To Unicorn and Beyond. October 2017

Transcription

1 To Unicorn and Beyond October 2017

2 Overview of China Renaissance With full-lifecycle and tailor-made services for new economy entrepreneurs 2

3 With Full-lifecycle and Tailor-made Services for New Economy Entrepreneurs Start-up Growth Mature IPO Secondary offering Bonds M&A Structured finance Other value added services Pre-IPOs Start-up services VC financing Growth equity financing M&A #1 #1 Structured finance #3 Overseas IPO Follow-up financing Private placement M&A Domestic IPO M&A and reorganization Traditional IB Businesses 3

4 Top Go-to Advisor for Growth Capital Best financial advisor for Chinese leading technology start-ups More than 350 transactions with over US$ 27 billion transaction value completed US$ 300M US$ 2.5B >US$ 800M Top private placement advisor in China since 2006 with dominant market share Awarded "China s Best Boutique Investment Bank " by China Venture every year from 2006 to 2016 Most trustworthy friend of both entrepreneurs and investors FA October 2017 FA July 2017 FA 2017 Deep understanding : the only investment bank covering TME by sub-sectors To entrepreneurs : accurate timing of financing windows and in-depth coverage of investors US$ 350M US$ 4.5B RMB 6B To investors : balanced, objective evaluation of investment targets Brand power Positive feed-back loop FA FA FA Attracting top-quality clients March 2017 June 2016 April 2016 Brand endorsement for clients US$ 3.3B RMB 6.65B US$ 630M Start-up Platforms Founded in 2014, Alpha focuses on financial services around Series A Founded in 2005, ZhuluX is an information platform for early stage financing, capturing the flow of next FA January 2016 FA January 2016 FA August 2015 generation high-quality start-up companies and entrepreneurs 4 Source: Dealogic

5 No.1 M&A Advisor for New Economy No.1 M&A advisor for new economy Topping China s TME M&A league table by both deal value and number of deals (2011 to date) Successfully closed a number of high-profile transactions for BATQ (Baidu, Alibaba, Tencent, and Qihoo 360) Rank Financial Advisor Number of Deals Value (US$mm) 1 China Internet M&A Advisory League Table (as of September 30, 2017) (1) China Renaissance 27 9, CICC 9 3,735.3 Most trusted advisor The only bank that has worked with all the leading Chinese Internet companies The advisor of choice on VC exit strategies True rainmaker Original deal ideas based on domain knowledge and proprietary relationships Ability to close deals in complex and sensitive situations - During a number of cases involving the top 2 companies in a certain sector, China Renaissance acted as the financial advisor for both sides and successfully dealt with the sensitive issues and emergencies 2 CEC Capital Goldman Sachs 8 4, China Securities 8 4, Taihe Capital Haitong Securities 7 2, #1 Guotai Junan Securities 5 1, Citi 5 5, Huatai Securities China Renaissance takes 12% of total M&A value 5 Source: Dealogic Note: (1) accounted for all announced transactions from January 1, 2017 to September 30, Sectors include software, computers, gaming, video and film, publishing, advertising, education and transportation

6 Top China-based Underwriter and Advisor for Chinese Tech Overseas IPOs Top underwriter for Chinese tech IPOs and equity offerings Selected US/HK IPOs completed by CR Closed 10 IPOs from 2014 to 2016, raising ~US$ 7 billion in total US$200 million US$1.4 billion US$85 million No.3 underwriter of Chinese companies overseas IPOs by deal volume from 2014 to 2016 US IPO November 2016 US IPO October 2016 US IPO December 2015 The only Chinese investment bank in the syndicate US$58.70 million US$310 million US$540 million There were 25 tech IPOs in the U.S. from 2014 to 2016, 12 of which involved Chinese investment banks. China Renaissance participated in 10 of them and was the only Chinese underwriter in 9 of the 12 IPOs The only Chinese investment bank with distribution capability in both Asia and the U.S. focusing on new economy US IPO US IPO HK IPO July 2015 December 2014 September 2014 US$3.4 billion US$120 million US$430 million US IPO US IPO US IPO December 2014 May 2014 May 2014 US$140 million US$370 million US$190 million Differentiated distribution strategy US IPO US IPO US IPO Good relationship with emerging star fund managers Focus on smart money and investors active in China s tech space, securing early anchor orders Unique research product No.3 underwriter of Chinese companies overseas IPO by deal volume from 2014 to April 2014 April 2014 October Covering both the public market and private stars 6 Source: Dealogic

