(Chinese Version)

When Mrs. Deng taps on her smart phone, the virtual person on her screen follows the direction she points and walks through different project exhibitions, looking for financing projects she’s interested. Just with a few taps, Mrs. Deng is able to check out the detailed information on her phone.

It sounds like she’s playing a game, right? But she’s actually working. InKIPO’s virtual exhibition room for private securities there are multiple financing projects on display, one of which is Mrs. Deng’s project, Jiyuan New Materials’s financing project. This virtual exhibition room we are talking about here is constructed with VR technology where users can put up their projects for fund managers, potential investors and analysts too see.

Jiyuan New Materials made a financing plan to get an investment of 50 million to 60 million RMB. And if they were to get listed on the Three New Boards, then hiring a broker alone would cost around 1.5 million to 2.5 million RMB. “Medium and small-sized companies have a tight budget. And we don’t really know when we would be able to get new investment. It’s really difficult for us since we need to spend several million RMB even just in the beginning. ” When Mrs. Deng first got to know aboutKIPO, she only thought it’s an Internet private securities exchange platform.

KIPO sent its own team of experts, including brokers, lawyers, auditors, and tax accountants, to help the company in the aspects of law and finance. The team out-sourced the tasks the completed the tasks with the lowest budget as possible. By the time Jiyuan New Materials finally got listed onKIPO’ platform, the company had only spent ten thousand RMB, half of the expected cost.

What really amazed Mrs. Deng was the advanced virtual reality technology.

Shareholders of this company are from all over China and they oftentimes have virtual meetings onKIPO. Once they have prepared the PPT and video for introducing their financing project, they will present their plan to investors in the virtual roadshow auditorium. As for viewers who come to watch presentations, they can also socialize with others virtually. For instance, once investors buy the tickets to the roadshow, they can then choose their seats and enjoy the videos and PPT. Meanwhile, they can also send voice messages and text messages to other online viewers to chat.

Virtual reality technology can fix many problems of traditional road shows: it gives investment managers and entrepreneurs more time and space to communicate with each other.

Through virtual reality technology, developers can visualize the whole financing process. This is the first step for KIPO to transform traditional securities exchange centers by utilizing the Internet. The game-changer here is that these virtual financing platforms need to break a closed-loop.

1. Configure the templates from the source, make standardized assessment on enterprises

2. Provide professional teams to guide and standardize enterprises

3. Virtual reality technology can break the limits existing in traditional financing process in the aspects of time and space

4. After successfully helping enterprises get listed, the company can also make investment in them as well if there are good projects

Up till now, there are about 30 regional private stock exchange centers in China, covering almost every province and municipality. However, exchange centers like Beijing, Shanghai, Shenzhen, and Tianjin etc. are still the most active ones and middle and small-sized companies are still seeking financing opportunities through offline channels. And this is where KIPO comes in. KIPO aims to use online solutions to help resolve the problems of space and time occurred in the process of financing for middle and small-sized companies.

“Wool comes from dogs”

KIPO does professional assessment and make virtual exhibit board, listing board and exchange board for enterprises for free. And it only costs enterprises ten thousand RMB to get listed for financing onKIPO. However, 50% of this ten thousand RMB will be distributed to local partnered investment organizations. So, how doesKIPO make profit?

Foreign Internet stock exchange platform Share’s post has a charge mode: every listed company on the platform is a member, who must pay a certain amount of membership fee each month. It’s know to all that Share's post’s liquidity is not strong enough, and therefore after getting listed on Share’ post. Many companies just go silent.

Wang Xiaolei believes that membership charge mode will not suit the development of the industry in China. So he designed a multi-channel profit model.

Listing fee: On KIPO, the listing fee for each company is ten thousand RMB, and the listing will be renewed once every three months.

Roadshow ticket: Investors have to buy tickets first before watching the roadshows.

Information fee: To view prospectus, investment reports and consulting reports etc. each investor has to pay 50 RMB.

