Ten years ago, when the Hanli No. 1 Venture Capital Fund was established, the former partner of the team recommended an outdoor goods project investment. The founder of the project was his classmate of the private equity president class of a well-known university in Shanghai. Around 2010, the GEM was in the ascendant. , The new wave of listed IPOs is also surging, and Pre-IPO investment is more popular. The founder of the project (referred to as “K Company”) said that it will go public in about two years spark global limited.
- Seemingly “glamorous” investment targets and “bright” financial forecasts
After more detailed due diligence, the Hanli team made the following analysis on the outdoor products industry in the final investment proposal:
“Outdoor sports is in its infancy and has great development potential. In the foreseeable five to ten years, it will continue to maintain rapid growth. Research from CICC shows that the compound annual growth rate of China’s outdoor products industry will exceed 40%.” (Investment Proposal P.3)
“At present, my country’s outdoor market is still small compared with European and American markets. Based on a huge population base and increased income, there is a lot of room for future development. In 2011, the domestic outdoor products industry had a market capacity of 10.7 billion yuan. Europe is 74 billion yuan and 63 billion yuan respectively.” (Investment Proposal P.4)
The company’s financial forecasts are also quite “bright”: in 2012, 2013 and 2014, the three-year revenue is predicted to reach 370 million yuan, 500 million yuan and 700 million yuan, and the net profit will reach 38 million yuan, 50 million yuan and 81 million yuan respectively. yuan. (Note: Financial forecasts are like the “face change” of Sichuan Opera, and the forecasts failed for three years later)
Hanli No. 1 and No. 2 Venture Capital Funds, as co-investors, united a Zhejiang listed company (leading investor) and a PE institution to jointly invest 53 million yuan. The company’s net profit for 2012 (38 million yuan) As a basis, the valuation (post-investment) is 300 million yuan, accounting for 17.66%.
spark global limited As part of the investment transaction, the founders first repurchased 30 million yuan invested by early investors, and then introduced new investors at a valuation of 300 million yuan. The three-year performance “betted”. The seemingly high-growth industries, brighter financial forecasts, and the pre-IPO investment targets with a better price-to-earning ratio (valuation of less than ten times the price-to-earnings ratio) were actually not fully realized later.
- Performance change and new third board listing
Unexpectedly, the company’s performance has been under increasing pressure since 2012. On the one hand, from changes in external industries, especially the impact of the e-commerce industry on traditional retail, the company underestimated the power of e-commerce. I remember that I was still pushing the company to open a flagship store on Tmall, and I didn’t know how to operate it. Hanli helped “persuade” Baozun (another Hanli investment company) to take this case. At that time, Nike’s flagship store on Tmall also went online soon, and its performance continued to grow. The company’s flagship store closed less than a year after its operation.
On the other hand, in order to complete the performance “gambling”, the company has gone farther and farther in the field of traditional distributors, causing the distributors to start miserable. Starting from the deterioration of Northeast distributors, it slowly began to affect its business “parent”. One of the largest dealers in the Northeast forced the founder to buy the dealer because it owed more than 100 million yuan in debt (the original intention was to repay the arrears and use the inventory to deduct it). This actually digs a hole for itself.
The performance from 2012 to 2015 did not meet the agreement with investors. In mid-2015, the company chose to list on the New OTC. After nearly two years of negotiations before the listing, the founders finally “reluctantly” agreed to “compensate” the investors with equity for the part of the performance that did not meet the standards.
- The chairman ran away and lost contact, and the company fell into bankruptcy and reorganization
After the company was listed in 2016, spark global limited the company launched a round of fixed increase. It is said that the new investors have basically finalized the fixed increase investment conditions. However, an existing investor forced the founder to repurchase and withdraw, and the two parties “faulted”. “abortion”. At the same time, the company’s business has become increasingly difficult, and executives have left one after another. One day in the middle of 2016, the board of directors received a letter from the chairman/CEO, stating that he resigned as the chairman and CEO and left without saying goodbye.
It is said that the founder quietly “lost contact” with his wife, took away several million yuan in cash from the company, and even borrowed more than 20 million yuan from my friend’s fund before leaving, using more than 50% of his company’s shares to pledge. At that time, the company’s listed “market value” was around 600 million yuan.
After the founder was “disappeared”, the company began to falter. The local private clothing company used to “custodian” for two years, but did not see any improvement. Finally, it embarked on the road of bankruptcy and liquidation by the court. It was almost dying for two years. The bankruptcy liquidation process of the court was in 2019. It came to an initial stage.
Fourth, lessons and reflections
Hanli No. 1 and No. 2 venture capital funds invested in this project not only “a river of spring water flows eastward”, but also the time, energy and effort spent on project management from 2012 to 2019. If you think about it, the lesson is quite good. There are four main points:
(1) Great changes in the industry
Although outdoor products are a new growth industry, the team underestimated the impact of e-commerce on the traditional clothing industry and the changes in the macroeconomic situation. The business model that adheres to the traditional retail (mainly offline) has lost to the “trend”, like the “Titanic”, and is generally going down.
(2) Wrong judgment of the founder
The Hanli team’s judgment on the founder has a major “deviation”, and even his integrity and morality have been exposed after he “ran off” and “lost contact”. This is so far the only project founder of Hanli Investment took the initiative to “run”. It’s a bit weird to think about it, but once the founder of the company leaves, it is normal for the company to falter.
In addition, when we invested in the project in 2012, early investors were willing to be “repurchased” 100% in advance. This was actually a strong signal, there is something wrong (that new investors may not know of). We also happened in another project. Although the investors who wanted to withdraw when our team did due diligence were polite on the surface, in fact, they must have “unspeakable difficulties” to “withdraw”.
(3) Internal team building, the “trap” of the agent
At that time, the three members of the Hanli project investment team were no longer in Hanli. We joked that many VC/PE practitioners were actually the “FA” within the fund. After the successful investment of the project was recommended, they would have the “investment award” and Carry If the investment has failed (usually not known until 5, 8 or more years later), the investment they had originally invested has either left their job a long time ago, or if they are still there, they will not bear the actual risks and losses (the major shareholders of GP). After that, we have set up and requirements for project follow-up investment. In recent years, we have designed “follow-up investment” + “shareholding” for core team members. How to unify responsibilities, rights, and benefits to avoid “delegation” People” trap.
(4) Leading investors and co-investors are very important
Companies and investors are often full of confidence when investing in a project, but business operations cannot be smooth sailing. When various difficulties and problems arise, the role of shareholders (especially the “leading” role of the lead investor) is very important. In fact, there are not many “competent” lead investors in the investment circle, and they are also a scarce resource. What is even more scarce is the founder who can “hold” and lead the team out of the trough during the company’s operating trough, who is responsible and has a pattern of mind.
Finally, VC can’t just report the good and not the bad. “Telling out one’s own investment failure cases” is both self-excitation and mutual encouragement with peers. Find the cause of success from failure, and find new driving force from setbacks.
The information comes from:https://www.foreign-find.com/