Explanation of terms: (1) venture capital, (2) angel investment.

Venture capital is called VC for short.

In China, it is a conventional concept with a specific connotation. Actually, it is more appropriate to translate it into venture capital. Venture capital in a broad sense refers to all investments with high risks and high potential returns; In a narrow sense, venture capital refers to the investment in the production and operation of technology-intensive products based on high technology. According to the definition of American National Venture Capital Association, venture capital is a kind of equity capital invested by professional financiers in emerging, rapidly developing enterprises with great competitive potential. From the perspective of investment behavior, venture capital is an investment process in which capital is invested in the research and development of high-tech and its products with failure risk, aiming at promoting the commercialization and industrialization of high-tech achievements as soon as possible, so as to obtain high capital gains. From the perspective of operation mode, it refers to the process of investment in high-tech enterprises with special potential by investment intermediaries under the management of professional talents, and it is also an investment mode to coordinate the relationship between venture capitalists, technical experts and investors, enjoy the benefits and bear the risks.

Operation mode of venture capital

Venture capital generally operates in the form of venture capital fund. The legal structure of venture capital fund is in the form of limited partnership, and venture capital companies, as general partners, manage the investment operation of the fund and get corresponding remuneration. In the United States, limited partnership venture capital funds can get tax incentives, and the government also encourages the development of venture capital in this way.

Six elements of venture capital

Venture capital, venture capitalist, investment object, investment period, investment purpose and investment method constitute six elements of venture capital.

First, venture capital.

Venture capital refers to a kind of capital provided by professional investors for fast-growing emerging companies, which has great appreciation potential. Venture capital enters these enterprises by buying equity, providing loans or both.

The source of venture capital varies from country to country. In the United States, 1978 personal and family funds account for 32% of all venture capital; Followed by foreign investment, accounting for18%; Third, the funds of insurance companies, annuities and large industrial companies account for 16%, 15% and 10% respectively. By 1988, the proportion of annuities increased rapidly, accounting for 46% of all venture capital, followed by foreign funds, donations, Public Offering of Fund and large industrial funds. Unlike the United States, the risk capital in European countries mainly comes from banks, insurance companies and annuities, accounting for 3 1%, 14% and 13% of the total risk capital respectively. Among them, banks are the most important source of venture capital in Europe, while personal and family funds only account for 2%. In Japan, as long as venture capital comes from financial institutions and large companies, it accounts for 36% and 37% respectively. Followed by foreign funds and securities company funds, each accounting for 10%, while individual and family funds only account for 7%. According to the investment mode, venture capital can be divided into direct investment fund and guarantee fund. The former enters the invested enterprise through the purchase of equity, mostly private capital; The latter helps the invested enterprises by providing financing guarantee, mostly government funds.

Second, venture capitalists.

Venture capitalists can be roughly divided into the following four categories:

▲ A venture capitalist.

They are entrepreneurs who want other entrepreneurs to invest. Like other venture capitalists, they make profits by investing. But the difference is that the capital invested by venture capitalists belongs to themselves, not the capital entrusted for management.

▲B Venture Capital Company.

There are many kinds of venture capital companies, but most of them invest through venture capital funds, which are generally organized in the form of limited partnerships.

▲ affiliated investment company of industry C.

This kind of investment companies are often independent venture capital institutions under some non-financial industrial companies, and they invest on behalf of the interests of the parent company. This kind of investors usually mainly invest their money in some specific industries. Like traditional venture capital, industry-related investment companies should also evaluate the investment plans submitted by the invested enterprises, conduct in-depth due diligence and expect higher returns.

▲D angel investor.

Such investors usually invest in very young companies to help them get started quickly. In the field of venture capital, the term "angel investors" refers to the first investors of entrepreneurs, who put money into the company before its products and business take shape.

Third, the purpose of investment.

Although venture capital is a kind of equity investment, the purpose of investment is not to obtain the ownership of the enterprise, to hold shares or to operate the enterprise, but to enlarge the investment enterprise by investing and providing proliferation services, and then to withdraw through public listing (IPO), mergers and acquisitions or other means, so as to realize the return on investment of property rights flow.

Fourth, the investment period.

Venture capitalists help enterprises grow, but in the end they seek channels to withdraw their investment in order to achieve proliferation. The investment cycle of venture capital is called the time interval from venture capital investment to investment withdrawal. As a kind of equity investment, venture capital has a long term. Among them, venture capital in the initial stage usually enters maturity within 7~ 10 years, while the follow-up investment is mostly only a few years.

Verb (abbreviation of verb) investment target

The industrial field of venture capital is mainly high-tech industry. Take the United States as an example, 1992 also accounts for 27% of computers and software; Followed by the health care industry, accounting for17%; The communication industry is the third, accounting for14%; Biotechnology industry accounts for 10%.