7 An Active Investor in VC/PE Fields 2 RMB investment funds AUM: RMB 10 billion Closed the second fund Investing in profitable and competitive new economy companies Portfolio: Zhaogang.com, JD Finance, Focus Media, LY.com 2 USD investment funds AUM: US$ 200M Portfolio: Dianping.com, Meituan, 51Talk, Bilibili, Didi, Renrenche.com Early stage VC (China Renaissance K2 Venture) US$ 240M AUM; Fund I achieved >30x return Portfolio: Leading Chinese tech start-ups Selected cases: Jumei.com (exit through IPO), Meilele, Meet You, Moji Others Strategic investment in FOF, asset management and wealth management FOF: US$ 200 million AUM Investing in promising new economy companies - selected cases Time Company Remarks Privatization and private placement 2017 Private placement 2016 Private placement 2016 Privatization and private placement 2016 Private placement 2015 Privatization and private placement 2015 Private placement 2015 Privatization and private placement 2015 Privatization and private placement Early Stage VC Meet You CR K2 invested in three rounds in 2013 and Moji CR K2 invested in

8 The Path to Become a Unicorn Early Stage Financing Growth Stage Financing Strategic Investment M&A/IPO JD Meituan/Dianping Meituan Dianping Didi/Kuaidi Didi Kuaidi Tujia 8

9 The Trusted Partners for Hong Kong Entrepreneurs Undisclosed Merger Exclusive Financial Advisor for Both Sides August 2017 US$60 million A Strong track record with Hong Kong s internet start-ups Help several star companies in Hong Kong cooperate with mainland s selected investors and strategic partners Through the merger with 58Suyun, GOGOVAN becomes the first unicorn out of Hong Kong. China Renaissance served as the exclusive financial advisor for both sides in this transaction Series C Fund-raising Exclusive Financial Advisor October 2017 US$410 million (1) Series B Fund-raising Investor July 2017 In-depth understanding of Hong Kong s entrepreneurs Hong Kong is usually know to be slow in the advancement of information technology and is less focused by mainland s investors With the close relationship with Hong Kong s start-ups, China Renaissance has developed an in-depth understanding of Hong Kong s entrepreneurs to serve with the tailor-made services for them 9 Notes: (1) The deal value represents the total financing amount

10 Introduction of Today s Presenter Former senior China M&A banker at J.P. Morgan, former investment banker at Goldman Sachs in U.S, London and Hong Kong Extensive experience in M&A advisory and transactions, leading several landmarks transactions such as Maoyan and Weying s strategic cooperation, 58Suyun s merger with GOGOVAN, JD Finance s spin-off, Qihoo s privatization and Meituan s merger with Dianpian Bachelor s degree from University of Chicago Jeremy Choy Managing Director Head of M&A Hong Kong Undisclosed Merge Financial Advisor September 2017 Undisclosed Merge Sell-side/Buy-side Advisor August 2017 RMB14.3 billion Spin-off Financial Advisor March 2017 US$930 million Privatization Financial Advisor July 2017 RMB4.78 billion -Acquisition of Sell-side Advisor June 2016 US$1.6 billion Acquisition of Sell-side Advisor May 2016 US$15 billion Merge Sell-side/Buy-side Advisor October

11 China TMT VC/PE Market Overview Slight recovery since 2017Q2 A survival rate of 30% for each round The most active investors 11

