VC/PE's Winter Survival Guide: Painful Reflection and Unearthing 'Ugly Duckling' Enterprises

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　　More than a year ago, Jiang Chenghao (pseudonym), a partner at a well-known local venture capital firm, chose to leave empty-handed and raised a new fund with a few friends. Although he caught the good timing of the PE/VC boom in China, the new fund Jiang Chenghao was with also hit an investment turning point.
　　
　　As a result, the funds sat idle in the account for nearly half a year, and Jiang Chenghao didn't invest a single penny.
　　Although Jiang Chenghao had a tough time, an unexpected opportunity arose from his investment in a biotechnology company in the middle of last year. According to Jiang Chenghao, he met the general manager of this company last year through a friend's introduction. At that time, the company was operating at a loss due to insufficient production capacity, and its factory in another location was in urgent need of funds.
　　Before this, it was a marginalized company that investment institutions looked down upon and banks refused to lend to. After an initial investigation into the company's fundamentals and industry prospects, Jiang Chenghao found that although it was suffering significant losses, its main product, industrial additives, held a leading position in the industry, possessed strong technical R&D capabilities, vast market demand potential, and already had a market sales scale of nearly ten million yuan.
　　
　　Furthermore, what attracted Jiang Chenghao was that the final price for acquiring a stake in the company was only half of the original asking price.
　　Ultimately, the company received tens of millions of yuan in capital injection and quickly launched its factory project in another location. After this, Jiang Chenghao successively invested in several similar companies. Half a year later, the performance of these companies affirmed his initial approach. Due to the timely injection of capital, the urgent need for the new factory of the aforementioned biotechnology company was alleviated, and by the end of last year, this company achieved a profit of 10 million yuan. Another tech-environmental company with negative net profit, after introducing funds and adjusting its business strategy, now has accumulated orders totaling 200 million yuan.
　　Such investment experience gave Jiang Chenghao significant inspiration: instead of competing fiercely with peers for star projects, it's better to uncover potential companies that haven't yet surfaced, thereby creating differentiated competition with large investment institutions. He also coined a collective term for such companies:
　　
　　The winter for capital exits
　　In the past few years, behind the nationwide PE craze, some large investment institutions used a dragnet-like investment approach to almost completely capture a large number of pre-IPO target companies, a practice that was particularly evident last year. In the first half of the year, investment project valuations remained high, while the second half saw increasing difficulty in market fundraising and the awkward situation of the secondary market making an abrupt U-turn.
　　Therefore, for many investment institutions, exiting as soon as possible before the market bottoms out and the worst time arrives might be a feasible approach.
　　A partner at a foreign venture capital firm has recently been busy planning the path to IPO for the companies they invested in. According to the VC partner, two years ago, their institution invested in an online gaming company. Although a game currently developed by this company is profitable, game development has certain difficulties and requires a certain cycle, and there's an unknown factor regarding the success of subsequent new game development.
　　It now appears that there are quite a few investment institutions with the same idea as the aforementioned partner. Earlier this month, the CSRC announced a list of 515 companies with IPO applications under review. Excluding 30 companies whose reviews have been suspended, 485 companies are still waiting in line for review. According to statistics from ChinaVenture Group, among these 485 companies in line, 195 companies have a VC/PE background, accounting for 40%.
　　An unnamed investor, after closely examining these companies, found that many companies applying for listing on the ChiNext board mostly do so just for the sake of listing, applying as soon as their financial reports meet the standards. Furthermore, behind many Pre-IPO projects invested in within the past year, there is a considerable number of investment institutions.
　　In his view, China's VC/PE is entering a deep adjustment period, with market selection intensifying. Many investment institutions are hoping to rely on listing reserves to help them achieve continuous investment returns and thus
　　However, Wang Jia, an analyst at ChinaVenture Group, told reporters that the IPO financing environment in 2012 is still not expected to be very optimistic. The financing scale is unlikely to significantly exceed 2011 levels, and the full-year IPO financing scale is likely to be lower than or on par with 2011.