General Partner (GP) Most of the time, GP and LP exist at the same time. And they mainly exist in companies that require large amounts of capital to invest, such as private equity funds (PE, Private Equity), hedge funds (Hedge Fund), and venture capital (Venture Capital). You can simply understand that a GP is a company insider. In other words, GPs are those who make investment decisions as well as the internal management of the company. For example: Now investment company A has four general partners, GP1, GP2, GP3, and GP4, who jointly own 100% of the shares of investment company A. Therefore, the overall profits, dividends and losses of investment company A are directly related to them. If you still don't understand, for a simple example, in the innovation workshop, Mr. Kai-Fu Lee is a classic general partner, and a limited partner (LP) can be simply understood as an investor. In many cases, a project needs to invest tens of millions or even hundreds of millions of funds. (At the same time, most investment companies will have many projects in different fields and industries at the same time). And GPs who invest in companies don't have that much money -- or they don't want to invest that much company money in a project in order to spread the risk. And there are always some people in this world who have lots and lots of cash, but don't have a good way to invest - putting them in the bank to eat interest is a pure loser in the financial world. Thus, LP was born. After a series of procedures, the LP will hand over its own money to the GP to take care of it, and the GPs will use the LP's money to invest in the project to obtain profit from it, and the two parties will then share the profit. This is the classic "you (LP) pays, I (GP) pays" situation in real life.
In order to give you a more comprehensive understanding, I will tell you a little about what LP needs to do in the whole process.
(Since I used to study in the United States, most of the knowledge in this area first came from studying in the United States, so I will compare the United States with China below to give you a more comprehensive understanding.)
In the United States, in most cases, LPs have a minimum investment limit—this figure is generally 6 million US dollars. In China, I understand that most of them are 6 million yuan. In other words, if you can't invest 6 million at a time, no one else has the chance to enter the market. In addition, in order to prevent an LP from injecting too much capital, most companies will also have a maximum investment amount - usually ranging from 10 million to 20 million. But this amount is not inevitable. If the LP itself is relatively strong, it can even help in the investment process, and the investment amount of several hundred million can also be seen.
In addition, the general LP's funds will have a lock-up period (Lock-Up Period), generally ranging from one year to several years (depending on the specific investment projects of the company). The purpose is to ensure the continuity of investment (too short investment cycle will lead to exit before making money) - in other words, if you invest 6 million in the company, you will not be able to withdraw the money until at least a year later.
So how does GP get profit? In the United States, companies generally follow a two and twenty fee structure—that is, a 2% management fee and a 20% output performance fee. (The 2/20 structure was broken by some companies after the 2008 financial turmoil, but after all, it is not a routine. And the companies that broke the structure did not do particularly good cases.) In order for everyone to understand better, let's take another case analysis. : Suppose LP1 invests 6 million to invest in company A, and LP1 earns an additional 1 million a year later. Then the fee that LP1 needs to pay to investment company A will be: 6 million * 2% + 1 million * 20% = 320,000. That is, LP1 can ultimately benefit 680,000, while investment company A can benefit 320,000. By the way, no matter whether you make money or lose money, the 2% management fee must be paid. The additional income fee will only be paid after making money. In China, not all companies currently charge a 2% management fee. But the 20% extra income fee is basically the same. (The lowest I have ever heard of is 15% and no 2% management fee, but the scale of funds is not too large, it is estimated that it is barely close to 100 million.)
Next is the VC, PE that we often say. In order to give you a more intuitive understanding, I will mention Angel Investor and IB by the way, because they represent the four stages of investors. Before explaining these four terms, I will first sort them according to the investment amount from small to large; they are angel investment (Angel), venture capital (Venture Capital, VC), private equity (Private Equity, PE), and investment bank (Investment Banking, IB)
The following will start to introduce one by one (Note: The amount of funds mentioned next is only an approximate average value, not an absolute value. Do not judge a company is an angel or a venture capital or other simply by the investment amount.)
