Jul 16, 2012 06:28 PM

Closer Look: The Conflict between Investors and Entrepreneurs


Yan Yan, of private equity firm SAIF Partners

(Beijing) – The turmoil at NVC Lighting has become a hot topic among Chinese netizens. It also started a spat between a domestic entrepreneur and investors such as Yan Yan, a partner at private equity firm SAIF.

The debates on the Internet reflect a trend that as Chinese companies come of age, they face a learning curve regarding working with investors.

Liu Qiangdong, chief executive officer of China's leading e-retailer, 360Buy, questioned Yan's integrity on his miroblog and said he despised Yan. Yan fought back, saying everything he has done has been consistent with the law.

It is rarely seen scenario: resentment between an investor and the founder of firm receiving funds entering the spotlight.

Successful marriages between capital and entrepreneurs are all alike: a company goes public and billionaires are created.

But unhappy partnerships exist as well. Entrepreneurs can violate market rules by fabricating contracts and falsifying accounts to cheat investors. And investors hide unfair legal terms to deceive startup owners.

It has been a decade since private equity firms emerged in China. As the Chinese economy has slowed, conflicts have exploded during the process of economic transformation and it's predictable that provisions, mostly protecting investors, are likely to be triggered.

Investors put profits as their top priority. When they face problems, the first thing that comes to mind is the security of the investment. Entrepreneurs have come to realize that if something bad happens, contracts say that companies, not the investors, pay the price.

But the investors should not gain the upper hand just because they have capital. The sound development of the company has always been the foundation of making a profit for private equity firms.

Being good investors, they can offer not only capital, expertise and strategic planning, but also equal relationships. This can avoid conflicts and earn entrepreneurs' appreciation.

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