12 Slight Recovery of TMT Private Placement Market since 2017Q2 China s TMT private placement market has maintained a stable trend from 2010 to 2013, and then climbed to a record high in 2015Q3. After that, as profits from mobile internet traffic gradually fading out and China s economic environment becoming weaker, investments in TMT sectors declined in 2016 Since 2017Q2, influenced by large-scale transactions such as Didi s US$5.5 billion financing, the market has first seen a sign of recovery Q3 China TMT Private Placement Market Overview 2,314 Investment Amount (US$bn) No. of Deals ,997 1,611 1,294 1, ,912 1, , ,292 1, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: IT Juzi, China Renaissance

13 30% Survival Rate of Each Round From 2010 to 2015, a total number of 8,181 companies had completed an angel round of financing, among which only 2,527 companies came to the round A stage, 680 came to the round B stage and 196 came to the round C and later stage, indicating an average 30% survival rate of each round Among the Companies that Completed an Angel Round of Financing from 2010 to 2015, Number of Surviving Companies in Each Round (1) 8,181 31% 2,527 27% % % 63 Angel Round A Round B Round C Round D and forward 13 Source: IT Juzi, China Renaissance Note: (1) Excluding companies completed IPO or sale, the actual number may be a little higher

14 Investments Focused on Enterprise Service, Entertainment and E-commerce in 2017 Enterprise service, entertainment and E-commerce are the most popular fields in 2017Q1-Q3, with 327, 256 and 219 transactions respectively, while transportation, entertainment and hardware sectors raised most funds Inflated by Didi, Mobike and ofo s mega fund-raisings, transportation sector s total financing amount accounted for 28% of the total financing amount Industry Breakdown of 2017Q1-Q3 TMT Private Placement Market Investment Amount (US$bn) No. of Deals Enterprise Service E-commerce 2.6 Hardware Healthcare 3.4 Education Sports Gaming Software Social Media Entertainment Fintech O2O Transportation Real Estate Logistics Travel Advertising Agriculture TOP 1 MIG Unmobi 探探 TOP 2 转转 14 Source: IT Juzi, China Renaissance

15 RMB Funds Stay Ahead of Foreign Currency Peers RMB investors have increasingly become the main force in the TMT investment market. The proportion of total investment numbers has increased from 65% in 2014 to the current level of 81%, while the proportion of total investment amount increased from 23% to 57% However, RMB investors average single investment value is still lower than foreign currency funds Investment in TMT Sector: RMB Funds vs. Foreign Currency Funds RMB investment as of total volume RMB investment as of total value 65.3% 65.2% 66.5% 65.6% 71.9% 74.4% 77.9% 61.5% 76.5% 67.7% 80.0% 80.8% 80.9% 80.7% 60.1% 59.8% 83.5% 83.9% 80.7% 56.7% 46.9% 47.8% 37.6% 39.7% 43.8% 28.2% 29.1% 31.5% 29.5% 23.4% 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 15 Source: IT Juzi, China Renaissance

16 The Most Active Investors from 2014 to 2017YTD In 2014, China s TMT private placement market was dominated by traditional USD funds such as IDG, Sequoia Capital and SAIF Partners, while strategic investors were only active in growth stage From 2015 to 2017, on one hand strategic investors were increasingly active and internet giants such as Tencent s investments were expanded to earlier stage. On the other hand, after first topping the list in 2016, RMB investors have become the main force in the TMT investment market 2014 Top 5 TMT Investors 2015 Top 5 TMT Investors 2016 Top 5 TMT Investors 2017YTD Top 5 TMT Investors 1 IDG 1 Zhen Fund 1 Zhen Fund 1 K2VC 2 Zhen Fund 2 IDG 2 Plum Ventures 2 Zhen Fund Early Stage 3 Sequoia Capital 3 K2VC 3 IDG 3 Aplus Capital 4 Matrix 4 Matrix 4 Innovation Angel Funds 4 Matrix 5 K2VC 5 Sinovation Ventures 5 FEEDS Fund 5 China Growth Capital 1 Sequoia Capital 1 Sequoia Capital 1 Qiming 1 Qiming 2 Shunwei 2 Tencent 2 Tencent 2 Toutoushidao Round B 3 IDG 3 Matrix 3 Shenzhen Capital Group 3 SIG 4 SIG 4 SAIF Partners 4 IDG 4 Shunwei 5 SAIF Partners 5 IDG 5 Fortune Capital 5 DCM 1 Tencent 1 Baidu 1 Tencent 1 Tencent Round C and forward 2 Tiger 3 SAIF Partners 4 IDG 2 Alibaba 3 Tencent 4 Sequoia Capital 2 Banyan Capital 3 Alibaba 4 Qiming 2 Warburg Pincus 3 Matrix 4 SUNAC 5 Ctrip 5 Shunwei 5 Harvest Fund 5 Alibaba 16 Source: IT Juzi, China Renaissance, ranked by deal number Note: Strategic Investors are marked red, RMB funds are marked yellow

17 BATJ has Become an Important Force among Investors China s Internet giants such as BATJ (Baidu, Alibaba, Tencent and JD.com) were keeping a stable pace before 2013, and gradually surged to a record high after that. Tencent and Alibaba are both doing over 20 investments each year In 2017 internet giants are continuously searching for quality assets, with 97 investments announced by BATJ year to date, surpassing the number of full year investments in YTD BATJ s Investment Volume YTD BATJ s Investment Value (US$bn) BATJ 474 (1) Tencent 236 Alibaba 147 Baidu 79 JD 38 BATJ (1) Tencent 73.8 Alibaba 74.5 Baidu 20.6 JD YTD YTD Source: Dealogic, accounted for announced transactions of all sectors Note: (1) The project which is jointly invested by any of BATJ is counted as one project

18 BATJ Showed Diverse Interests but Mainly Focused on Core Business Top 3 Sectors Internet Giants Focused on in 2017YTD Transaction Volume 1 Fintech Gaming 7 O2O 6 E-commerce 11 O2O 3 Entertainment 3 Entertainment 4 Hardware or AR/VR or AI 2 E-commerce 3 Transaction Value (US$mm) (1) Gaming 3,387 O2O 3,066 E-commerce 1,900 E-commerce 4,922 O2O 1,200 Logistics 971 Entertainment 1,681 Hardware 600 Logistics 156 O2O 1,200 Healthcare 900 E-commerce 397 Overseas Transaction Value (%) 38.9% 35.5% 0.4% 21.2% #1 Rovio Entertainment (Rumored) #2 Flipkart #1 Tokopedia #2 Lazada #1 Go-Jek #2 Grail 18 Source: Dealogic, accounted for announced transactions of all sectors, overseas investment include investments in Hong Kong Note: (1) Excluding Tencent, Baidu and JD s US$9,253 million investment into China United Network Communications

19 Some Tips on Fund-raising Timing, choosing investors, valuation Common pitfalls Standard time table 19

20 When to Do a Fund-raising? Capital Market Recent changes in the secondary market in China and abroad? Any long-term trend? The overall primary market environment Recent financing cases in similar industries Competitive Landscape Competitor s financing situation Recent financing cases in similar industries Business Development and Others Business and financial data s growth rate Any product breakthrough? Any development in business model? Historical cash burn rate and financing gap Shareholders and FA s support 20

21 USD Funds vs. RMB Funds USD Funds RMB Funds Pros USD investors funds supply is more adequate, with more investors capable of a single investment of over $50 million USD investors are usually more professional and dedicated than RMB investors, which will help the company s business development in the long term There are more RMB investors in the market, which provide more options for the company to choose RMB institutions are increasingly interested in leading Internet companies Cons Less investors for the company to choose The current round of USD financing will increase the difficulty for the company to return to domestic market RMB investors are usually more unreliable during the bidding process Fewer RMB investors with the ability to lead funding and pricing RMB investors are more concerned about guarantee and exit 21

22 Strategic Investors Pros and Cons Non-monetary business resources: cloud computing capabilities, support in user traffic, better access to exclusive contents, etc Improve competitive dynamics: get non-compete and avoid intensified competition from large players Pros Lower hurdle rate: strategic investors pay more attention to strategic value, and care less about financial return Build confidence: with strategic investor on shareholders' roll, a company would command higher confidence among investors in its future IPO Other benefits: customer insights and vendor relations, etc. Choosing side: in a market where leading platforms dominate, get financing from any one of them will signal a company join one alliance and hence lose some flexibility in business cooperation. For example, when you choose to accept investment from Tencent, you might not be able to sell merchandize on Alibaba and will have to stick to WeChat Pay thereafter Cons Prolonged process: strategic investors usually must weigh on various internal and external interests. Their investment team usually has limited say in decision making process and must consult with business unit leaders and corporate counsel to reach consensus. As a result, it usually takes longer period for a strategic investor to cut a deal Significant minority: Comparing to financial investors, strategic investors will usually want more shares (10%-20%) and stronger rights in corporate governance. After all, they invest a company not simply for financial reward, they also aim for unlocking strategic potential 22

23 Case Studies for Strategic Investors Cooperation with Target Companies Investor Target % Acquired Transaction Description Business Cooperation Alibaba Weibo 18.0% On April 29, 2013, Alibaba acquired 18% stake in Weibo from Sina for ~$590 million In addition, Sina has granted Alibaba an option to increase the ownership in Weibo to 30% on a fully-diluted basis at a mutually agreed valuation in the future Weibo and Alibaba agreed to cooperate on a non-exclusive basis in respect of user account sharing, data sharing, platform integration, product development, payment supporting for both PC and mobile businesses The strategic alliance is expected to generate up to US$380 million revenue for Sina and Weibo from 2013 to 2015 Both parties will jointly explore social commerce and develop innovate marketing solutions Tencent JD 15%+5% On March 10, 2014, JD acquired certain e- commerce businesses and assets from Tencent and entered into a strategic cooperation agreement with Tencent. As consideration for the transaction, JD issued 15% of their total issued and outstanding shares Concurrently, Tencent agreed to acquire another 5% stake in JD during its IPO Tencent will grant JD prominent level-1 access points in Weixin and mobile QQ applications, and will provide internet traffic and other support from other key platforms to JD JD will cooperate with Tencent in a number of areas primarily mobile-related products, social networking services, membership systems and payment solutions Other than the operation of Shanghai Icson, Tencent will not engage in any online direct sales or managed marketplace business models in physical goods e-commerce business 23 Source: Capital IQ

24 Case Studies for Strategic Investors Cooperation with Target Companies Investor Target % Acquired Transaction Description Business Cooperation Baidu Qunar 11.8% (1) On October 1, 2013, Qunar and Baidu entered into the Zhixin Cooperation Agreement from November 2013 to December 2016 In exchange for the agreement, Qunar issued to Baidu warrants for 45,800,000 of its Class B Ordinary Shares, indicating a 11.80% stake on a fully diluted basis Baidu agreed to grant Qunar the exclusive right to operate certain new search products on Baidu s website for travelrelated search results, and Qunar may offer links to various travel-related products Also, Baidu agreed to guarantee certain minimum page views to be generated from users JD Bitauto 23.5% In February 2015, JD invested a combination of US$400 million in cash and certain resources as consideration for Bitauto s newly issued shares. In addition, JD invested US$100 million in newly issued series A preferred shares of Yixin Capital In June 2016, JD invested US$50 million is Bitauto in exchange for its newly ordinary shares JD has granted Bitauto an exclusive right to operate JD s finished automobile business, which includes the sale of finished automobiles( including new and used cars) on JD Mall, Paipai, their respective mobile sites and JD s mobile applications, as well as the provision of advertising services on JD.com s finished car channels JD has also agreed to provide supports in areas such as traffic support, big data capabilities and technology infrastructure 24 Source: Capital IQ Note: (1) Baidu originally owned 54.1% stake in Qunar before this transaction

25 How to Evaluate Your Company? Basic Valuation Methods: Absolute Valuation: DCF(Discounted Cash Flow), DDM(Dividend Discount Model), EVA(Economic Value Added) Relative Valuation: Comps, Comparable Transaction Asset-based Valuation Comps Select comparable public companies Industry, scale, business model, growth stage, area, listed market P(EV)/S, P(EV)/B, P(EV)/E, P(EV)/EBITDA, P(EV)/EBIT, PEG, PSG Comparable Transaction Select comparable private placement transactions or M&A transactions Time, target, buyer, stake, control premium Financials and operating metrics 25