Investment mode of intransitive verbs

From the nature of investment, there are three ways of venture capital: first, direct investment. But to provide loans or loan guarantees. The third is to provide some loans or guarantee funds and invest some venture capital to buy the equity of the invested enterprise. But no matter what kind of investment, venture capitalists generally provide multiplication services. There are two different ways to enter venture capital. The first is to put venture capital into the invested enterprise in stages, which is relatively common, which can not only reduce the investment risk, but also help accelerate the capital turnover; The second is one-time investment. This method is not common, and ordinary venture capitalists and angel investors may adopt this method. After an investment, subsequent financial support is difficult and unreasonable.

The characteristics of venture capital:

1, the investment target is small and medium-sized enterprises in the initial stage, mostly high-tech enterprises;

2. The investment period is at least 3-5 years, and the investment method is generally equity investment, which usually accounts for about 30% of the equity of the invested enterprise, and it does not need a controlling stake or any guarantee or mortgage;

3. Investment decision-making is based on high specialization and procedure;

4. Venture capitalists generally actively participate in the operation and management of invested enterprises and provide value-added services;

In addition to seed financing, venture capitalists generally meet the financing needs of invested enterprises in the future development stage;

5. Because the purpose of investment is to pursue excess returns, when the invested enterprise adds value, venture capitalists will withdraw their capital through listing, mergers and acquisitions or other equity transfer to realize value-added.

The characteristics of venture capital:

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; The venture capital focuses on the 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.

Ten Lies of Venture Capitalists

1. "I like your company, but my partner doesn't." In other words, it is "no". The person in charge of this project just wants entrepreneurs to believe that he is a good man, a smart man and a person who can really understand what entrepreneurs do. "Others" is not, so don't blame him. This is shirking responsibility; Don't believe his story that other partners don't like this project as much as he does. If he really likes it so much, he will definitely invest in this deal.

2. "If you can find other venture capital investments first, we will follow up." In other words, as an old Japanese proverb says, "No", "If your aunt has courage, she will be your uncle." Aunt, of course not, so this is bullshit. The VC who said this actually said, "We are not optimistic about this business, but if Sequoia invests first, we will follow up." In other words, once an entrepreneur doesn't need money, venture capitalists will be willing to give him more—it's like saying, "Once you see Larry Csonka stop shaking, we will help you deal with him." What entrepreneurs want to hear is "If you can't find other VCS to invest first, let's invest." This is an investor who trusts you.

3. "Show it to us first, and then we will invest." The implication is "no". This lie can be translated as "I don't believe the pie you described, but if you can earn a lot of money to prove it to me, then you may be able to convince me." However, I don't want to tell you that I'm not going to invest, because I may make a mistake in judgment, and then, my god, you may get a fortune 500 customer. At that time, I will be like an asshole. "

4. "We like to invest jointly with other venture capitalists." It's like the law that the sun always rises and Canadians just like to play hockey. You have to believe that venture capitalists must be greedy. In the venture capital industry, greed means "if this is a good project, I will win it all myself." What entrepreneurs want to hear is "We won this round of investment." We don't want any other investors to join us. "So, the task of entrepreneurs is to convince them why other investors can make the cake bigger instead of reducing the piece in their hands.

5. "We want to invest in your team." This sentence is not finished yet. The investment team is right. What the entrepreneurs hear is "We won't fire you-if we invest entirely because of you, how can we fire you?" This is not what venture capitalists mean at all. She means, "as long as things go well, we will continue to invest in your team, but if things don't go well, we will kick you out." Who is indispensable? "

6. "I will put a lot of energy (originally bandwidth) into your company." Maybe he is talking about the T3 line in his office, but he is by no means referring to his schedule, because he has been at the tenth board for a long time. Count how many times he will attend the board meeting. Entrepreneurs should assume that a venture capitalist spends 5- 10 hours on a company every month. That's it. Let's face the reality. Shorten the board time as much as possible!

7. "This is an ordinary investment letter of intent." There is no vanilla investment letter of intent. Do you think that professional investment and financing lawyers who charge up to $400 an hour only get some standardized investment letters of intent? If entrepreneurs insist on using the smell of ice cream to describe the letter of intent for investment, the only applicable smell is the smell of "rugged road", which is why venture capitalists need professional investment and financing lawyers who charge $400 an hour in addition to divorce lawyers.

8. "We can help you knock on the door of our client company." This is a double lie. First of all, a venture capitalist can't always open the door for others in the client company. Frankly speaking, his client company will hate him for it. The worst thing is to let him introduce you. Second, even if venture capitalists can open the door for you, entrepreneurs can't seriously expect those companies to become your loyal customers-that is, some things are just talk at best.

