Different investment thinking of industrial capital and VC/PE

"Face to the sea, spring" is the heart of every small entrepreneurial partner to the desire for success. After a week of vacation, our series also came in the third quarter, after a second quarter of those seemingly "unrestrained" and "inconceivable" different valuation methods, there are more insightful elite to join the discussion, including academics and the business of Daniel. But there are still many young students who have just entered the new generation and many have not graduated or just graduated from the children of a large number of basic concepts do not know, but basic skills is very important, because entrepreneurship is not only the brain fever, passion is necessary, reckless is not a virtue. For entrepreneurs, entrepreneurship is not easy, and the line and treasure. This season we're going to start returning to these basic theories and trying to explore some of the most deep-seated issues in valuations, which are mostly popular science, simplifying models and calculations, and if they are enlightening and helpful to small partners, then everything will be worth it.

At the beginning of this season, I would like to first talk about industrial capital, VC and PE three concepts.

The definition of industrial capital: in the circular movement of capitals, we take the form of currency capital, production capital and commodity capitals, then give up these forms, and complete the corresponding function capital in each form. There are two functions of industrial capital, one is to create surplus value in the process of production, and the other is to realize surplus value in the process of circulation. From his concept can be seen, the main purpose of industrial capital is actually to create and realize the surplus value, to a business, do industry perspective to think about the problem.

VC and PE concept believe that we are very familiar with. VC refers to venture capital, that is, risk investment. PE is private Equity, translation for private equity. These two words actually refer to the investment that risks the enterprise or project (which may fail, may succeed, and the risk needs to be evaluated by VC/PE in the early stages of the investment). The difference is that VC investment early projects, you can undertake a huge risk, some projects or germination, some projects take shape, but the business model may not be mature, general investment is not large, we often see the internet industry in the early investment projects, basically belong to VC;

and PE investment projects are generally mature business model, but also has a certain scale, investment is often relatively large (tens of thousands of yuan above). But after years of development, large VC has become an aircraft carrier, many will participate in the investment and the project in the later stage, and the development of PE is polarized, a large number of small organizations are timid, there are many still in the millions of level, and even less than some personal angel investment, so at present, The boundary between VC and PE becomes more and more blurred in the actual operation. Therefore, in this article, we will VC and PE as a whole, because they represent the venture capital (only risk control and risk tolerance difference), and then compare it with industrial, to explain their differences.

1. First, industrial capital and VC/PE are two different ways of thinking. Industrial capital mainly focus on acquisitions and mergers and acquisitions, generally with industrial background of the industry operators to do. VC/PE is mainly based on venture capital, they tend to invest in the current/future independent operation of the development of enterprises or teams, in the selection of enterprises, they like to have a sound system or shareholder structure, and the future development of enterprises must reach a certain scale, in the near future can carry out sustainable development, Good development benefits, or VC/PE eye.

2. Industrial capital basically does not withdraw for the purpose, nor do they invest in the way of "shooting a gun for another place", and they are laying along the vertical and the extension of the industry chain, tending to acquisitions and mergers and acquisitions, which has led to even a strategic loss of industrial capital because they are considering acquisitions Whether the mergers and acquisitions enterprises can have synergy with their own business. Unlike the industrial capital, VC/PE in the end is to withdraw, they are generally only venture investment, for the investment enterprises to pay or contribute, but the other side is an independent enterprise. They take 5-10 years as an investment cycle, to a certain age, they exit through IPOs, mergers and acquisitions or bankruptcy liquidation, synchronize their investments in other businesses, and use their exit earnings to recycle repeatedly, paying the partner's price and giving the shareholder return.

For example, some time ago, we had a long communication with a mobile medical team. They have a number of partners engaged in hospital-entrance, to provide mobile rounds, mobile care and personal health management and other aspects of software and hardware services, and Shijiazhuang, Ma On Shan and Yancheng some of the hospitals have cooperated, accumulated a certain number of contacts and technical strength, at this stage of their 6 people technical team want to independent out, to do their own products. But the problem is, since they are a pure technical team and have no perfect operating system and capital, they want to find an agency to invest millions of yuan in their project start-up. The lads were full of confidence and momentum, but after deduction, I told him: the probability of getting VC/PE is zero. The project leader is a young man, but years of career and risk tolerance, he designed a very sound business development model, with no loss as the first principle, according to his plan in a few years after the Xiang profit. So he questioned why VCs would not be interested in a project that was so risky and stable in return. He's got friends. A plan book can also get a lot of money. Are investment people "in the brain"?

This is not a case, but a number of small business partners encounter the real situation. Like Dr.2 's first dive after the Hainan holiday, entering a new field, when you need to abandon the way you breathe through your nose for years to survive in a different way of breathing, this huge cognitive gap is hard to turn around in a short time, and people always think about it in terms that they thought were absolutely right. So please small partners to try to vent their own, another way of thinking.

First, the VC basically do not vote "small but beautiful" or long-term size too small enterprises, this is the soft silver Capital Partners and we exchange the exact words. Since VCs can take risks, they are looking for explosive growth and a merger-and-IPO exit, with a few cents in red that are worthless to them. This is the fundamental logic of the difference, rather to gamble with a night of success of the "fairy"-style rabbit, also do not want to "slow but solid turtle" waste of time. Too secure or similar to the "no Devil hanging string" style of the fence strategy, which is contrary to the investment philosophy of venture capital. But do not need to be discouraged, first, you can follow their own thinking slowly rolling development, enterprises and people are the same will grow, the strategy can also change, because only people who do things really understand their own projects, many outsiders are talking nonsense. Second, the world is not only VC or PE, as well as industrial capital, and industrial capital is not necessarily all big projects, in fact, they are very flexible.

After follow-up feedback, the lads finally got a 6 million yuan investment from a medical device manufacturer and started to actually operate. Yesterday, micro-letter communication learned that they have received several hospital list or intention, now busy, began to exceed the expected development (this is a real case just happened, not fictitious).

The reasons for investment in industrial capital can be many, for example: for some talent, for the Team System (which we will focus on in the later series of the "People" valuation), for the channel and brand, or unique intellectual property, products, a special technology and so on. The most important reason is: The team's products and business can have synergies, in the future can work together, there is a winning trend of development. In other words, the purpose of the investment is not to wait until he can operate independently after the homeopathy exit, but to carry out industry follow-up and complementarity. VC/PE is impossible even for heavy-asset companies, trend-sinking companies, or teams that cannot operate independently or even a few people and have smaller business sizes in the future, but they can be invested or acquired by Industrial capital. Industrial capital can use the integrity of the industry and industry chain to support them, the equivalent of this type of small team is a ship's steel frame, and capital is the forest, you can use wood to complement them, together to create greater value.

Although industrial capital and VC/PE seem to have invested in companies to develop through valuations, they are fundamentally different. We will discuss in the next chapter the "Synergy" of the idea and theoretical basis of mergers and acquisitions of industrial capital.