw from cash, can venture capital flow and circulate.

Popularly speaking, if the invested enterprise is rocking Qian Shu, VC will try to sell the tree at a high price.

Personally, it is not really a VC to shake the tree and enjoy it.

The development stages of investment enterprises can be roughly divided into seed period, creation stage, expansion stage and maturity stage.

The distribution of venture capital in the four stage is roughly 12:22:42:24.

When there are many investment targets, venture capital tends to set foot in more mature enterprises.

In the process of investment, if there are cash opportunities, such as high premium private placement and initial public offering (IPO), VC will usually cash in a lot more than the initial investment.

We should retain more or less equity in order to continue to share the growth of enterprises.

In short, VC is trying to find the best opportunity to withdraw when the bag is safe.

For example, Lenovo's investment to sell Amazon's equity stake to Amazon has yielded a 13 fold return.

The orientation of wind and investment for security has accelerated the process of enterprise development, growth and listing, and has contributed to the impetuosity of the invested enterprises to a large extent.

Western scholars have long noticed the negative role of VC, and a series of immature performances such as Shanda's Nasdaq have proved this.

In a small and medium-sized fund, there are fewer than ten analysts, each with expertise in the investment field.

The above six items are only the most commonly used rules for analyzing projects, formulating plans and implementing investment processes.

Rule eight: don't give up the right limit for VC, do not VC for VC.

Nowadays, the theme of gathering in many industries is how to cheat VC.

As a result, many entrepreneurs are running out of money. They can't get money without saying anything, and they have smashed their money into it. They have done nothing effective and have no technical content.

Industry impetuous, so that the success of the industry standard has gone a long way, the original listing is successful, and now the concept of success is to get VC even.

Some entrepreneurs even go to their knees in order to get VC.

The management of some overseas funds is quite formal, but they are too far away from the Chinese market. In order to adapt to the market, they usually recruit local people who have experience in VC operation management, and will also seek cooperation with people with Internet experience.

But these partners often look for investment partners to make profits for themselves. He will secretly ask for his own shares or ask the other party to buy a company.

Many companies that get the VC have to buy some companies or give investors some share.

Through these investors' illegal cash pactions, the start-up companies become no money, or money can not be spent on steel blades.

VC also plagiarized the creativity of entrepreneurs. Many entrepreneurs once submitted their business plan, usually do not get VC after a few months, they were copied to other projects.

Some VC actually invest in their own projects, and pull others' funds to join them.

Even with VC, many companies regret that they have given too much concession at the beginning.

Lu Chen, panoramic network, was upset when he introduced the first round of venture capital.

"Financing at that time did not know how much money to sell."

It looks cheap now. "

This "cheap sale" even affected Lu Chen's second round of VC financing.

"When looking for the second round of financing, those VC said," you don't want to pay such a high price. I know the price you paid to the Sino US cooperation. "

Rule nine: stay awake. Don't believe in the praise of VC. When you get the investment, VC may praise you. More than 90% of them will encourage you.

But you must be calm.

Perhaps VC is thinking: your business has a 40% probability of dumping in 3 years!

After careful preparation, careful calculation and many experiments, Blackie Ko's risk of driving over the Yellow River is no bigger than walking across Chang'an Avenue. This is a model of risk control.

Career investors began building the concept of risk control from the first day of entry.

In particular, the long history of investment institutions have witnessed the rise and fall of numerous enterprises and even the rise and fall of the country.

They know everything is possible, but the probability of happening is very small.

The risk is not terrible. If we avoid risks, we will accomplish nothing. The key is to identify where the risks are and where to control them as accurately as possible.

Xu Qiyun, editor in chief: