Difficult and expensive financing has always been two major problems that plague the development of small and medium-sized enterprises. In April 2019, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issued the "Guiding Opinions on Promoting the Healthy Development of Small and Medium-sized Enterprises", which put forward guiding opinions from the aspects of improving financing policies for small and medium-sized enterprises, actively expanding financing channels, and supporting the use of capital markets for direct financing, striving to solve the problem of difficult and expensive financing.

On the capital market side, the state has successively taken positive measures to encourage the marketization of capital operation and broaden the financing channels of enterprises. From the birth of the New Third Board in China in 2006, the official listing of the Growth Enterprise Market in 2009, the establishment of the Science and Technology Innovation Board and the pilot registration system in 2018, and the establishment of the Beijing Stock Exchange in 2021, China's capital market has continuously deepened its reform, tried a variety of ways to transform from the audit system to the registration system, lowered the entry threshold of the capital market, improved market liquidity, and brought endless market opportunities to entrepreneurial projects and small and medium-sized enterprises in order to meet the call of "mass entrepreneurship and innovation".

Despite this, the outbreak of the new crown pneumonia epidemic in 2020 has exposed many small and medium-sized enterprises to cash flow problems. Tsinghua University and Peking University jointly launched a survey, and the results showed that at the beginning of 2020, affected by the epidemic, 34% of the country's small and medium-sized enterprises could only maintain one month, 33.1% could only maintain two months, and only 9.96% could maintain more than six months. In the face of such a cruel reality, the most serious problem faced by more than 90% of the small and medium-sized enterprises in the first state is financial difficulties.

Since its establishment, Linxi Capital has been deeply engaged in the design of the equity structure of start-up enterprises and the research on the role of industrial capital in the expansion of small and medium-sized enterprises in the upstream and downstream of the industry. In the early days of its establishment, Linxi Capital has carried out in-depth cooperation with leading enterprises in comprehensive industries such as Shanghai and TCL. In 2014, he participated in the angel round of financing of Haier's Raytheon Technology, and then became the major shareholder of Dilan before Raytheon's listing. In addition, Linxi Capital also conducted in-depth research on nearly 10 companies on Haier's small and micro entrepreneurship incubation platform, and also deeply realized the decisive role of the "Rendanyi" business model proposed by Mr. Zhang Ruimin, the former CEO of Haier Group, in the growth of Haier's start-ups.

In 2016, Linxi Capital invested in an angel project, UISEE, and provided them with long-term equity structure planning consulting. In 2020, UISEE completed a large Series B financing in one year, and entered the unicorn camp in its industry five years after its establishment. As of today, UISEE has recruited 48 shareholders to fight side by side with them. Although UISEE has attracted a large amount of capital in a short period of time, these capitals have not affected the independent development of the enterprise, and have played a strong supporting role in the company's industrial endorsement and teamwork. To some extent, this is due to the long-term research conducted by Linxi Capital and start-ups on a number of domestic investors over the years, as well as the careful design of precautions.

From a financial point of view, the mature and stable operation of an enterprise is inseparable from the combination of two different paths: open source and cost reduction. Corporate financing is not only a life-saving straw for enterprises to look for when they are desperate, but also one of the financial strategies that enterprises continue to carefully design and update in the process of healthy operation.

From watching the operation of the company, to being the owner of the company's cash flow, to guiding many entrepreneurs, we have also encountered many problems encountered by entrepreneurs along the way, and these problems boil down to the problem of capital flow. Therefore, over the years, we have done deep thinking and research on the cash flow issues that business owners are concerned about.

Based on hundreds of successful and failed cases around us, as well as based on Linxi Capital's observation and induction of the doubts of the people around us over the years, we have positioned "Corporate Financing× Equity Financing Debt Financing× IPO Listing × M&A Financing" as a full-perspective reference book, hoping to present it to entrepreneurs and business owners who have needs for the capital financing management of enterprises in an easy-to-understand and easy-to-access form.

This preface mainly hopes to help you sort out the three types of knowledge points in the many knowledge points in this book: What are the main channels for financing? What are the main factors to consider when choosing different financing channels and combinations? What are the basic knowledge and basic capabilities for different financing channels and financing methods?