26 Key Operating Metrics Investors Used to Evaluate TMT Companies Social Media E-commerce O2O Fintech Real Tech Users GMV GMV MLO (Monthly Loan IP number DAU SKU (Stock Keeping Unit) SKU Origination) MAU MAU/DAU PV (Page View) UV (Unique Visitor) Sessions (1) Time spent Retention rate Others: number of Orders ASP (Average Selling Price) Purchasing users Fulfillment cost User acquisition cost or Conversion rate Repeat purchase rate Orders ASP Completed GMV/Request GMV or Completed Orders /Request Orders Purchase frequency User acquisition cost or Conversion rate ALO (Annually Loan Origination) O/SL (Outstanding Loan) Bad debt rate Interest spread/ commission rate comments, number of reposting 25 Note: (1) The total times the app or website was started or opened by all users during specified period

27 Common Pitfalls in a Fund-raising Is the amount of financing higher the better? Is the valuation higher the better? Key factors for financing amount: capital requirement in the future 1-2 years Financing amount vs. dilution vs. valuation High valuation may put pressure on following fund raisings How to arrange investors appointment? How to distinguish different investors? Different preference of different investors Post-investment service from mature investors Strategic resources Follow up with investors feedbacks 27

28 Common Pitfalls in a Fund-raising How to organize the investment highlights and storyline, is it necessary to do financial projection? Market environment, business model, monetization, competition landscape, industrial chain, Investors concern Financial projection: don t be too radical for recent targets How to open your data to investors? How to design transaction structure and negotiate legal documents? Teaser, Management Presentation, Operating Metrics, Financial Model, DD Capital structure s influence on company s future capital market plan Corporate governance structure, exit mechanism, earn-out agreement Especially, for those founders who are not familiar with capital market, we recommend you to hire an experienced financial advisor to help manage fund-raising process 28

29 Time Table for a Typical Fund-raising The financing process will be different according to the capital market s situation and the company stage. The following is a preliminary timetable for a typical fund-raising Usually 3-4 months in total 2 weeks 4-5 weeks 2 weeks 2 weeks 3 weeks Kick-off Marketing Term Sheet Negotiation DD Legal Documents Negotiation Signing and Closing Materials Road show and management Negotiate with tier- Open data room Negotiate SPA, SHA, MA with investors, preparation, presentation 1 investors on key for investors help investors communicate with including Teaser, Collect investors feedbacks terms, including Work with third- original shareholders MP and Financial model Answer investors questions valuation and financing amount party lawyers and accountants Signing and closing Marketing Compare different strategy investors terms discussion, water-testing

30 Different Ways for Shareholders to Exit IPO and Sale are two main ways for shareholders to exit: Market Capacity and Positioning of Industry Chain IPO Higher ceiling for the market size High growth potential and consolidation opportunities Sale Lower ceiling for the market size Less bargaining power on price negotiation Less business independence Development Stage Company in the fast growth stage Company is more mature with slower growth rate Further development requires supporting with strategic resources Has potential synergies with buyers Shareholders and Entrepreneurs Preference Seek for independence in the future Entrepreneur seeks exit and profit realization, prepare for retirement or transformation of business focus Exiting pressures from financial investors Regulatory Factors and Others Satisfying financials and compliance requirements for IPO Flaws in financials and compliance High cost to fulfill financials and compliance requirements Pressure on IPO for regulated sectors like live video, education, fintech 30

31 31 Q&A

32 Beijing Headquarter Pacific Century Place, Gate 1, Space 8 2A Workers Stadium North Road Chaoyang District Beijing , China Tel: Fax: Hong Kong Office Units , Level 81 International Commerce Centre 1 Austin Road West, Kowloon Hong Kong Tel: Fax: Shanghai Office Unit 2508, Hongkou SOHO No.575 Wusong Road Hongkou District Shanghai , China Tel: Fax: New York Office 21st Floor, Rockefeller Plaza, 600 Fifth Avenue, NY 10020, New York Tel: Fax: