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Secrets of a successful PE firm (2)

By Cai Xiao  (China Daily)

08:18, September 21, 2012

Business development

Shan graduated from Xiamen University as an accountancy student and started his career in government, becoming a low-level official in China Communications Import and Export Co when he was 25.

During his leisure time he wrote novels. Now his interest is in art and film.

In 1998 he became determined to seek business opportunities in Shenzhen and found a job in a securities company. Later, he initiated an investment and financing commission under the management of the China Communications and Transportation Association and a venture capital investment research center at Peking University.

In 2000, when China's growing enterprise market - currently ChiNext, which is the nation's Nasdaq-style stock market - was expected to open, he set up CSM Group with just 600,000 yuan in available funds. He and his team succeeded in raising the cash pile to 300 million yuan from five large enterprises within four months. They included State-owned audio and video company China Hualu Group, and Erdos Group, a company with interests in cashmere, coal, electricity, metallurgy and chemistry.

"We paid attention to cooperating with local governments from 2006 and set up government guidance funds together. It is a win-win strategy because investing more in these areas to promote local economic development makes it easier for us to raise money from local investors and gain government support," said Shan.

He cited Guangdong as an example. Guangdong CSM Venture Capital Management Co Ltd, a subsidiary of CSM Group, and Guangdong provincial government set up CSM Baiyun Fund in 2009 with 5 billion yuan. As much as 1.1 billion yuan of the total was invested in 19 projects mainly in Guangdong in advanced manufacturing and agriculture.

That sum would yield at least 3.58 billion yuan with a net internal rate of return of nearly 48 percent.

Fifty million yuan from the CSM Baiyun Fund was invested in Guangzhou Xiangxue Pharmaceutical Co Ltd in 2009 for a 6.8 percent stake. The company listed in 2010 on ChiNext and CSM received more than quadruple its investment in return.

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