9. "We like to invest in early projects." The real fantasy of venture capitalists is to invest10 million dollars in a company that was already worth 2 million dollars before investing, and then hold a 33% stake in the next Google. That's early venture capital. Do you know why we are all familiar with Google's amazing return on investment? This is the same reason that we all know Michael Jordan: Google and Jordan are both amazing and rare. If they are ordinary, no one will write their stories. Looking at the essence through the phenomenon, you will find that venture capitalists like to invest in successful teams (note 7, such as the founder of Cisco), successful technologies (note 7, such as the technology that won the Nobel Prize) and mature markets (note 7, such as e-commerce). We are extremely risk-averse, especially because the money in hand does not belong to us.

10. I am writing this diary in Starbucks, Hawaii. It's been 90 minutes. I don't have a power plug, so my PowerBook laptop is dying. You have to like the nine lies I just told until God sends you a new Apple notebook saved by Sony Vaio team.

Several key links in the process of venture capital;

1, search for investment opportunities.

Investment opportunities can come from venture capital enterprises, entrepreneurs or third parties.

2. Preliminary screening.

According to the investment proposal submitted by the entrepreneur, the venture capital enterprise conducts a preliminary review of the project and selects a few interested people for further investigation.

3. Investigation and evaluation.

Venture capitalists will spend about six to eight weeks to conduct a very extensive, in-depth and detailed investigation on investment proposals to test the accuracy of the materials submitted by entrepreneurs and find important information that may be missed; While understanding the investment projects in an all-round way, we should analyze the management, products and technology, market and finance of the investment projects according to various information, so as to make investment decisions.

4. Seek common ground with an investor.

Venture capitalists usually look for other investors to invest together. This can increase the total investment and spread the risks. In addition, through the syndicate, we can share the experience of other venture capitalists in related fields and achieve mutual benefit.

5. Negotiate investment conditions.

Once investors and financiers have reached an understanding on the key investment conditions of the project, venture capitalists, as leading investors, will draft an "investment clause list" and make initial investment commitments to entrepreneurs.

6. Final transaction.

As long as the facts are clear and the terms and details of the transaction are agreed, both parties can sign the final transaction documents and the investment will take effect.

ANGEL INVEST means that individuals contribute money to help entrepreneurs who have special skills or unique ideas but lack their own funds to start a business, and bear high risks in starting a business and enjoy high returns after success. Or a one-time upfront investment made by a free investor or an informal venture capital institution for an original project idea or a small start-up. It is a form of venture capital, based on the investment amount of angel investors and the comprehensive resources that may be provided to the invested enterprises.

And "angels" usually refer to investors who invest in very young companies and help them get started quickly. In the field of venture capital, the word "angel" refers to the first investors of entrepreneurs, who put money into the company before its products and business take shape. Angel investors are usually friends, relatives or business partners of entrepreneurs. Because they are convinced of the ability and creativity of entrepreneurs, they are willing to invest a lot of money in entrepreneurs before enterprises come in. A typical angel investment is often only a few hundred thousand dollars, which is a fraction of the money that venture capitalists may invest in the future.

Usually angel investors don't expect high returns, but the returns of 10 to 20 times are enough to attract them. This is because when they decide to invest, they often invest in one industry 10 projects at the same time, and only one or two projects may succeed in the end. Only in this way can angel investors share the risk. Its characteristics are as follows:

1: angel investment amount is generally small, and it is a one-time investment. Investors do not participate in management, and the review of risky enterprises is not strict. It is more based on investors' subjective judgment or personal likes and dislikes. Usually angel investment is invested by one person, and it will be closed when it is ready. This is a personal or small business activity.

2. Many angel investors are entrepreneurs themselves and understand the difficulties faced by entrepreneurs. Angel investors are the best financing targets for startups.

They are not necessarily millionaires or high-income people. Angel investors may be your neighbors, family, friends, company partners, suppliers or anyone who is willing to invest in the company.

4. Angel investors can not only bring money, but also bring contacts. If it is a celebrity, it can also enhance the credibility of the company.

According to the situation of American capitalism, it is generally stipulated that the total assets of angel investors are generally above $6,543,800+0,000, or the annual income is between $200,000 and $300,000. According to the investment amount of your project, you can choose some types of angel investment as a reference, including:

1. is a check angel-they are relatively inexperienced in the enterprise, and only contribute, and the investment amount is small, each investment case is about1-25,000 USD;

2. The other is value-added angels-they are more experienced and participate in the operation of the invested enterprises, and their investment is also large, about 50,000-250,000 US dollars;

3. The other kind is super angels-they are often entrepreneurs with successful experience and provide unique support for new enterprises. The investment in each case is relatively large, above $654.38 million. It is very important to choose a reasonable target according to all the specific project funds obtained.