In Dalian’s 12th five year plan, Dalian equity investment industry is expected to reach the scale of hundreds of billions of RMB within in next five years. This then begs questions such as: What advantages does Dalian offer to equity investors? For companies seeking investment in Dalian, what benefits can they gain from such investment? How do they attract the attention of investors? In order to answer these questions and inspire Dalian enterprises, the reporter conducted an exclusive interview with a partner of a prominent international institutional investor.
Private equity players are bullish on Dalian
To accelerate the development of equity investment in Dalian and to raise financing through multiple channels, the city government named 2010 as “The year of Private Equity”. Recently, the government issued an opinion regarding “Accelerating the development of equity investment industry in Dalian", offering more favorable policies and a better business climate for private equity to bloom in Dalian.
Mr. Wai Sum Fan, a partner from SMC Capital (“SMCC”) , has witnessed the development of this industry in Dalian.
In September 2010, Mr. Fan contacted Dalian’s Huayuankou economic zone to discuss potential cooperation. In October, Mr. Simon Murray, the Chairman of Simon Murray Group (“SMG”, founder of SMCC), visited Dalian to meet with Mr. Sheng Feng Xiao, vice mayor of Dalian, and launch a joint venture fund.
In December, Dalian Huayuankou SMC Ventures Enterprise was incorporated, and had its first capital call. In January 2011, Dalian Huayuankou SMC Ventures Enterprise, along with SMCC’s two funds in Wuxi, SMCC’s USD fund and other investors, invested over RMB 100 million in a leading internet infrastructure service provider. At present, the company is doing well and planning a NASDAQ IPO in 2011.
According to sources, it typically takes one to two years to establish a fund; and a fund typically only invests in one to two projects in a year. However, it took SMCC only five months from launch to closing its first deal, setting new record in the industry and completing the first successful private equity investment in Dalian.
Private equity offers more than financing to enterprises
“Although we have done so many things in such a short period, it is not a hasty decision.” Mr. Fan said that he has worked with Dalian government and Dalian enterprises for many years and has a deep understanding of Dalian’s business climate and culture. That, and Dalian’s accessibility to northeast China, led him to the strategy of setting up SMCC’s base in Dalian from which to explore the huge potential in the northeast China.
Certainly, the support from Dalian’s government gave Mr. Fan more faith to invest. He also commented that Dalian companies are practical and focused on finishing well; and that equity investors bring more than financing to the company.
Consensus is the key to success
“Looking for suitable investment targets is not easy. A common goal is needed to ensure long term cooperation,” Mr. Fan described the relationship between investors and enterprises.
He noted that three elements are necessary to cooperate successfully. First, there must be a common understanding of the target market; second, the company’s financial performance must meet the investor’s requirements; third, the investor and management team must have good communication and consensus on the company's goal and philosophy. The first two elements are basic essentials; but the third element is critical to successful cooperation, and many lack this.
Mr. Fan has met numerous enterprises and found many have made mistakes when seeking strategic investment partners. They focus on questions such as “Can you invest in me? How much can you invest? Can you help my company IPO immediately?”
Capital market resources alone do not determine whether the enterprise can go public. The most important thing is to run the company well. In Dalian’s 12th five year plan, Dalian equity investment industry is expected to reach the scale of hundreds of billions of RMB within in next five years. However, the success of such development depends on how quickly Dalian’s enterprises which lack technology and capital can adjust to such a philosophy and embrace private equity investment with an open mind.