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Leap Alpha Venture Business Summary Page 1 of 50
CONFIDENTIAL BUSINESS SUMMARY
Exclusive Offering to Limited Partners
LEAP ALPHA Business Summary
Co-Investment Fund, LLC
Harnessing the potential in direct US-China Investments
LEAP ALPHA
December 2016
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Executive Summary .................................................................. 3
Investors .................................................................................... 9
Exit Channels and Chinese Acquirers .................................. 17
Strategic Partner .................................................................... 21
Target Companies .................................................................. 27
GP Partners ............................................................................. 33
Investment Committee ........................................................... 40
Market Opportunity and Comparative Advantage ............. 43
Revenue Projection ................................................................. 45
Leadership ............................................................................... 48
Timeframe ............................................................................... 50
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Executive Summary
Established in China, LEAP Alpha is a team of professionals specialized in cross-border
investments serving clients in both China and the United States. LEAP Alpha was created by Mr.
Jeffrey Sheng, who has more than 27 years of experience in operations, consulting, business
development and investments; both in Asia and the US. He is joined by a select group of
seasoned private equity professionals having the insight and knowledge of the attraction that US
middle market companies bring to Asian investors. They also have the expertise in sourcing and
managing attractive investment opportunities in the US middle market where our team can
capitalize on a company in transition and tap into unlocked potential in a strategic China angle
within the company for distribution and/or manufacturing.
LEAP team has strong connections to the investment communities in both China and the U.S.
Our first round commitment fund will be targeted at $500 million and plans to invest into 25-30
targeted private US mid-market companies. LEAP team is looking to form a Joint Venture with a
Strategic Partner while reserve the flexibility to cooperate in a Co-Invest relationship. This is an
innovative investment firm specialize in customized solutions for both Chinese and US investors
in alternative asset, targeting an IRR between 20% and 30%. We plan to raise our first committed
fund of $500 million with long term goal of ten billion US dollars AUM by 2030.
Highlights:
• Private Equity Seeder Strategy
• Operational Innovation
• Customized Family Office Services
• Multi Billion AUM
LEAP build the platform to support US financial service firms to approach Asia market and help
Chinese investors approach US market at the same time.
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LEAP team understands the deficiencies of cooperation between US asset managers and capital
outflow from China:
• Large amount of capital outflow from China not placed in attractive product and services,
Chinese HNWIs higher return requirement and more risk preference not satisfied
• Difficulty for US institutions to get into this community in short term without Joint
Venture model or intrapreneurship or invest in a new venture specializing in niche market
• Most institutions think with sell side mindset for short term cash flow; Reluctant to
modify existing strategies with customized product to make full use of long term trend of
capital inflow.
• Huge cultural, legal and business mentality differences in cross border M&A, private
equity asset allocation and what MFO/SFO means to China wealthy families and business
founders.
• Ineffective approaching clients by merely recruiting Chinese young professionals with
limited experiences in China but strong American mindset
Our strategy is to develop LEAP Alpha Franchises or Special Purposes Vehicles with US GP
Partners in the US to serve Chinese Investors. The SPVs are industry segment specific and
provide a diversified portfolio of investments for Chinese investors; given their increasing
demand of overseas asset diversification and cross-border mergers and acquisitions. Our first
round commitment fund will be targeted at $500 million and plans to invest into 25-30 targeted
private US mid-market companies. The fund will focus on target companies within one or more
of 4 highlighted sectors:
niche manufacturing
consumer products
technology-enabled business services
lifestyle services
The target companies will have EBITDA ranging from $5 million to $50 million. Leap Alpha
and our GPs will add operational value over time and assist our portfolio companies to grow
their EBITDA to $10 million to $100 million; thus making the companies very attractive
acquisition targets that can sell at high multiples. The primary objective is to provide capital for
U.S. companies who:
operate in high-growth service industries
possess advanced technologies
are leading brands, or unique products/services
have desire to expand their businesses in China
have the capacity to succeed in China’s vast markets
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The key elements in our strategy include but not limited to:
Emerging Chinese HNW populations and their increasing overseas asset allocations;
Increasing number of cross boarder acquisitions between China and United States;
First mover in a customized private equity product for Chinese investors;
Outperformance of emerging managers and seeder’s long term carry sharing
Client tailored sector focus, Chinese investors demand oriented;
Expansion business in Asia of US middle market companies;
Cross border strategic alliance or M&A;
Middle market, covering companies with EBITDA ranging from $5M to $50M;
Working with US a strategic investor and US GPs
Scalable business model;
In addition to managing and transforming initial target companies into sustainable and profitable
investments as traditional committed private equity fund do, Leap Alpha provides ongoing
value-added services to target companies, aiming at selling the majority of our portfolios to
Chinese acquirers (listed companies or pre-IPO companies in China) that statistically offer an
average of 36% higher valuation/bid than domestic acquirers in US.