What are the main financing channels available?

According to the source of funds, corporate financing can be divided into internal financing and external financing. For enterprises, internal financing is relatively simple, and a good CFO can formulate a complete financing plan, so more readers hope to understand external financing through this book.

In external financing, according to the different property rights of the financing, financing methods can be divided into two types: equity financing and debt financing. Equity financing refers to the transfer of part of the equity of the enterprise, that is, the ownership and control of part of the shares; Debt financing, in layman's terms, is "debt repayment, natural", if debt financing is used, for entrepreneurs, the company is still yours, but the money owed needs to be repaid. To put it simply, equity financing is concerned with the issue of corporate control and ownership, while debt financing is concerned with cost and credit issues.

This book summarizes four types of equity financing channels and six types of debt financing channels, and ten major financing channels, which are enough to match enterprises of different sizes and types, and choose appropriate financing methods at different stages according to their own circumstances and core demands.

What are the main factors to consider when choosing different financing channels and portfolios?

This part of the content will be interspersed with various chapters, mainly focusing on the different demands of enterprises at different stages, as well as the operational judgment that financing decision-makers need to be proud of based on the current situation.

These factors are mainly grouped into eight categories, which generally include five external factors, namely the economic environment, the cost of funds, the risk of financing methods, interest rate changes and the degree of competition; and three internal factors, namely profitability/growth prospects, the company's asset and capital structure and corporate control. Of course, many of the factors here are considered internally and externally, but the proportions are different. Although the first chapter has an inductive explanation of the eight major factors, the reader should independently substitute the eight factors into the subsequent chapters, try to apply each factor, and make a preliminary judgment and imagination based on the company's own situation and the current macro environment.

What are the basic knowledge and basic capabilities for different financing channels and financing methods?

When the reader has a general understanding of the existing financing channels and considerations in the overall market, or has made a basic judgment on the combination of financing methods suitable for the enterprise itself, it is bound to gradually take into account the issue of the executive level. For the preparation of corporate financing at the execution level, it is not to decide on equity financing, but to make a business plan; Or if you decide on a bank loan, go to the bank's official website to check the required materials. If we look at this problem simply, in most cases, it will not be easy for the financier company to succeed.

On the contrary, as mentioned above, corporate financing is a strategic initiative that requires long-term planning by enterprises, and it is bound to carry out long-term and continuous preparation work to achieve the financing purpose within the expected time. In equity financing, the so-called "A round death" is usually because the financier did not make adequate preparations in terms of equity transfer ratio in the early angel round and A round of financing, and did not agree on the details and plans for the future financing planning agreement, which made the rights and obligations of the follow-up investors unbalanced, resulting in the dispersion of management rights and the survival crisis of the enterprise. Therefore, this book explains in detail the relevant policies involved in each financing channel, the core issues and risks that different financing channels are concerned about, so that readers can make reasonable plans for capital planning and risk prevention and control in a timely manner when predicting financing strategies.

Corporate finance is a huge topic, and any one area can be studied in detail and become a book. However, as mentioned earlier, the main purpose of this book is to help readers establish a relatively complete and systematic framework of corporate financing ideas, rather than a specific practical guideline for a certain field. It can be said that most of the financing options in the market will be discussed in this book. In the future, Linxi Capital will also extend the basic concepts involved in this book more abundantly, hoping to help entrepreneurs and small and medium-sized business owners solve the practical problems of difficult and expensive financing.

At the end of this book, I would like to thank Zhang Xiaoyu, Zhu Tian, Zhang Ziye and several other colleagues in the Linxi Capital team. In the process of creating this book, in order to ensure that the content of the manuscript is more comprehensive and complete, several colleagues assisted us in collecting and sorting out relevant materials, correcting and proofreading the manuscript, and provided us with many valuable suggestions based on their rich practical experience in the investment field, in order to provide more useful suggestions for readers. Thank you to them for their hard work in the process of publishing this book!

I sincerely hope that entrepreneurs, business owners and friends who are interested in business management in the future can get some benefits from this book, avoid some detours on the road of corporate financing, and achieve their goals as soon as possible!

Chen Xuetao is the founding partner of Linxi Capital

February 27, 2022