Behind these technology giants that have influenced the times, venture capital institutions (VC/PE), such as Sequoia Capital, KPCB and Andreessen Horowitz, who serve as "incubators" for innovative technology companies, have played an important role. As foreign venture capital institutions successively entered the Chinese market in the 1990s, and Internet companies such as Sina, Tencent, and Baidu successively entered the capital market, terms such as "angel investors" and "GP/LP" have gradually become familiar.
Follow the national subsidies
Generally speaking, the entire process of venture capital institutions operating projects mainly includes four stages, namely fundraising, investment, management and exit. For venture capital institutions, choosing the right project is a key consideration.
"In terms of the selection of investment projects, we prefer strategic emerging industries such as energy conservation and environmental protection and new generation information technology that are supported by the national "Twelfth Five-Year Plan", as well as companies that are expected to form core competitiveness in the industry. Such projects are in line with the general trend of economic structural transformation and upgrading, can enjoy certain financial subsidies and other preferential treatment, and the exit expectations are relatively promising." Jiang Yu, investment director of Lihe Qingyuan Venture Capital Management Co., Ltd., said that project investment should pay attention to following the trend.
Take the LED lighting industry as an example. In recent years, favorable policies such as LED street lamp procurement bidding and the "Twelfth Five-Year Plan" for semiconductor lighting have appeared frequently. The "Twelfth Five-Year Plan for the National Basic Public Service System" released in 2012 proposed to arrange 2.2 billion yuan in subsidy funds to support the promotion of energy-saving lamps and LED lights. For a time, various venture capital funds have entered the LED industry.
"At that time, we were interested in entrepreneurial companies in the LED lighting industry. On the one hand, under the guidance of government industrial policies, their financial subsidies could have substantial benefits in improving the company's performance; on the other hand, such companies also had comparative advantages in going public at that time, which was conducive to the realization of value-added after the exit of investment projects." An insider from a PE institution said.
According to statistics, in the first quarter of 2012 alone, 8 LED companies including Mosuo Power, Changfang Lighting, and Jufei Optoelectronics were listed or are about to go public. This is more than the total number of LED companies listed in the whole year of 2011. PE institutions such as Tongchuang Weiye, Bao Teng Venture Capital, and YOFC Investment, which have laid out LED companies in advance, have also made a lot of money as a result.
Li Ling, an analyst at China Investment Group, said that although government financial subsidies are an effective way to support the development of entrepreneurial companies, venture capital should focus on examining their profit models when investing. Those companies that mainly rely on government subsidies and government orders will face greater uncertainty in the future.
"For industries that are greatly affected by policies, we will carefully analyze the proportion of government subsidies in the company's revenue. If more than 70% of profits come from various forms of government subsidies, it means that the company's profitability is limited, and such companies will generally not be considered." The above-mentioned PE person said that even if projects are purely based on policy guidance, venture capital will consider whether the industry will face problems such as overcapacity in the future after a rush.
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