Chinese acquirers are willing to pay for a higher price due to valuation differences between the
two countries. Expected PE ratio of 18X to 25X in S&P 500 and NASDAQ are much lower than
in Chinese stock markets, especially compared to 36X to 53X in Shenzhen Index and China
Growth Enterprise Index (highest 135X in China Growth Enterprise Index in 2015). After being
acquired by Chinese acquirers at a higher price, shareholders can have additional opportunities to
increase value through Chinese capital market growth. Given the volatility in stock markets in
China, the shareholders can choose to sell at a higher price if acquired by listed companies or
cash out their stake when non-public acquirers go public (IPO) in bull market. LEAP Alpha
collects demand information through its deep connections within the PE ecosystems on both
sides. It would also be possible for the target companies to IPO in domestic markets, if higher
valuation exists considering parent companies’ financial strength. Interests of all parties,
including but not limited to Investors, Target Companies, FOF, Family Offices, Acquirers, GP-
partners, and LEAP Alpha team, are well aligned in this business model. LEAP Alpha matches
the demand through innovative deal design, development, and structuring.
$$
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Currently, LEAP Alpha’ Services include but not limited to:
• Raise capital through Investors from China
• Introduce Chinese acquirers
• Form cooperation between US GPs and Chinese GPs
• Seed and support emerging managers in searching and transacting deals with China angle
• Identify the most suitable target U.S. businesses for acquisition, build synergies entering into Chinese market and facilitate the transactions
• Provide additional exit channels for existing portfolios
• Market Brand and track record in China for future fund raising
• Find acquirers (Chinese Asset Management Firms) to purchase the LEAP Alpha team
LEAP Alpha prepared this information solely for the person to whom it has been given for informational and discussion purposes only. The
information contained herein is strictly confidential and may not be reproduced, distributed, or communicated to any third party without the
express written approval of LEAP Alpha. LEAP Alpha reserves the right at any time to amend or change the contents of this document without
notice. The information contained herein shall not constitute an offer, solicitation or recommendation to sell or an offer to purchase any private
equity strategies, investment products or merger acquisition advisory services. LEAP Alpha believes that the research used in this provided
information is based on accurate sources, but we have not independently verified those sources, and we therefore do not guarantee their
accuracy.
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LEAP Alpha Structure
Chinese LPs
LEAP
Alpha
Platform
LEAP team and Chinese Market
US Strategic
Partner
US LPs
Chinese
Acquirers
US
GP Partners
Chinese Asset
Management Firm
Recruit Chinese LPs
Introduce Chinese Angle Investor Acquired by Chinese Asset Management Firm
Chinese Acquirers Connection
Recruit US LPs
Manage Headquarter Investments
Support US GP Partners Cooperate with US Strategic Investor
Chinese
Angle Investor
LEAP team and US Market
Headquarter
Investment
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Capital Flow Chart
Acquirers
LEAP
Alpha
Fund
Headquarter
Investment
Chinese Capital
Market
Target
Company
Chinese Asset
Managers
LPs
Acquirers
Target
Company
Chinese
Investors
Chinese
Acquirers
US
GP Partners
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Investors
The Firm is engaged in a highly competitive business, but we feel we are uniquely
positioned because we have strong personal and past business relationships with various
types of Chinese Investors and Acquirers that have an increasing demand of allocating
their assets to the U.S. There is strong overlap between investors and acquirers. These are
two core assets of the LEAP Alpha team.
Capital Source
LEAP Alpha will source the majority of capital from Chinese private equity investors. We would
also expect our GP Partners to raise 10%-15% of the $500 million commitment fund. LEAP
Alpha briefly divides investors into five categories, among which Investors Type 1, Investors
Type 2, and Investors Type 3 also have an overlap with our ultimate acquirers.
Type 1 Chinese Companies having income or assets globally
Companies under this category already have income or asset in US. These companies have
enterprise value ranges from $500 million to $30 billion, with an average investable capital
between $20 million to $100 million. A sample list of Type 1 Companies includes:
Wanda Group – Wanda Group’s cross-border M&As include US film studio Legend
Entertainment, AMC Theatres, Switzerland’s Infront Sports & Media, and World
Triathlon Corporation. It has also invested in landmark five-star hotels in international
metropolises including London, New York, Los Angeles, and Sydney. Wanda Group
plans to continue its transformation into a global sports, entertainment and tourism
conglomerate.
Legend Holdings – Best known for its 2005 acquisition of IBM’s ThinkPad division, the
firm had a big year in 2014 with two major acquisitions in the US: Motorola Mobility and
IBM’s x86 enterprise server division. In 2015, Legend Holdings and Kailis Family
formed a newly-capitalized joint venture called KB Food Group which is 90 per cent
owned by Legend Holdings and 10 per cent owned by the Kailis Family. In 2016,
WeWork raised $430 from Legend Holdings for China expansion.
Fosun International – Over the last two decades, Fosun has evolved from an
entrepreneurial start-up into a leading investment group taking roots in China with a
global foothold. From 2010 through 2015, Fosun has spent billions buying foreign firms
and says it is looking at healthcare, tourism, fashion firms and banks in the US and
Europe. These include France's Club Med, Britain's Thomas Cook Group, Canada's
Cirque du Soleil, American clothing label St John, and Greek jeweler Folli Follie.
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Tencent Holdings – Tencent has made prolific investments in developers of mobile
games, social games, VR and eSports. Ten of Tencent’s investments in gaming have had
exits – nine companies including Riot Games were acquired. Shenzhen-based iDreamSky
managed an exit through an IPO in 2014. Supercell’s acquisition is the largest acquisition
made by Tencent in gaming, eclipsing its acquisition of Riot Games in 2015. Four of
Tencent’s game acquisitions were made overseas – two in Europe, and two in the USA.
Huawei – Despite facing challenges in the US in its core telecommunications equipment
business, the firm continues to do exceptionally well around the world. The firm’s
consumer business has been booming overseas, and many of its new products were
featured at the 2015 Consumer Electronics Show in Las Vegas.
S.F. Express–China's FedEx, moved into Vietnam and Thailand and expanded services
to all 50 U.S. states. The company is partnering with U.S.-based online retailers to bring
more U.S. goods to Chinese consumers. Its’ enterprise value is expected to surpass Fedex
in two years and UPS in five years.
Eternal Asia – Eternal Asia Supply Chain Management Ltd. provides professional
supply chain service and management for Fortune 500 enterprises, and various national
and international enterprises. Its products and services include an integrated platform of
global supply chain service; a service network that covers various cities in China,
Southeast Asia, European Union, the United States, and other regions to provide
customers with regional linkage service nationwide, global procurement and sales,
international distribution, and delivery and other services.
Hepalink Pharmaceutical – In 2014, Hepalink Pharmaceutical completed 100%
acquisition of SPL. SPL became part of Hepalink’s global supply system
for heparin sodium active pharmaceutical ingredients (APIs). Last year, Shenzhen
Hepalink bought U.S.-based biologics contract manufacturer Cytovance Biologics for
$205.7 million. Earlier this year, the company created OncoVent with Canada’s
OncoQuest--a Chinese R&D firm--to explore new therapies and work on existing
immunotherapy products in a $9.3 million deal. In Jun 2016, Hepalink Pharmaceutical
plans to invest US$60 million in TPG Biotechnology Partners, that Hepalink has already
invested $ 22 million.
BYD–Top electric vehicle manufacturers in the world (#1 in terms of overall plug-in
car sales), recently broke ground on the second of three planned expansion/construction
phases at its vehicle manufacturing plant in Lancaster, California. BYD’s successful
oversea expansion and green automobile focus enable itself join Fortune 500 by 2017.
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Type 2 Institutional Investors in China
There is an increasing number of strategic overseas asset management divisions within
institutional Investors, including Independent Financial Advisory Firm, Investment Banking,
Commercial Bank Private Wealth Departments, Trust Companies, and Insurance Companies.
The average investable capital for this group of investors ranges from $10 million to $40 million.
LEAP Alpha has a strong connection with the Top 20 Independent Financial Advisory Firms and
Top 50 Investment Banks in China including NOAH Holdings, CreditEase, YinChuang Wealth,
Hang Tang Wealth, HAIYIN Wealth, Huatai Securities, Cinda Securities, and GF Securities etc.
Both Independent Financial Advisory Firms and Investment Banks are expanding foreign market
business and are interested in LEAP Alpha’s unique investment platform specialized in cross-
border merger and acquisitions.
Commercial Bank Private Wealth Departments, Trust Companies, and Insurance Companies
share a common interest of investing clients’ money overseas, especially in assets denominated
in US dollar. This enables LEAP Alpha to build a strong connection with these companies and
develop possible LP relationships.
Type 3 Entrepreneurs or Executives of Chinese listed companies
LEAP Alpha uses a tiered approach to reach investors of this category. We use the term “tier 1”
to refer to our personal connections with these entrepreneurs and senior executive members. The
population size and net worth of this group of investors have increased overtime and they are
targeting investments on a global scale. These investors include:
Entrepreneurs and senior executives of directly served clients that we have
provided financing services, M&A transactions, human resources, strategy, and
cross border business development in the past.
Entrepreneurs and senior executives of portfolio companies served by several funds that
we have worked with for a long time period
Entrepreneurs and senior executives from “sunset” industries with excessive capacity, for
instance, textile, clothing, real estate, mining, steel, and low-end manufacturing. They are
seeking investment opportunities in the “sunrise” industries both in China and overseas.
VC/PE fund managers and investors who have successfully exited. They are interested
in new investment opportunities.
Personal friends and network referrals
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We can call, visit, or meet people with this group without any introduction or referral. Average
assets of this group ranges from $5 million to more than $1 billion. Below we provide three lists
to showcase our tier 1 contacts. For the companies listed below, we personally know the
entrepreneurs and the senior executive team members. We have information about how much
equity stakes they hold in their companies and their overall net worth. We are also aware of the
growth history of the companies, for example, which VC/PE funds have invested how much at
what time stage.
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List 1: Past clients
Below is a partial list of private placement or co-investment, direct investment
deals that we facilitated in the past.
# Company Name Industry Investors Current Status
1 Eternal Asia (www.eascs.com, SZ002183), Shenzhen
Supply Chain, Logistics
SAIF, May 2006 IPO at Shenzhen in 2007, 10+ times of return to investors
2 Longhao (www.longhao.com.cn), Shenzhen. Garment,
Footwear
Hony Capital,
January 2008
The company was partly
acquired.
