According to the definition of private equity investment fund by American Venture Capital Association (NVCA), private equity investment fund can be divided into two levels: broad and narrow, in which the broad private equity fund includes venture capital fund; Private equity investment funds in a narrow sense do not include venture capital funds.
Therefore, venture capital is one of the broad categories of private equity investment.
Specifically, venture capital refers to the early equity investment in emerging small and medium-sized enterprises with high growth potential and great competition potential, including:
Searching, incubating, sowing or early investment;
Investment in the initial stage, product prototype stage or company expansion stage;
Use bonds with similar stock characteristics for mezzanine or structured financing;
Mature companies invest before listing.
The main purpose of this kind of venture capitalists is to expect the rapid growth of enterprises and bring high value-added benefits to enterprises. Investors often quit after the completion of the start-up stage to ensure their capital appreciation, and then make a new stage of capital investment. For example, IDG Technology Venture Capital Fund, which has invested in well-known enterprises such as Tencent, Sohu and Tudou, is a very typical and successful venture capital, that is, a high-tech innovative enterprise with great growth potential in the investment market.
Venture capital is a kind of equity capital and debt capital. Venture capital generally accounts for more than 30% of the total invested capital of venture enterprises. For high-tech innovative enterprises, venture capital is an expensive source of funds, but it may be the only feasible source of funds. Although bank loans are relatively cheap, they avoid risks and put safety first, which high-tech innovative enterprises can't get.
The venture capital mechanism is completely different from bank loans. The differences are as follows: firstly, bank loans stress safety and avoid risks; Venture capital, on the other hand, prefers high-risk projects and pursues high returns hidden behind high risks, aiming at managing and driving risks. Secondly, bank loans are based on liquidity; However, venture capital is characterized by poor liquidity and seeks growth in relative poor liquidity. Third, bank loans pay attention to the current situation of enterprises, their liquidity turnover and repayment ability;
And venture capital focuses on future income and high growth. Fourth, bank loans are assessed by physical indicators; Venture capital examines whether the management team of the invested enterprise has the management level and entrepreneurial spirit, and examines the future market of high technology. Finally, bank loans need mortgages and guarantees, which are generally invested in growing and mature enterprises, while venture capital does not need mortgages and guarantees, but invests in emerging enterprises and high-growth projects.
Venture capital is a long-term (average investment period is 5-7 years) equity capital with poor liquidity. Under normal circumstances, venture capitalists will not put all the venture capital into venture enterprises at one time, but will continue to inject funds in batches with the growth of enterprises.
Venture capitalists are both investors and operators. Unlike bankers, venture capitalists are not only financiers but also entrepreneurs. They are both investors and operators. After investing in a venture enterprise, venture capitalists will join the management of the enterprise. In other words, venture capitalists provide venture enterprises with not only funds, but also professional knowledge and management experience.
Venture capitalists hold about 30% of the shares of venture enterprises, and their interests are closely linked with those of venture enterprises. Venture capitalists not only participate in the long-term or short-term development planning of enterprises, the determination of enterprise production targets and the formulation of enterprise marketing plans, but also participate in the capital operation process of enterprises, add investment or create capital channels for enterprises, and even participate in the employment and dismissal of important personnel of enterprises.
Venture capital will eventually withdraw from venture enterprises. Although venture capital is invested in equity capital, their purpose is not to obtain enterprise ownership, but to make profits, and to withdraw from venture enterprises in order to obtain rich profits and excellent performance.
There are three ways for venture capital to quit venture enterprises: initial public offering (IPO); Merger and acquisition or share repurchase by other enterprises; Bankruptcy liquidation. Obviously, it is the goal of venture capitalists to make venture enterprises reach the initial public offering. Bankruptcy liquidation means that venture capital may lose part or all.
How to quit is a sign of the success of venture capital to a certain extent. Venture capitalists have formulated specific exit strategies before making investment decisions. Exit decision is a profit distribution decision, and how and when to exit can maximize the return of venture capital as the best exit decision.