What does VC, PEand angel investment mean? What is the difference?

Haizhu Website:Author originating network: Ted Prince 2019-02-03

VC、PE和天使投资是什么意思?有什么区别?

海珠人网站:   源自网络作者：泰德·普林斯 2019-02-03

Part 1

Articleintroduction: Angel investment is a kind of VC venture capital. Venture capitalgenerally has a large amount of investment, and it is also invested inmanagement while investing funds, and will gradually increase investment withthe development of the invested enterprises. Although PE and VC are bothinvestments in pre-IPO companies, they are very different in terms ofinvestment stage, investment scale, investment philosophy and investmentcharacteristics.

1

What do VC (riskinvestment) and PE (private equity investment) and angel investment mean?

1. VC venturecapital

1) VC concept andoperation mechanism VC (Venture Capital), also known as “start-up investment” refers to an equity capital invested byprofessional financiers into emerging, rapidly developing and highlycompetitive enterprises. High-tech and knowledge-based, production andmanagement of technology-intensive investments in innovative products orservices.

Venture capitalinvests venture capital in the early stage of the development of ventureenterprises. After its development is relatively mature, it will convert theinvested capital from equity to capital form through the market exit mechanismto recover the investment. The operation process of venture capital is dividedinto financing process, investment process and exit process.

2) The role ofventure capital Venture capital is an incubator for the growth of enterprisesand the transformation of scientific and technological achievements. Mainlymanifested in:

a) Financingfunction: Venture capital provides urgently needed funds for innovativeenterprises to ensure the continuity of funds for entrepreneurship.

b) Resourceallocation function: There is a strong evaluation, selection and supervisionmechanism in the venture capital market. The economic value of industrialdevelopment can be evaluated and confirmed through the market to achieve thesurvival of the fittest and improve the efficiency of resource allocation.

c) Property flowfunction: The venture capital market provides an efficient and low-costconversion mechanism and flexible and diverse M&A methods for the propertyrights flow and reorganization of innovative enterprises, promotes theoptimization of innovative enterprise asset portfolios, and enables assets to havea fuller flow. Sex and investment value.

d) Risk pricingfunction. Risk pricing refers to the determination of the price of a riskyasset. It reflects the functional relationship between future earnings and riskbrought about by capital assets. Investors can refer to the various assetprices offered by the venture capital market and make investment choices basedon individual risk preferences and individual expectations. It is through thisfunction that the venture capital market plays a role in the accumulation andallocation of capital resources.

The venturecapital market is a market for cultivating innovative companies, an incubatorfor innovative companies and a cradle of growth. Venture capital is a catalystfor optimizing the combination of production factors of existing enterprisesand turning science and technology into productivity. Venture capital isdifferent from traditional investment methods. It integrates financialservices, management services and marketing services. Venture capital institutionsprovide financing services for companies from incubation, development togrowth. Venture capital not only brings development funds for enterprises inthe seed period and expansion period, but also brings advanced foreignentrepreneurial ideas and enterprise management models. It helps enterprises tosolve various entrepreneurial problems and enables many small and medium-sizedenterprises to develop by leaps and bounds.

2. Angelinvestment

1) The concept ofangel investment The legendary angel is a girl or baby with white featherwings, responsible for the messenger, sent by God to bless those who need help.In the entrepreneurial and investment circle, there is an investor called “angel investor” by entrepreneurs, which means that theseinvestors bring hope and help to entrepreneurs in difficulty, and are “angels” to help them tide over the difficulties. This titleexpresses the reverence and respect of entrepreneurs for these angel investors.

Angels Investrefers to an individual who invests in an entrepreneur who has the expertise orunique concept and lacks its own funds to start a business, and bears the highrisks in entrepreneurship and enjoys the high returns after successfulentrepreneurial success. Or a one-time upfront investment by an independentinvestor or an informal venture capital firm for original project ideas orsmall start-ups. It is a form of venture capital. And "Angels"usually refers to investors who invest in very young companies to help thesecompanies start quickly.