3 Edan Instrument (www.edan.com.cn,
SZ300206), Shenzhen.
Medical
Devices
Matrix, Softbank,
and WI Harper,
December 2007
The company went IPO
at Shenzhen in 2011.
4 Liancheng (www.lmc-ind.com), Shandong
province.
Auto Parts Hony Capital,
February 2008
Pre-IPO
5 Gross Tubes (www.gross-tubes.com), Energy CDH, September Pre-IPO
6
Zhejiang province.
Shenzhen Catic Wellness
Equipment
Gym Chain
2008
Dacheng Fund,
Pre-IPO
(www.physicalclub.com) Store 2008
7 Shenzhen Hepalink Pharmaceutical
(www.hepalink.com, SZ002399)
Pharmaceutical Goldman Sache,
November 2007.
IPO in 2010, 180 times
of return to investors
within 3 years.
8 Ocean Power Industrial
(www.oceanpower.com), Shenzhen.
Environment
Protection
Pre-IPO
9 Audi Toy and Aufei Culture, Guangzhou Toy design and animation
IPO in 2010
10 SonoScape (www.sonoscape.com), Shenzhen. Ultrasound
diagnostic
systems and
transducers
China
International
Capital
Corporation
(CICC), 2011
Pre-IPO
11 Aisidi (www.aisidi.com, SZ002416),
Shenzhen.
Mobile Phone
Wholesale
The company went IPO
at Shenzhen in 2010.
12 Universal Marble & Granite Group
(www.umgg.biz), Dongguan, Guangdong
province
Decorative
Stone
Manufacturing
China
International Trust
and Investment
Pre-IPO
13 Capital International Business Centre (www.wybgs.com), Shenzhen.
Serviced offices Sequoia Capital, Trust Bridge
Pre IPO
14 Wanda Group (www.wanda.cn), the largest
commercial real estate group company of
China, headquartered in Dalian.
Commercial
real estate
Several private
equity funds
Dalian Wanda
Commercial Properties
went IPO at HongKong
in 2014.
15 TopOne Auto (www.top1.cn), Shenzhen. Car rental SIG Secondary transaction
16
Shanghai KNX (www.knx.com.cn), Shanghai.
Human
resources
OFC, Everbright
Pre-IPO
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List 2: Top 500 Private Enterprises in China
All-China Federation of Industry and Commerce (ACFIC) recently unveiled China Top
500 Private Enterprises in 2015.
Rank Company Name Industry Location
2 华为投资控股有限公司
Huawei
www.huawei.com
7 大连万达集团股份有限公司
Wanda Group
www.wanda.cn
Telecommunications
electronics
Real estate, hotel, leisure,
entertainment, sports
Guangdong
Liaoning
10 万科企业股份有限公司 China Vanke Co. Ltd.
www.vanke.com
15 TCL 集团股份有限公司 TCL Corporation
www.tcl.com
36 比亚迪股份有限公司 BYD Company
www.byd.cn
42 上海复星高科技(集团)有限公
司 Fosun Group
www.fosun.com
Real estate Guangdong
Consumer electronics Guangdong
Automotive Guangdong
Asset management Shanghai
58 深圳市爱施德股份有限公司
www.aisidi.com
Communications device
wholesale
Guangdong
81 九州通医药集团股份有限公司
www.jztey.com
133 浙江龙盛控股有限公司
www.longsheng.com
Medical wholesale Hubei
Chemical Zhejiang
174 中经汇通有限责任公司
www.zjhtc.com
business service, consumer
service
Guangdong
190 卧龙控股集团有限公司
www.wolong.com
213 万丰奥特控股有限公司
www.wfjt.com
361 浙江亚厦装饰股份有限公司
www.chinayasha.com
482 浙江古纤道新材料股份有限公司
www.guxiandao.com
Electrical equipment Zhejiang
Automotive parts Zhejiang
Construction and decoration Zhejiang
Chemical fiber Zhejiang
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List 3: Top 100 Shenzhen Enterprises
Shenzhen Enterprise Confederation and Shenzhen Enterprise Association published the list
of top 100 enterprises of 2015. The full list of companies is available at:
http://www.shenzhenql.com/pbbz/2015/201510/2015101619165780pls_1.html.
The table below shows 12 companies as our tier 1 contacts (Not all companies have English
names, and there are a few duplicates as in List 2).
Rank Company Name Industry
1 中国平安保险(集团)股份有限公司
www.pingan.com
2 华为技术有限公司
www.huawei.com
3 招商银行股份有限公司
www.cmbchina.com
4 万科企业股份有限公司
www.vanke.com
5 腾讯控股有限公司
www.tencent.com
23 国信证券股份有限公司
www.guosen.com.cn
32 普联技术有限公司
www.tp-link.com.cn
36 深圳市兆驰股份有限公司
www.szmtc.com.cn
44 深圳市怡亚通供应链股份有限公司
www.eascs.com
57 深圳市建工集团股份有限公司
www.szjgjt.com.cn
80 深圳劲嘉彩印集团股份有限公司
www.jinjia.com
90 深圳市海普瑞药业股份有限公司
www.hepalink.com
Insurance, financial services
Telcommunications
electronics
Commercial bank
Real estate
Internet
Security services
Communications equipment
Consumer electronics
Supply chain management
Construction and equipment
Packaging service
Medical
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Type 4 High Net-Worth Individuals
China now has the most billionaires globally despite the country's economic slowdown, stock
market plunge and crackdown on corruption. According to a China-based wealth research firm,
the Hurun Report said China now has 568 billionaires versus the United States' 535; giving it the
largest population of billionaires in the world.
