note: hunting cloud west master internal disputes after last night was exposed, quickly attracted great attention. Behind this not only reflects the problems of the entrepreneurs, also reveal the stake in the raise pattern behind the practical concerns. Long-term studies of venture capital the equity investment circle CEO xiao-ning li finally spoke, tells the reason against this kind of business model.
article/vc circle CEO xiao-ning li
do VC circle VC. CN for three years, the latest year the site had suddenly raise up, and people often say that you and I do all the raise good early, but also be invited to speak to all the different meeting to raise, but I usually use the first few minutes of the meeting to explain we are not all the raise, then tell me is opposed to the raise of equity financing, speak more, than to write it down. Drag this article written for two months, last night to see the west young master, feel really can’t drag.
to define the scope of what we call the raise, because this concept. The raise has a lot of kinds, one kind is a delegate with Kickstarter abroad and domestic call time “booking class” the raise. The raise not investment behavior, because there is no investment expected supporters, they get the satisfaction and part of the support for fresh ideas can get early product trial, does not involve a return on investment, so don’t be restricted by the below mentioned basic rules of the capital market. The raise is the investment, the other categories in this class have the expected returns on investment categories, mainly bonds of P2P, Internet financial lending market is the most popular, here we don’t talk about it. when I speak of equity investment as the core, many investors invested capital, and the raise of early startup equity behavior. This category is against me:
I think equity the raise is in violation of the commercial law, it is not feasible.
on the surface, the stake in the site, raise an angel round project, there are dozens, or hundreds of investors, investment of tens of thousands of yuan per person, can do to win a project soon, where is the problem?
the capital market, from the early private (seeds, angels, Venture) to the IPO public offering, the secondary market, there are two must follow the rules: 1. The matching investment returns and risks; 2. The investors’ risk tolerance must be compatible and risk. First, more easy to understand, is the foundation of modern financial theory. Early project, the risk is huge, also has a high return. Why we often hear such and such famous angel one hundred thousand times of return, because early projects, especially the angel investors tend to be thousands of miles, thousands of miles to pick a probability. Later in the secondary market, the enterprise mature, there are relatively more strict laws and institutions of the accused, relatively small early market risk. Second, investors risk tolerance and risk matching is often ignored. Traditional mature capital market is designed according to the two rules: for most ordinary people, only through strict audit and control of the stock market open to them, because the risk is low; And private, especially the early project, there is a risk to bear ability, the rich man’s game. American securities law 33/34 Security Act’s core idea is “Protect widow ‘s money”, to Protect the widow’s money, it is for this reason. Private for only a small number of people, including people often refer to “qualified” investors (Accredited Investor) open.
why do you want to protect the widow’s money, can’t let them early investment project? First, the widow’s less money, can’t afford to lose. Second, the widow of the project judgment ability is low. Third, the widow lost, want to make trouble!
it is sad when I was writing this article, west of the master case has appeared. Remember that article is one of the shareholders by the child in a hurry caused money? The widow’s money is not to have children money is can’t move!
raise the stakes in the unreasonable because it ignores the second rule: investors’ risk tolerance and risk must match. early projects not only requires the risk to bear ability, deep pockets, and investors need to have better judgment, this is a few games. The raise of time, usually the amount is reduced to a single ordinary investors can accept degree, low risk and high return of misunderstanding to the person. Don’t limit low is to lower risk? Capacity of investors and relevant lines, not only is related to disposable wealth. 1, 2, ten thousand yuan for angel investors are very few, but for a normal family? Lower limit, reduce the admittance threshold, did not reduce the risk of the project.
another misconception is that most people ignore because, early high-risk projects is often needed in the field of a multiple investment returns and domestic most angel investors, ten projects in one or two to the next round is good. If you think that investment is 50000 yuan, try to think about 500000 yuan is also able to bear? So if only to withstand once investment, profit is very low probability events, losing money is not surprising.
all of above is the risk of investors, but a bigger problem on and the risk of the project, as stated: “the widow lost, want to make trouble!”
startup financing, seldom think money is also a risk, there are all kinds of rights and interests of shareholders and, once there is a problem, the shareholders’ committee “trouble”. Let’s assume this trouble probability is R, so is the probability that you do business of trouble during your shareholders number is the product of N and R:
trouble=N * R
when you have hundreds of investment person, trouble is a big probability event! Famous two case: on the market today, master and earth science and technology is not the best example? The excitement of the financing can be amplified, a number of stakeholders have a trouble, also be amplified N times. Not to mention, such investors because they have no experience, and I will be big risk of R. In addition, the problems in the equity structure of the company and have the widow’s name doesn’t matter how many, like many people set up a small funds to raise, the widow to make trouble, only know her the money to you, whether her name in the industrial and commercial registration. At this point, I sympathize with all existing raise out of the company, west master thing should not be the last one.
someone will ask scratching his head, not the United States in the raise? Not any Job Act? This is an interesting topic, because most people don’t understand the market and the law of the United States. Short said, Job Act is the product of a particular historical period; In addition, open private markets in the United States is a problem of equality of opportunity, let more people to enter the market, then the stock market. China’s national conditions are different.
in the end, I believe that in the era of the Internet today, there must be a new investment worldwide early model out of the project, and to replace the traditional pattern of fund, I own venture vc. Cn is platform led a few angel investment project, is also a try. Whatever mode, it needs to accord with the basic rule of the capital market.