Security and SMEs How to Handle Venture Capital

SMEs have always been the main force in China's security industry and their development has attracted much attention. Risk investment is a common problem faced by SMEs. How security and small and medium-sized enterprises conduct risk investment will be answered in this article.

Small and medium-sized enterprises (SMEs) are the main force in China's security industry. Their development status determines the development process of the industry to some extent. In recent years, with the entry of foreign-funded enterprises, the increase of industry entrants, and the improvement of market demand for products, SMEs in the security industry are facing unprecedented pressure. For these small and medium-sized enterprises, rapid growth and expansion become their urgent desire for survival and development.

Security companies and venture capital "looks apart"

Enterprise expansion requires capital investment, but capital investment will increase the pressure on the capital chain. The capital chain is the blood vessel of the company. Once it breaks, the company will be on the verge of bankruptcy. In the security industry, there are no shortages of cases that have been decimated due to capital chain breaks. At present, the heads of some small and medium-sized enterprises in the security industry say frankly that although they hope to expand their businesses and expand their market share, expansion must be funded. Due to the limited size of the company, funds are not sufficient. Once the capital chain breaks down in the process of expansion, the consequences will be disastrous. The shortage of funds has become an important reason why many security and small and medium-sized enterprises do not dare to advance.

Venture capital is a kind of capital that helps the company to expand rapidly and grow rapidly through capital investment. It shares risks with entrepreneurs and shares revenue. In recent years, due to the promotion of national policies, venture capital has achieved great development in China.

It stands to reason that on the one hand, security companies need funds to expand; on the other, venture capital needs to invest in projects with potential for rapid expansion in order to earn revenues, and both should hit it off, but this is not the case. In the recently held matchmaking meeting between security companies and venture capital projects, there are not many security companies that are favored by venture capitalists. Why are security companies and VCs not right?

Reasons for the lack of venture capital in security companies Analysis The capital utilization of the security industry is not high, and venture capital is not active in this industry. This article summarizes the reasons for the following:

Industry Prejudice Most venture capital companies do not understand the security industry and there are industry biases. The specific performance is two aspects.

First, VCs do not have enough knowledge of the security market. Some venture capital project managers believe that security is the work of public security agencies, and the market for private enterprises is very small and lacks room for growth. This kind of thinking is very one-sided. In fact, the security industry has an entire industrial chain from product manufacturing, project integration, engineering construction to post-maintenance, and has a huge market space for safe cities, industrial security, environmental monitoring, and personal security.

Second, VCs lack understanding of the security industry itself. The "security" industry does not exist independently in the industry division system of venture capital. In general, venture capital institutions will divide security into traditional industries. The reason for this is that on the one hand, security is a demand that has arisen since the birth of mankind. It has existed since ancient times; on the other hand, it is because they believe that the security industry lacks technical content. In fact, modern security, whether it is product quality or the provision of solutions, has high technical requirements.

The company itself is responsible for 95% of the security industry. According to research conducted by a family-owned business school in the United States, about 70% of family businesses fail to reach the next generation, and only 3% of family businesses are still operating in the fourth generation and beyond. In China, family-owned private companies have a shorter life expectancy.

Because some security family companies have unclear responsibilities, strong patriarchal management style, and lack of modern management ideology, even if they currently have high sales, they still give people a lack of stamina and a lack of trust, making it difficult to obtain venture capital. Favor.

Individual communication issues Some companies that want to expand within the industry and receive venture capital assistance do not know what their characteristics are when they come into contact with venture capital. They don’t know how to communicate with venture capital agencies, so it is difficult to effectively demonstrate to venture capital institutions. Its own advantages.

For example, some companies cannot objectively understand their own technological level and blindly exaggerate it; some companies have unclear plans for the future. Although they know that the product market has broad prospects but lack effective development strategies, some companies regard current sales as their biggest advantage. Overemphasis; Some companies dodge and avoid on the key issues of the venture capital investment. All these are for the company to lose points in the eyes of the venture capital.

How can we communicate more effectively with venture capital institutions? Security companies should first understand the methods of selecting venture capital investments.

Venture capital selection method for enterprises How does venture capital select companies? Although different venture capitalists will have different methods and standards, the general idea is nothing but a combination of macro and micro perspectives.

From a macro perspective In the face of a vast array of investment projects, venture capital institutions will first follow a certain direction. This article summarizes it as four ways: investing along the industrial chain, duplicating successful projects in developed countries, using government forces to find projects, and referencing peer information. Of course, there are many venture capital institutions, and the idea of ​​selecting companies is not limited to the following four.

Investing in a number of venture capital companies along the industrial chain has insisted on deep plowing in one or several emerging industries. They are very familiar with and confident in the industry they are focused on. They believe that due to the great potential of the industry itself, they must be able to produce high-growth companies. These venture capital institutions rely on their familiarity with the industry to select the best companies to invest in different stages of the industrial chain, and to enhance their value through value-added services.

Duplicating successful projects in developed countries “Today is a successful project of Western developed countries and tomorrow it may become a successful project in developing countries.” This is a pattern that some foreign-funded venture capital companies have worked out. These venture capital companies use their own understanding of the development trend of the global industry, acutely detect the development trend of the developing countries, and look for projects.

Finding Projects with Governmental Power In recent years, the state has established a number of venture capital guiding funds that aim to promote the development of regional innovative economy through the guiding role of funds. In this process, some risk investment companies control regional superiority projects through joint ventures with local governments to set up venture capital guidance funds and select projects from local governments.

Referring to peer information For considerations such as avoiding risks and reducing due diligence costs, venture capital is very concerned about peer project information that has good performance in the industry. Some risk investment institutions often make joint investments to share risks and share benefits.

Micro-perspective If the venture capital organization believes that a company belongs to its own investment category, it will conduct due diligence on it, that is, assess the company's future earnings and risks from a micro perspective. If the risk is too great, consider giving up. At this stage, different venture capital institutions will have their own different priorities, summed up in the following aspects.

Companies with different scales of venture capital institutions will focus on different growth projects. In general, angel investors focus on early stage and early stage projects, and currently some of the most well-known large-scale venture capital institutions tend to invest in companies that are growing and expanding. Investment institutions have their own investment amount range. Whether the company's size meets its investment range is also an important factor in considering whether to invest.