The population size of “China Ultra High Net Worth” market is estimated to be 17,000, with an
average net worth of 1.82 billion (CNY), or USD 293 million. LEAP Alpha has close
connections with thousands of HNWIs who have accumulated wealth in stock or real estate
investments. They have successfully exited and are seeking new investment opportunities,
particularly overseas. LEAP Alpha can get in touch through previous networks of about 200
VC/PE fund managers in China, each of them having access to Chinese HNWIs. Through their
referral, we can get in touch with more Chinese HNWIs, at the scale of another several
thousands.
Type 5 US and International LPs
Besides abundant resources in China, LEAP Alpha has also been actively approaching US co-
investors. We have built a connection with more than 300 entities in US, including: Private
Equity Funds, Private Debt Funds, FOF, Secondary Funds, Investment Banks with Principal
Investment, Hedge Funds with Private Capital Strategies, Alternative Asset Firms, Wealth
Management Firms, Private Banking, Family Offices, Trust Company, Listed Private Equity
Fund.
LEAP Alpha will reserve right to approach other investors. Clearly, LEAP Alpha’s strong
connections in both China and US are large strategic assets. The private information is highly
confidential and sensitive in nature, and it is not easily available. We will be happy to share such
information when it comes to specific discussions.
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Exit Channels and Chinese Acquirers
By integrating various participating parties, LEAP Alpha could add significant value in the
cross border acquisitions. The most valuable assets of the LEAP Alpha team is its’
connection with Chinese Acquirers. By fully leveraging these resources, LEAP Alpha
brings additional exit channels to portfolio companies.
LEAP Alpha will invest 25-30 target companies in the first round funding. Within these target
companies, LEAP Alpha plans to find acquirers including Chinese listed companies, Chinese
pre-IPO private companies, US companies or go public in US market.
Each investor has its own exit timeframe, cost basis and return objectives. LEAP Alpha’s
strategy is unique in the marketplace by involving Chinese Investors and providing additional
exit channels. In most cases, the exit channels for a U.S. fund are largely restricted to the U.S.
Stock Markets, domestic buyout funds, or acquisition by large U.S. companies. LEAP Alpha’s
connections could bring exit channels including Chinese Stock Markets, Chinese private buyout
funds, and Chinese Corporations; some of which overlap with Investors in Type 1, Type 2 and
Type 3. By providing additional exit channels, LEAP Alpha better aligns shareholders’ benefits.
Early monetization allows sellers to lock-in gains, return cash to limited partners and reallocate
resources.
Another reason LEAP Alpha focuses on Chinese acquirers is that Chinese acquirers on average
bid a 36% higher premium than domestic buyers based on our research. Expected PE ratio of
18X to 25X in S&P 500 and NASDAQ indices is much lower than in the Chinese stock market
(compared to 36X to 53X in Shenzhen Index and China Growth Enterprise Index). Because of
this valuation difference between China and US, Chinese corporations are willing to pay a higher
price and get a bigger return from the Chinese stock markets. However, LEAP Alpha reserves
the right to sell to US and global acquirers given higher bids.
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LEAP Alpha divides Chinese acquirers into the following categories:
Category 1:
Sales and Distribution Channel
In January 2016 Havells Sylvania was acquired by Shanghai Feilo Acoustics Co. Ltd. and
formed Feilo Sylvania of which they own 80%. The deal puts the equity value of Havells
Sylvania at $204.6 million. Being an entrepreneurial and market driven organization, Shanghai
Feilo’s aggressive growth plans will become a reality by acquiring Havells Sylvania’s strong and
broad sales and distribution networks and a well-established operational system across the
regions.
Category 2:
Technologies and Innovations
Shuanghui International Holdings Ltd. agreed to pay $34 a share for Smithfield, the world's
largest hog farmer and pork processor. Including debt, the deal values the Smithfield, Va.,
company at $7.1 billion. American pork farming is a consolidated modern industry with
economies of scale. Eighty-seven percent of the pork sold in the U.S. is produced on big pig
farms with more than 2,000 hogs. Such farms are climate-controlled and self-contained to
minimize the spread of disease. By contrast, the Chinese pork industry is fragmented, small-scale,
and low-tech. Seventy percent of the pork in China is produced by pig farms with 500 hogs or
less. Thanks to this acquisition, Shuanghui also acquired valuable hog-farming and processing
technology.