In China, thereare no commercial associations or research institutions that give cleardefinitions to angel investors. We have followed the popular saying in foreigncountries: angel investors are 3 "F" - family, friends and friends.Fools.

The two Fs of familyand friends are well understood. Entrepreneurs' families and friends have knowneach other for many years, and they have been very familiar with entrepreneursbefore they ask for money, even before he starts a business. Family and friendsinvest more in his startups, in order to support him and his dreams(www.cyonE.com.cn/), I believe he can do the company well. They will not reviewthe business plan, and will not decide whether to invest if they are profitableafter careful study of his company. Their investment is more like emotionalinvestment. So strictly speaking, family and friends can only be regarded asangels of entrepreneurs, they are not considered angel investors.

As for the thirdF, it is not difficult to understand. Start-ups are very risky. For outsideinvestors who are not affiliated with entrepreneurs, he has no knowledge of thehistory and background of entrepreneurs. Smart and rational investors willcertainly do it before investing money. Some research and due diligence, but nomatter how many studies and surveys can not eliminate all investment risks,they also get the title of "fool". But it's not that these people arestupid. In fact, they are often the opposite. They are all eye-catching,thinking ahead, and investing money in companies that others have no vision tosee. These people may be experienced in a certain field, or they have asuccessful entrepreneurial experience, they are the real angel investors.

2) Typicalrepresentative of angel investors

Merchants incoastal developed areas such as Zheshang and Sushang.

PE private equityinvestment

1) PE concept and operation mechanism PE (Private Equity)private equity investment is an equity investment in non-listed enterprisesthrough private placement. In the process of transaction implementation, thefuture exit mechanism is considered, that is, through listing, merger ormanagement. Repurchase and other means, the sale of holdings profit. In thebroad sense, PE invests in enterprises in the seed stage, the initial stage,the development stage, the expansion period, and the maturity period.

The narrowlydefined PE mainly refers to the private equity investment part of matureenterprises that have formed a certain scale and generates stable cash flow,mainly refers to the private equity investment part of the late stage ofventure capital investment, and the M&A funds and mezzanine capital are inthe scale of funds. The largest part. (M&A funds are funds that focus onmergers and acquisitions of target companies. The investment method is toobtain control over the target companies by acquiring the equity of the targetcompanies, and then carry out certain restructuring and transformation, andthen sell them after a certain period of time. The difference between M&Afunds and other types of investment is that venture capital mainly invests inentrepreneurial enterprises, and M&A funds are selected as matureenterprises; other private equity investments have no interest in corporatecontrol, and M&A funds are intended to obtain control of targetenterprises. Rights. M&A funds often appear in MBO and MBI.)

2) The role ofprivate equity investment Private equity investment funds are the driving forcefor the sustainable development of the capital market. The rapid development ofthe private equity fund industry will provide new ways to improve theprofitability of the financial industry, and provide an effective way to solvethe financial distress of private small enterprises, and open up the demand forindustrial demand and financial capital.

What is thedifference between VC and angel investment?

VC is theso-called venture capital:

1. It is corporatebehavior;

2. The investmentamount is more than 10 million RMB, and several VCs have jointly investedhundreds of millions. In the past few years, VC invested more in US dollars. Inrecent years, RMB investment has gradually increased. VC's source of funds ismostly based on foreign investment funds. China's domestic funds for VC havealso begun to increase in recent years;

3. VC-investedenterprises are generally in the growth stage, that is, they will onlyintervene after they have matured profit models;

4. VC generallydoes not participate in company management, and has high requirements for thebusiness management team;

5, VC's exit mechanism,the way to sell to private equity funds or listing in China is more, in theUnited States, the majority of the form of corporate mergers.

