From Hot IPO To Mergers And Acquisitions Mainstream Equity Fund Exit Path Change

Exit is the basic link in the operation of equity funds, and it is also a crucial step in testing the strength of funds. Especially in the past two years under the influence of capital cold winter, the return of capital brought by exit is particularly important.

IPO, merger and acquisition, transfer and repurchase are the four main paths for the withdrawal of funds. In the past long period of time, IPO has been exited by investment institutions. Mergers and acquisitions and transfers are the second choice.

The potential stock of the equity transfer service platform was compared with the exit structure of the fund established in -2011 in 2009. The result shows that in the Chinese market, the ratio of IPO withdrawal is 59%, followed by the withdrawal ratio of 19% and 16% of the withdrawal, and the rest is the repurchase exit. In the more mature American venture capital market, the exit of M & A occupies a dominant position, with a ratio of 56%, followed by a 38% of transfer and withdrawal, and IPO has become a minority choice, accounting for about 5.6%.

"There is a big difference between Chinese and American market funds in the choice of exit path, but now the situation has changed. Many Chinese investors are no longer blindly pursuing IPO, and mergers and acquisitions are bringing more benefits to more institutions. Executives at a front-line investment firm told the twenty-first Century economic report.

IPO exit is not worth blindly promoting.

Theoretically, the threshold of IPO project is higher and more difficult, and the proportion should be lower. However, the proportion of IPO exit in China is even bigger. The reason is that China's investment institutions are too much in pursuit of IPO, but they do not pay enough attention to other ways such as mergers and acquisitions, transfer and so on. But now, the situation has changed significantly.

First of all, for the IPO market, there are larger arbitrage opportunities between the previous one or two tier markets. The IPO invested by A in the A-share market can bring high returns. A company's listing is on the clock, and the story of the investment agency's long run running finally gains a hundredfold return is often seen in newspapers. It makes people believe that IPO quit is a matter of fame and wealth.

But now, the price gap between the one or two markets has been shrinking, and even the price upside down. The super Unicorn project is getting fewer and fewer. For early investors, after a few rounds of equity dilution, it will be hard to get high returns. For investment institutions coming back to the next round, the project is listed or even lost money.

On the other hand, many small cap stocks have been listed in US stocks and Hong Kong stocks in recent two years, but because of lack of liquidity, it is very difficult for them to exit. In the A share market, the listing conditions are relatively harsh. After the listing of the project, institutional reduction is also subject to certain restrictions. IPO has earned fame for investment institutions, but it's hard to make money.

Second, as far as the M & a market is concerned, the original Chinese M & a market is not so mature and the credit system is not perfect enough. When buying the underlying company, especially the Internet Co, the buyer is in fact most of the value on the team. However, due to the imperfections of credit mechanism and low cost of default, it is easy to get a team to exchange blood after buying a company. Now, the maturity of Chinese enterprises is getting higher and higher, and entrepreneurs' cognition of credit is more and more profound. With the improvement of the domestic credit system and the gradual maturity of the M & a market, the buyer's willingness and confidence in M & A are constantly increasing.

In addition, paying attention to the diversified exit ways such as merger and acquisition is also an option for the fund to strengthen the DPI index in order to protect the interests of LP. After the wave of universal PE in 2010, a large number of funds entered the exit phase in the past two years. Many funds had high IRR in the early years of publicity projects, but the fact is that even though the fund has been operating for seventh years, it has not recovered all the principal amount, that is, DPI is less than 1.

After a painful lesson from the market, DPI became the core indicator of the fund's performance. When the prospect of listing is unknown or can not be completed within a certain period of time, more funds begin to choose the way of merger and exit. After all, the latter is relatively better in terms of feasibility, certainty and ease of distribution.

"For any investment, if you can earn more than 10 times the return, no matter what kind of exit you are through, it is excellent." Potential stock founder Li Gangqiang said. In other words, investors should seize every exit opportunity that can get 10 times return. Instead of sticking to it, is it IPO or the form of acquisition and transfer?

Mergers and acquisitions also need to pour a lot of effort, repeated communication and running in.

Gobi investment is an early investment institution that recognised the changes. It is understood that about half of the 14 companies withdrawn from the company in the past 2018-2019 years have been withdrawn through mergers and acquisitions. For example, the investment of A round was reached by the rookie network, the UR of A investment was bought by Hai Lan's home, and the Mainspring of C investment was bought by today's headlines.

"We did not deliberate to say that we should let the project choose more options for mergers and acquisitions. Only for objective factors, some projects will be successfully withdrawn from mergers and acquisitions." Zhu Zhu, an investment partner in Gobi, told the twenty-first Century economic report.

For example, I started to do express delivery, and then transformed into distribution crowdsourcing platform. For the time I reached the point, development faced a difficult problem. The upstream flow of the company is relatively concentrated, mainly from the hungry, the United States and so on. If you buy traffic, full market operation will face a higher business cost. At that time, since I had already had a good foundation for cooperation with the rookie stage, the two sides finally reached a point after many communication.

"There is a good combination between the two companies. If Gobi is listed on the project, it may make more money. But there are great opportunities for cost and uncertainty, so we still recognize the path of mergers and acquisitions. Zhu Lin said. In his opinion, an institution does not have to earn every penny on the table. The Chinese market has a long-term potential for development. As long as the fund has been struggling with it, there is always a chance to make the money earned.

But not all mergers and acquisitions will go smoothly. The most difficult situation for mergers and acquisitions may be that investors believe that mergers and acquisitions are the best end result, but the founders are unwilling to be merged.

Zhu Lin said that in order to deal with this situation, Gobi venture capital will do two things. First of all, when the project is cast, if the founders are found to be very stubborn, the team will have corresponding measures in wind control, such as making some agreements on the terms.

Second, if we really go to the edge of whether to be merged or not, Gobi will first respect the idea of entrepreneurs and let the team develop independently according to its own planning. When there is no obvious improvement in the latter stage, or if the entrepreneur is in a wall, Gobi will try to communicate with him again.

"Behind many acquisitions of surface scenery, it may be the two or three years of the tug of war, which requires a lot of effort and repeated communication and running in." Zhu Lin said.

After a series of mergers and acquisitions, Zhu concluded that there are two types of companies that are more suitable for mergers and acquisitions. First, a product company, the founding team is not so keen on the large-scale operation of the company. It is more inclined to lead a small team of 50-60 people to make products in 5-7 years, and then to develop the next product. For such a division, there is no need to force it to go public. Telling stories and doing growth will bring unnecessary pressure.

Two, companies that are highly dependent on resources, such as the shared bicycle market, when the stage of development exceeds supply and the financing environment is not so prosperous, a better result is to embrace the big resources of the motorcycle as early as possible.

But Gobi venture capital does not exclude projects to IPO, Zhu stressed that if the founding team's overall quality is high, management ability is strong, and is doing platform level events, IPO must be an option to maximize profits.

"But in terms of probability, IPO should be the choice of a few people, and it should not be the main exit way." He said. In the future, for VC institutions, there are 60%-70% projects that choose to withdraw from M & A, and 30%-40%'s IPO exit may be a trend.

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