Category 3:
Forward Acquisition
Luxury tour operator Abercrombie & Kent has entered into a deal to be acquired by Chinese
tourism developer and investment group Zhonghong Holdings. People from the Chinese
mainland spent $215 billion traveling abroad in 2015, 53 percent more than in 2014. Annual
double-digit growth of Chinese visitors can be expected. U.S. has become most favorable
country Chinese visitors and Chinese visitors have become vital to the U.S. tourism industry
since China has become the fourth-largest source of inbound tourism to the U.S. With huge
tourism resources by Zhonghong Holdings, this forward acquisition would open a new door for
its expansion in U.S. market.
Category 4:
Backward Acquisition
Aviation Industry Corp. of China, known as AVIC, has agreed to buy Henniges for about $800
million including debt. AVIC’s ambition to grow bigger in the auto-parts market is driven by its’
desire to own a greater piece of the global supply chain in industries where its consumers are big
buyers. China is the world’s largest market for sales of automobiles.
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Category 5:
Rivalry Acquisition
Global ride-hailing giant Uber Technologies Inc. has given up its costly battle for China’s riders,
swapping its local operations there for a minority stake in the country’s homegrown champion,
Didi Chuxing Technology Co. The sale, which would create a new company worth about $35
billion, would end the battle. The merge enables Didi eliminate the biggest rivalry in China ride-
hailing market. After the merger, Uber shareholders would receive a 20 percent stake in the new
company, which will result huge benefit after this new company go public.
Category 6:
Brand Acquisition
Anbang purchased New York’s Waldorf Astoria from Hilton Worldwide Holdings in 2014 for
$1.95 billion, one of the highest prices per room ever paid for a U.S. hotel. Anbang Insurance
Group has agreed "to restore the property to its historic grandeur" and will allow Hilton to
manage the property for the next 100 years. By reserving the 83-year old Waldorf Astoria’s
world-class standards brand’s for generations, Anbang is rushing to take the next bite and
purchase more U.S. hospitality properties. This acquisition provides Anbang both stable return
and strong brand. Given the strong performance in the past, the group intends to realize long-
term stable investment return by investing in high quality real properties in North America.
Going forward it will increase the share of overseas assets in asset allocation, taking Europe and
North America as priority areas.
Category 7:
Management and Experiences
China’s largest entertainment group Dalian Wanda Group, controlled by billionaire real-estate
developer Wang Jianlin, agreed to buy AMC Entertainment Holdings Inc. for $2.6 billion
including debt, expanding into the U.S. to create the world’s biggest cinema owner. As part of
the deal, Wanda plans to invest as much as an additional $500 million in AMC, which the U.S.
chain can use to update its cinemas' technological innovations and reduce debt. As the second
largest theater chain in the U.S. and Canada, AMC could bring Wanda widely-recognized
management and experiences in theater chain. This will enhance Wanda’s theater in Chinese
market, which is expected to surpass U.S. in 2018 and become the largest movie market.
Category 8:
Industrial Transform
Wanda has reached an agreement to acquire 100% of the World Triathlon Corporation (WTC)
for$650 million. This acquisition will bring a top international competition to China for the first
time and marks a key milestone in the development of China's sports industry. As Wanda is
transforming to conglomerates composed of real estate, finance, and entertainment and sport, this
acquisition completes the formation of a comprehensive sports business for Wanda. Wanda has
built a full industry value chain that includes event organizing, athlete representation, event
marketing and rebroadcasting, which will greatly enhance Wanda's influence on the global sports
stage and accelerate Wanda's strategic advancement in the industry.
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Category 9:
Non-listed company (pre-IPO)
In past decade, most of deals between US and China are bid by Chinese listed companies using
cash. With the rapid growth of private companies, we will see more and more US companies
acquired by Chinese private companies. This could results huge benefit for target companies. As
the shareholder of the private acquirers, target companies could cash out when the acquirers go
public, which brings additional source of profit.
Category 10:
Listed Company (China or Hong Kong)
Currently China Securities Regulatory Commission (CSRC) does not allow stock deal in cross
border acquisitions. This is the reason all of the transactions made by cash. However,
considering the development and reform of Chinese capital market, stock deals can be expected.
When the target companies become the shareholder of the acquirer under the stock deal, they
could choose to sell at a higher price given the much volatile market in China. By doing so,
besides higher premium paid by Chinese acquirers, target companies shareholders would have
opportunity to maximize profit from capital market.
Since 2005 to 2015, there have been 144 M&A transactions between China and US with an
average deal size of $695 million. After the Chinese government announced its Go Global policy
in 2012, encouraging Chinese companies to invest overseas, there has been a rush into cross-
broader acquisitions between China and the U.S. Working together with GP Partners in the US
we could build exit channels in both the US and China, ensuring we get the highest bid from
either market and achieve a much higher return for our investors. Effective exits of portfolio
companies will enable us to more efficiently raise our second round fund, with a target size of
one billion.
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Strategic Partner
LEAP Alpha is looking for one or two strategic partners to form a joint venture. We realize that
the inefficiency of Chinese investors allocating asset overseas, according to current horizontal
capital flow. Therefore, we created a customized platform and product set exclusively for
Chinese investors. Compared to the traditional asset allocation model as is the case in most
developed countries, we integrate our resources and initiate this ecosystem based on our
understanding of Chinese investors.