Angel Investment (Angel Investment) Most of the time, the companies selected by angel investment will be some very, very early-stage companies, and they do not even have a complete product, or only have a concept. (For example, I have a friend whose graduation project is a pair of glasses to keep people awake, and the workmanship is very rough and cannot be sold at all. But he won angel investment in the United States with this concept and this prototype. , and is currently conducting research and development in an incubator studio in Shenzhen where the angel invested.) The investment amount of angel investment is often not very large, generally in the range of 50-1 million, and the shares in exchange are from 10%-30%. In purely numerical terms, the investment quotas of the United States and China are basically close. Most of the time, it takes at least five years for these companies to go public. In addition, some angel investors will provide some guidance and help to the company, and even give some network support. If you don't know it yet, Innovation Works has been doing angel investing from the very beginning. Venture capital (Venture Capital) Generally speaking, when a company develops to a certain stage. For example, when there is already a relatively mature product, or when it has already started to sell, the 1 million capital invested by angels is like a drizzle for them, and it is of little importance. Therefore, venture capital has become their best choice. Generally speaking, the investment amount of venture capital will be within 2 million to 10 million. A few blockbuster investments will reach tens of millions. But on average, 2 million-10 million is a reasonable figure, and the exchange for shares is generally between 10% and 20%. Companies that can win the favor of venture capital generally have a good chance of going public within 3-5 years. If you need a real-world example, Sequoia Capital is arguably one of the most well-known companies in VC. In the later stage, when the innovation workshop made additional investment in its own enterprise, it was also doing business similar to venture capital. Private Equity Equity) Most of the companies that private equity funds choose to invest in have reached a relatively late stage. The companies have formed a large scale and the industry has been standardized. In order to quickly occupy the market and obtain more resources, they need a large amount of capital. Then, This is where private equity funds come in. Most of the time, 50 million to hundreds of millions of funds are the amount that private equity funds often invest. Most of the time, the exchange for shares will not exceed 20%. Generally speaking, these selected companies will have great hope of going public in the next 2 to 3 years. Silver Lake, which invested US$1.6 billion in Alibaba Group last year, and Digital Sky Technology, which has invested in the past, are leading companies in private equity (especially in technology). And this 1.6 billion fund is also one of the top injections in history. Investment Banking (Investment Banking) He has a name we often say: investment bank. Generally, investment banks are responsible for helping companies go public, and charging handling fees from the money they get after going public. (Commonly 8%, but not a fixed price) Generally, companies selected by investment banks can go public within the next year as long as there are no accidents. Sometimes an investment bank may invest a sum of money in it, but most of the time it is mainly based on the listed business. As for well-known companies, I will mention a few names, and everyone will know if they want to come. Goldman Sachs, Morgan Stanley, Merrill Lynch in the past, and more. (Of course, there are many well-known banks such as Citibank and JPMorgan Chase, all of which have excellent investment banking business.) In addition, there is the last question, which is FoF, because many answers have already given more detailed information After the content, I will use some more concise and popular language to introduce FoF, that is, the fund of funds. (Please forgive my poor Chinese translation, because I really don’t know what the translation of Fund of Fund is. I have checked several websites and they are translated into fund of fund or fund of fund. Now I see that the word “fund” is a bit different. "Semantic saturation") Fund of Fund (Fund of Fund, FoF) There is an essential difference between FoF and general funds - that is, the nature of their investment objectives is different. The fund invests in a wide range of projects, commonly known as stocks, bonds, futures, and gold. As for FoF, they invest in another way - they invest in fund companies. That is to say, FoF generally does not invest in stocks, bonds, and futures that we often say. They will choose to invest in fund companies with strong profitability (such as Silver Lake, Digital Sky I mentioned above, or even a Chinese fund in our country.) Of course, because of the special investment of FoF, it Unlike the LPs I mentioned at the beginning, there is a 6 million minimum investment limit. I don’t know much about the specific situation in China. The US usually ranges from $200,000 to $600,000 as the minimum investment amount – of course, their lock-up period is the same, at least for more than a year.