Invest: As an investment organization, if there are promising projects the company also has the opportunities to make investments. This happens to be the area that has the most opportunities.

“It’s pretty much like a popular phrase online: the wool comes from dogs. Financiers are also a vulnerable group,” Deng said. “In this case, if we are able to share some of the cost with the investors and market, then we will be benefited a lot.”

KIPO also make recommendations for finance companies, which allows financiers to be closer to the three boards and spares brokers from spending lots of time finding projects. Now with the help ofKIPO’s platform, brokers can select ideal projects from the pool and take it to the provincial exchange center.

Opportunities of local industry and commerce

KIPO’s target audience includes middle and small-sized companies like Jiyuan New Materials. Such companies though don’t have to struggle for survival, but to make it big they still have to get financing.

According to statistics from the State Administration for Industry and Commerce, only 1% of middle and small-sized companies survive after three years of development and 0.2% survives five years. The statistics also show that most companies that have survived five years of development and competition are now three-new-board-level companies. KIPOis positioned for a level which is slightly lower than the three new boards and Qianhai stock exchange center.

“Currently traditional industrial projects at the scale of ten million to fifty million are having a difficult time. And it’s estimated that there are 180 thousand of such projects in China. The main board, three new board, and 28 provincial exchange centers can no longer accommodate them,” Wang Xiaolei, CEO of KIPO said, believing that Internet exchange platforms are an opportunity to fill in the gap where traditional exchange centers fail to address. To put it into perspective, there are only 8,000 companies listed on the main board and three new boards, but there are actually 180,000 of such companies. This is how big the gap is here.

What’s more, Beijing, Shanghai, Guangzhou and Shenzhen have a completely different investment scene when compared to other cities.

The four first-tier cities Beijing, Shanghai, Guangzhou and Shenzhen have a great resource of investment companies and other service organizations that focus on earlier projects in China. Most startups that have gained traction are based in these cities and mostly related to the Internet and TMT industry. Projects related to industry are usually in second and third-tier cities, which investment organizations from first-tier cities are not familiar with and therefore not daring enough to invest in them.

But these projects have a lot of advantages that are hard to come by: spacious industry parks, numerous factories and machines etc. In fact, if we China’s current assets appraisal method to evaluate projects, those that are related to industry are the most ideal investment target.

Wang Xiaolei sees industry as the future: “It’s obvious that there are also incredible promising projects outside the Internet sector for the central government has putt forward policies that support the advancement of industry, including policies like industry 4.0 and the plan of 2025. The Ministry of Industry and Information Technology is promoting the idea of industry Internet, which has nurtured many projects with great potential that are even hotter than those in the Internet sector.”

Besides financing, giving medium and small-sized adequate intellectual support is also essential, and it’s whatKIPOhas been doing. Medium and small companies have many flaws in their management system. In aspects like internal standards of finance, operation process, and sales operation system are generally lagging behind, meaning that investment organizations must provide help for these companies to build a better and more efficient management system.

KIPO chose medium and small-sized companies as their target audience for their direct influence on local economy.

“Local leaders don’t just want to build new factories since there are already plenty of them in the industry parks. Additionally, local governments nowadays are not really doing face projects anymore but tend to be pragmatic. What local governments want is the healthy development of these companies. In this case, they need transformation instead of more new factories,” Wang explained. “But due to geographical limits, local capitals don’t have other capital source, which makes it hard for them to help companies optimize their structures, make evaluation, and integrate the industry chain. During the transformation process, we can provide as much intellectual support as possible for them.”

Using the Internet and virtual reality technology to transform stock exchange centers requires a down to earth method. KIPO plans to deploy around 300 local exchange centers around the country, which centers will also cooperate with local existing capital organizations on the newly-built exchange centers. Local organizations can provide resource in projects and the financing process can be achieved online. Once the process is completed, both sides will share the profit.