Traditional Asset Allocation
Chinese
Investors
GPs
Multi Family
Office Fund of Funds
Secondary
Fund
Portfolio
Companies
Business Development and
Investor Relations
Fund Placement
Agent
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Leap Alpha Venture Business Summary Page 22 of 50
LEAP Alpha Platform
Traditional vs. LEAP Alpha
Compared to traditional model, LEAP Alpha largely saves time and cost to approach Chinese
investors according to the following reasons:
We think the current method for multi-family offices, fund of funds, alternative asset
management firms, and private equity firms is very inefficient There are two or three levels in
between the ultimate money managers and the original investors. It usually takes three to six
months for each level to get the committed fund assigned and establish the proper relationship.
Therefore, one can expect approximately two years for the ultimate GP to reach the investable
capital, (assuming each level could successfully raise the capital).
In each level of fund placement, there is a business development and investor relations
department, which indicates a large amount of inefficient resources. Furthermore, at each level
the money manager charges a consulting fee or management fee; leading to duplicative double
fees or sometimes even triple fees to investors. Our team will accomplish all of these functions
with only one level of interface. By cutting all these intermediaries, LEAP Alpha largely saves
investors’ money. This is the main reason why so many potential Chinese investors are interested
in our business model.
Strategic Partner
(MFO/AAM/FOF)
Portfolio
Companies
GPs
Chinese
Investors
Leap Alpha
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Leap Alpha Venture Business Summary Page 23 of 50
Chinese investors have much higher expected rate of return expectations and risk aversion
compared to US investors. By introducing Chinese expansion angles to our portfolio companies
and potential exit strategies to Chinese acquirers, we could meet the Chinese investors’
expectations for both overseas asset allocation and higher rates of return.
A mid teen rate of return is necessary for maintain the long term capital since average PE or HF
in China could generate an annual return of 30%. Our target IRR is more than 20% and this is
totally achievable by combining:
• Middle market;
• Selected sectors;
• Early stage growth potential;
• Asia market expansion;
• Exit channel development;
• Chinese GP cooperation;
• Emerging manager with superior return;
• Seeder’s long term carry sharing;
In summary, by creating this new platform, LEAP Alpha saves time and cost, and provides a
customized product to Chinese investors that can meet their demand of both oversea asset
allocation and high rate of return.
Strategic Partner
LEAP Alpha
Chinese GPs
LEAP
Chinese
Acquirers
Chinese LPs
Chinese Asset
Management
Co-Invest
Co-Transact
Co-Manage
Seeded Emerging Manager A, B, C…
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Leap Alpha Venture Business Summary Page 24 of 50
Our ideal Strategic Partner may fall into one of the following categories:
Private Equity Firm
Emerging Manager Fund
Fund of Funds
Multi Family Office
Alternative Asset Management Firm
Secondary Fund
Private Debt Fund
Fund Placement Agency
Hedge Fund with PE arm
Investment Bank with M&A Advisory
LEAP Alpha can contribute more value than a typical placement agent relationship and provide a
strategic angle for a dedicated secondary fund relationship.
One of the most valuable assets we bring to this platform is by integrating our connections with
Chinese Asset Management Firms and Chinese GPs, who could contribute in capital, deals, and
other resources:
Bring additional capital as a co-investor
Refer their existing clients interested in oversea asset allocation
Introduce ongoing financing or strategic investors from China
Serve as a secondary fund, purchase existing portfolios
Acquire US seeded managers in corresponding sector
Share other resources in China, eg joint venture partners, potential acquirers, government
relations, sales distribution channels, etc
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Successful examples include Life Sciences Fund as the joint venture between GF Securities and
Bay City Capital, Silverfern Group co-invest with Fosun in Club Med, Acquiline Capital sold
AssetMark to Huatai Securities etc
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Leap Alpha Venture Business Summary Page 26 of 50
What We Add Value to Strategic Partners:
A committed fund of $500 to the joint venture by the end of 2017
Long term benefits through the growth of business, expected AUM of ten billion by 2030
Generate Asia alpha through Asia market expansion, ongoing financing, cooperation with
Chinese strategic partners, or acquisition opportunity to Chinese acquirers
Higher return resulting from seeding emerging managers in deals with China angle
Share management fees and carry from other sector may not have access to
Introduce Chinese LPs interested in existed or upcoming strategies
Attract US and global LPs interested in PE Seeder Strategy
Partnership with Chinese GPs in the same sector, bringing more capital and resources
Brand recognition as the first US customized solution provider for Chinese clients
Cash out of either LEAP Alpha or seeded managers to Chinese asset management firms
Others upon request
What We Add Value to Strategic Partners:
Assign business development or transaction professionals to work together understand
China clients' multiple demands and build China Angle deal search and transaction
support team
Develop new multiple strategies for higher return for clients to make sure we could
attract and retain capital in long term in private equity and private wealth management
Identify emerging managers that have strong motivation to originate deals with China
angles
Develop other deals sources channels with China angles, among current or even past
portfolios
Evaluate companies with interest or plan to expand to Asia, with or without capital needs,
to make good companies good deals and good deals good transactions
Prepare fund raising PPM by June
Form the investment committee and advisory board
Build team with effective compensation plan
Register JV with agreed equity share, streamline Leap Alpha's structure and process
Provide operational capital
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Leap Alpha Venture Business Summary Page 27 of 50
Target Companies
Classification
LEAP Alpha focuses on companies within sectors and of sizes attractive to Chinese acquirers.
