Improvement On Optimizing The Value Evaluation System On The VC Projects Of Hongyuan Company

Currently, the Venture Capital (VC) is increasing rapidly in terms of its scale, total investment volume and the number of the institutions in China. VCs fights for the high quality investment projects during the market upswing, which causes the market over-evaluation and a large number of speculations. The lack of substitutable investment products also causes the deviation of the price from its value. These result in a high trading cost. Based on such market background, this study aims to analyze the problems of Hongyuan Company because it is believed that optimizing the current value evaluation system will significantly help the company to quickly get an overall understanding of the project, to minimize the investment risk, to eliminate the divergence between VC and the target enterprise and to reflect a genuine value of the company to be listed.When Hongyuan Company does the Due Diligence to the fundamentals of the investment projects, it can usually give a relatively thorough investigation and analysis on the management team. The diagnoses of the other aspects are all very superficial. If we want to have an overall grasp of the target project, we ought to give a full round analysis on all the possible factors which may affect the investment value of the target project. Hongyuan Company aims at investing in potential listed companies. The important prerequisite is the company to be listed itself. If the prerequisite is imperfect, the work thereafter is totally a waste of time. Therefore, we think it important for Hongyuan Company to have a thorough research on this prerequisite. In addition, the pricing of the project needs to fall together with the expected share price trend during projected listing time. Only when these two factors are combined, can the pricing have the reference value.The study brings forward that only when the project’s prerequisite is adequately analyzed, will the comparable PE ratio method be a relatively simply and practical value analysis method. Since the eventual objective of the company to be listed is particularly to go listing, the prophase of the project should be centered on going listing. The detailed analysis should be focused on the elementary listing conditions, the macro economic situation, the current situation and the development trend of the industry as well as the market trend of the share price and etc. The comparable PE ratio analysis method can be only applied when the following conditions are met:all the evidences strongly prove that the potential company is qualified for listing; there are not any substantial obstacles for its going listing; and the PE ratio is based on the analysis of the expected stock market.In view of the fact that Hongyuan Company has a pretty low management level in participating in the management of VC targeted enterprise, and its management capability is very weak, this study puts forward a series of measures about the mechanism of participating, hedging, buying back and exiting. The study also brings forward the detailed measures to ensure a smooth implementation of optimizing the value evaluation system.