Deploying these local offline centers require great resource. Luckily, after working for over ten years in the stock investment and financing sector, Wang has accumulated a lot of useful resources.

Shortly after the launch ofKIPO, four companies had already completed their financing. And before long KIPO’s offline exchange centers had spread to Leshan, Changzhi and Taian city etc. “This year we will contact with local leaders in Fujian, Shaanxi, Hubei, Liaoning, and Shanxi’s provincial capital cities and promoteKIPO through equity-based crowd-funding,” Wang said.

Standardizing information

Virtual reality is only a form to visualize the financing process. And what pumps fresh blood into this platform standardized information on companies that are looking for financing opportunities, which is conducted byKIPO.

In the past different investment organizations had different assessment standards, which made everything complicated. For example, if a company is going to be assessed by another investment organization, then the organization will have to assess thoroughly once again even though other organizations had already done that before. KIPO is trying to break this situation. It aims to act as a third party and assess financiers with standardized modules, freeing investment organizations the trouble of doing it over and over again.

“Financing process should be standardized. Repeating the same assessment process is just a waste of time and money. Investment organizations are generally led by people,” Wang Xiaolei said, who had been licensed by the country and had 12-year experience in standardizing information and rich experience in startup, the stock market, training, and angel investment sector. “We need to attain a standardized intellectual collaboration and outsource intellectual support in financing to the outside world.”

How to evaluate and assess companies after standardization?

Many companies with a price earnings ratio of 100 to 200 times are, to be honest, are overrated more or less. And such assessments are harmful to enterprises. On the surface it seems that they have received a lot of investment, but the high market evaluation is also a high risk. And if the enterprise fails to meet the expectation one day then everything will crumble. Some companies listed on the new three boards like to issue new stocks to get money. For instance, they issues additional equity offer by 10% after going public and get new money for that. Then this new investment will become the revenue for early original investors. That’s how the loop goes. In most cases, these companies are hijacked by stock brokers and capital and will usually end up with an IPO or a merger.

KIPO is trying to get the realest evaluation as possible believing that price earnings ratio should be based on revenue: assessment on small-sized companies should use operating income, cash, and gross profit as entry points. Due diligence includes 22 different data, among which some of them are gathered through field investigation while other data can be collected through cooperating with big data companies and utilizing the Internet.

Quantization of accurate valuation can be achieved through objective channels: observing peer companies’ price earnings ratio and getting information and data based on China Securities Regulatory Commission’s category on industries. Regional economic coefficient also proves useful, and such information could be found in National Development and Reform Commission’s database. We should also take factors like shipping cost, labor cost etc. into consideration and make conversion accordingly. The conversion rate of cost is usually around 1.2 to 0.7.

KIPO’s mode of standardizing information will affect traditional investment managers’ career path.

It’s accepted by the industry that bottom investment managers have loyalty to the company at all, let alone professional ethics. Generally, the boss will set up a performance index for the managers, which usually requires bottom managers get a certain number of projects. Additionally, it takes a long time for these managers to become partners. That’s why most partners in investment organizations are around 40 years old. All these factors contribute to the current situation where these managers are always switching sides.

Wang Xiaolei hopes to appeal to these bottom managers to joinKIPO and provide due diligence service. In his opinion, they are an essential force to help KIPO gather information and simplify the financing process. In an ideal state, financiers will be able to useKIPO to get listed and investment mangers will get commissions from providing their service on the platform.

At present, KIPO has over two thousand investors on the platform, most of which are from traditional private equity funds. Wang Xiaolei is planning the cooperate with Peking University HSBC Business School, Shanghai Jiaotong University and Tsinghua University’s PE school in hopes of involving talents within the PE circle. He’s positive about his project since if we add up all the finance companies in different regions that provide capital connection service, then we will have an audience of over tens of thousand.

[The article is published and edited with authorization from the author @Sun Cheng, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.