What are PE, VC and GP?

In China, PE is usually translated as equity investment in a narrow sense, that is, "private equity investment", which refers to an investment method of investing in unlisted equity or non-publicly traded equity of listed companies. The source of funds for private equity investment can be raised from unspecified public, or it can be issued to institutions or individuals with risk identification and tolerance. In fact, translating PE into "Private equity investment" seems that the meaning of private is that the financing channels are not public. In fact, there is a misunderstanding that should be understood more from the perspective of investment. PE is mainly named after investing in the equity of non-public offering companies. Some private equity investors are direct investors of fund management companies, such as Henry kravis of KKR, Steven Schwarczman of Blackstone Group and David Bond ullman of TPG. In China, it can also be understood as buying original shares and waiting for listing. In terms of fund-raising, PE investment is mainly raised for a few investors through non-public means, rather than public means, and its sales and redemption are carried out through private consultation between fund management entities and investors. Therefore, PE investment institutions enjoy certain voting rights in the decision-making management of the invested enterprises. In terms of liquidity, PE's liquidity is poor, from investment to withdrawal, generally around 3 -5 years; Comparatively speaking, the liquidity advantage of stocks is more obvious. In organizational form, corporate system and limited partnership coexist, but limited partnership has the advantages of good investment management efficiency and avoiding double taxation, and is widely used by PE investment institutions. The difference between PE and VC investment According to the definition of American National Venture Capital Association, venture capital is the 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. Although PE and VC are both investments in pre-listed enterprises, they are very different in the investment stage. VC invests in small and medium-sized enterprises, most of which are high-tech enterprises. PE focuses on the growth and expansion stage of enterprises, which can be high-tech enterprises or traditional industries. The first characteristic of PE investment is the long investment cycle. At present, investors have not held stocks or real estate for a long time. And PE investment generally takes five to seven years. Secondly, the amount of PE investment is large. For example, we will cooperate with Safran Fund to raise a PE investment product, and the threshold is100000 yuan. Again, there are risks. Because the ultimate income of PE investment mainly depends on acquisition, merger and listing. Among them, there are many variables and great fluctuations. Coupled with the long investment cycle, PE investment is risky. However, the potential income of PE investment is also very high, which may reach several times or even ten times. Because PE investment is still a new investment field in China, PE investment companies have little experience, investment style is still in the process of formation, and personnel changes are great, which makes the asset management level of PE investment companies uneven. As a new and alternative high-risk investment, private equity investment has distinct characteristics. First of all, PE investment takes the form of non-public private placement, attracting only a few institutions and individuals to participate. Secondly, PE investment lasts for a long time and lacks an open trading market. This feature determines that the liquidity of PE investment is poor, and it is only suitable for idle funds of high-net-worth customers, such as investing with 5%- 10% of total assets. But for investors, the autonomy of PE investment is not strong: after the establishment of PE investment fund, it will be completely handed over to the professional team (GP, that is, GeneralPartner) for investment management, which is a complete trust and authorization for the professional team. PE investment and illegal fund-raising PE investment funds generally raise funds through non-public channels. They will hold a small promotion meeting or call investors through a third-party financial consulting company. Although there is no legislation on private equity funds in China at present, investors can easily distinguish the difference between real PE investment funds and illegal fund-raising from the management process of PE investment funds. PE investment funds generally adopt limited partnership system. Therefore, every other investor who has participated in PE investment must register with the Industrial and Commercial Bureau together with the fund manager (GP) and become the LP (LimitedPartner) of the limited partnership. Moreover, the management process of formal PE investment companies is very standardized, such as banks with custody; According to the agreement, investors will transfer funds to the fund's escrow bank account in batches. There are investment committees, advisory committees, partner meetings and quarterly (annual) reports in PE investment funds. Investors have the right to know the investment decisions of these institutions. Due to the private equity nature of PE fundraising, investors need to be more cautious when choosing PE investment products, and at least pay attention to the following points: PE investment management institutions need to have a certain shareholder background, such as the government, large enterprise groups, brokers, etc. It will become a shareholder or manager of PE investment management institutions, and such PE institutions are more competitive. Secondly, we should understand the experience of PE fund management team and the successful cases that have been operated in the past. Third, whether the information disclosure is sufficient, whether there is a regular information disclosure system, and whether the information disclosure is thorough. In addition, we should also pay attention to whether there is a strict risk control mechanism within PE investment management institutions. Because of the private nature of PE investment, the industry transparency is not enough, and the turnover of personnel is large, investors should be more cautious. In fact, investors can also participate in PE investment through financial institutions such as brokers, fund companies and trust companies, or even directly find PE investment companies to invest. However, because banks are the institutions with the most concentrated capital flow and information flow, they can provide more professional advice. For example, in order to obtain internal data and information more quickly and strengthen communication with private equity funds, the Bank invested in a number of private third-party evaluation institutions and associations and became their members. And there are specialized personnel responsible for tracking the status of the industry. Investment procedure PE standard investment procedure is: 1. Project investigation. Contacted many companies. Choose your own target company or be recommended by a prestigious intermediary or financial consulting institution. 2. Preliminary screening of projects. Assess investment opportunities in advance. 3. Project evaluation. The preparation phase lasts for weeks, sometimes years. A PE/VC company evaluates about 100 projects every year, of which about 10 projects can enter the negotiation stage, and only one or two projects can finally get investment. 4. Negotiation and quotation. 5. Trading institutions. 6. Due diligence. Companies that win in the initial evaluation stage will enter due diligence and negotiation procedures. At the same time, draft and confirm the stock purchase and shareholders' contract, amend the articles of association, and sign relevant employment, non-competition and confidentiality agreements with the management. 7. Make a deal. When seeking to complete the transaction and inject capital into the company, the relationship between the fund and the company will enter a new stage. The foundation continues to pay close attention to the company's actions to protect its own interests and contribute to the company's performance. The Fund will keep its own representative on the board of directors, and the company will regularly inform the Fund of its operation and consult on specific decisions. Funds usually do not participate in the daily operation of the company, but will pay attention to the long-term performance of the company. 8. Audit and management support. The main difference between private equity and venture capital is that private equity funds provide assistance in management, recruitment, institutionalization and strategic planning, and establish contacts with customers, suppliers, bankers and lawyers. 9. quit. Profit withdrawal is the last link in the investment process.