Angel investment:

1. Angel investorsare generally more successful individuals, so the general angel investment isbasically personal behavior, or some small investment company operations;

2. The amount ofinvestment is not limited. It may be only 200,000 or millions. It depends onthe strength of investors and the money needed for investment projects. Thesource of funds for angel investment is personal recruitment or the investorhimself. Income at work;

3, angelinvestment often enters the start-up period of the enterprise, the money ismore to encourage entrepreneurs to dare to innovate, and used to create aprofit model. At the same time, before the model is immature, it is used to paythe wages of entrepreneurs and promote their persistence;

4. Angelinvestment generally participates in enterprise management and will be closelymonitored. Of course, this is not a bad thing. After all, people who can makeangel investments will have more experience and methods on how to set up acompany and how to establish a model. ;

5, the exitmechanism of angel investment, generally the model is mature, it is sold to VCor private equity funds, after all, as an investment, it is impossible toaccompany you to the end.

What is the nodeof angel investment, VC, and PE involved in the enterprise? What is the role ofeach?

Angel investment:

The company has nostart-up and start-up period. There are still no mature business plans, teams,and business models. Many things are being explored. Therefore, many angelinvestments are acquaintances and friends, and they invest based on theirtrust.

Acquaintances andfriends are angel investors. His role is often to help entrepreneurs getstart-up funds. The investment of mature angel investors or angel investmentinstitutions will help entrepreneurs find directions and provide guidance inaddition to the above functions. (including management, market, productaspects), providing resources and channels.

VC:

In the early stageof the company's development, with a relatively mature business plan andbusiness model, it has already begun to see the clues of profitability, andsome VCs will also require that there is already profit or the scale ofrevenue.

VC is verycritical at this time, which can play a role in enhancing the value of thecompany, including helping it gain recognition in the capital market and layingthe foundation for subsequent financing; enabling the company to obtain fundsto further develop the market, especially when it is most necessary to burnmoney. Provide a certain channel to help the company expand the market.

PE:

Generally, duringthe Pre-IPO period, the company has matured, and the company has alreadyestablished the basis for listing, and has achieved the income or profitrequired by PE.

Usually providethe necessary funds and experience to help complete the restructuring structurerequired for the IPO, provide the funds needed before the listing financing,and help the company sort out the governance structure, profit model, andfundraising projects according to the requirements of the listed company, sothat at least 1-3 Listed during the year. At this time, it is not necessary tochoose PE. If there is no special prestige or means to help the company solvethe listing problem, PE or the PE that cannot provide a large amount of fundsto solve the pre-IPO funding needs, it is not particularly necessary.

The relationshipbetween venture capital, angel investment and private equity investment:

Angel investmentis a type of venture capital. Venture capital generally has a large amount ofinvestment, and it is also invested in management while investing funds, andwill gradually increase investment with the development of the investedenterprises. Angel investment funds are generally small, one investment, do notparticipate in direct management of enterprises, the choice of investmentcompanies is more based on the subjective judgment of investors or evenpreferences.

Although PE and VCare both investments in pre-IPO companies, they are very different in terms ofinvestment stage, investment scale, investment philosophy and investmentcharacteristics.

A simple way todistinguish between VC and PE:

In the early stageof VC major investment enterprises, PE mainly invested in the later stage. Ofcourse, the division of the previous and the late makes VC and PE different interms of investment philosophy and scale. PE invests in enterprises in theseed, start-up, development, expansion, maturity, and Pre-IPO periods, so PE ina broad sense includes VC. In the fierce market competition, the businesspenetration of VC and PE is growing. Many traditional VC organizations are nowinvolved in PE services, and many organizations that are traditionallyconsidered to be dedicated to PE services also participate in VC projects. Thatis to say, PE and VC are only a conceptual distinction, and the boundariesbetween the two in actual business. More and more blurred. For example,well-known PE institutions such as Carlyle also involve VC business, and itsinvestment in Ctrip.com and Focus Media is an investment in VC form.