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English>>China Business

Secrets of a successful PE firm (4)

By Cai Xiao  (China Daily)

08:18, September 21, 2012

Small companies

Shan said he is interested in small and micro companies and those in crisis.

Sumavision Technologies Co Ltd, founded in 2000, was listed on the Shenzhen Stock Exchange in 2010 and has been a leading provider of video delivery in China. But in 2003, when the company's founder Zheng Haitao met Shan, Zheng had only tens of thousands of yuan in its accounts and was finding it difficult to pay workers' salaries.

Shan said Tsinghua University graduate Zheng impressed him because of his devotion to work and his moral qualities so he decided to invest 25 million yuan in Sumavision, buying a 35 percent stake in the company in 2004. In September 2010, CSM was expected to receive a return of about 470 million yuan.

Shan said every year his company invests in dozens of small companies, often making micro deals. The return can be considerable.

Dalian Machine Tool Group was financially embarrassed in 2009 by the global financial crisis. Previous investors had a disagreement with the company's management team and withdrew their funds. Shan organized other VC and PE firms and invested 800 million yuan in the company, of which 310 million yuan came from CSM Group.

With value-added services from CSM and other investors, the profit of Dalian Machine Tool Group totaled 400 million yuan in 2009. The company will seek an initial public offering in September this year.

According to Shan, CSM's investment costs are low largely because they conduct many deals with small and micro companies as well as those trapped in crisis.

On the outlook for the Chinese VC and PE market, he said: "Ninety percent of the companies will die in five years and 10 percent will survive. Fewer than 1 percent (fewer than 100 companies) will be strong."

According to Shan, it is important to have large and diversified limited partnerships. If a VC or PE firm has fewer than 10 LPs it may risk a financing shortage because limited partners themselves may face difficulties when market cycles or policies change.

"Good VC and PE firms should develop their strengths in providing value-added services by striving to create industry, capital and talent networks," he added.

【1】 【2】 【3】 【4】


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