This is basically an investment demand driven process. Therefore, we focus on industries
including but not limited to:
Niche manufacturing
Consumer product
Technology-enable business service
Life style services, including media & entertainment, travel, education, etc
Chinese acquirers are looking for companies that can provide at least one of the following:
Sales and distribution channel
Supply chain
Technologies and innovations
Recognized Brand
Management Experiences
Major player in the industry that acquirer is transforming
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Leap Alpha Venture Business Summary Page 28 of 50
When evaluating investment targets, we divide target companies into two categories:
EBITDA value and Current status regarding overseas expansion
LEAP Alpha is looking for companies with EBITDA ranging from $5 million to $15 million,
$15 million to $25 million, or $25 million to$50 million respectively. After four to six years
emerging market expansion and operational improvement, target companies’ EBITDA is
expected to grow to $10 million to $100 million. For overseas expansion, these target companies
should also have at least one of the following:
expand business in China/Asia
find JV partners, supplier, clients, service provider, distribution channels in China/Asia
raise next round capital from Chinese investors
be acquired by Chinese listed companies in 3-5 years
seek other value that we and China investors/partners could bring to them upon their
demand, for their revenue or profit growth or financial return as well as strategic purpose
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By these criteria, we classified investment targets into four different groups.
Green Target
This is our primary target with EBITDA ranges from $15 million to $50 million and having a
clear plan to enter into Chinese markets or interested in being acquired by Chinese investors.
Most Chinese acquirers would be interested in these target companies.
Blue Target
This is our secondary target with lower EBITDA ranges from $5 million to $15 million and
having a clear plan to enter into Chinese markets or interested in being acquired by Chinese
investors. Considering our GP Partners’ expertise and reputation in middle market, we are
willing to invest majority stakes in two to three companies under this category.
Yellow Target
If the target companies already have strong demand to expand into Chinese markets and satisfy
our acquirers’ requirements, we will consider investing. We could provide exit channels and
connect target companies with suitable acquirers.
Red Target
If the firms have EBITDA lower than $5 million or have no interest in overseas expansion/being
acquired by Chinese investors, we would consider these companies in having difficulty in
attracting growth capital. LEAP Alpha will not invest in companies within this category.
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Leap Alpha Venture Business Summary Page 30 of 50
Green Target
We will to invest eight to ten companies within this category. With EBITDA ranges from $15
million to $50 million and Enterprise Value ranges from $ 25 million to $ 200 million, we plan
to take an equity stake of five percent to twenty percent. Chinese team members would take
more initiative in searching and evaluating investment targets. We rely on GP Partners’ deal flow
connection, due diligence experience and post investment management (including operational
improvement, legal, accounting, compliance, etc.). Chinese team will take the main
responsibility to find suitable acquirers for exits.
Projected revenues are two percent management fee annually and twenty percent carried interest.
Blue Target
We will heavily rely on GP Partners’ strength and plan to invest in two to three companies
within this category. Given the controlling stake we will have, it will be easier for us to bring
target companies into Chinese market.
Projected revenues are two percent management fee annually and twenty percent carried interest.
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Yellow Target
This category mainly provides advisory business activity. We can find suitable targets being
acquired instantly and earn advisory commission/fees during the process. These target companies
are from different sources including GP Partners’ existing portfolio, investment banks, FOFs,
family offices, and other personal connections.
Projected revenue is commission fee.
Synergies
Besides organic growth by operational improvement, LEAP Alpha provides additional strong
growth potential by bringing an opportunity to enter into a large and growing Chinese market.
Considering LEAP Alpha stake in target companies, we would also help target companies to be
acquired by Chinese acquirers. Our contributions to target companies include but not limited to:
Get used to and have a better understanding of Chinese mindset
Open a rep office or subsidiary in China
Find JV partners, supplier, clients, service provider, distribution channels
Build connections with local government
Seek highest bidding buyers in China given shared common goals
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An example of how the stock market reacted when Netflix announced its Chinese Plan
Challenges
Our biggest challenges include not being able to find suitable investment targets to Chinese
Investors/Acquirers and not being able to convince target companies to enter into Chinese
market.
It will be imperative that our GP partners understand the need for proper due diligence in finding
suitable co-investments where the China angle is clear and can be executed upon.
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GP Partners
LEAP Alpha is looking for partners that have strong connections of deal flow in lower middle
market, core middle market and up middle markets respectively; targeting North America
companies with EBITDA ranging from $5 million to $50 million in four sectors including:
niche manufacturing
consumer product
technology-enable business service
life style services
GP Partners would also play a critical role in due diligence, operation management, and other
investment operations. GP Partners evaluation and selection is a dynamic process throughout the
whole business cycle.
There are dozens of Private Equity firms that have expressed interest in the LEAP Alpha
business plan and have engaged in in-depth conversations with LEAP Alpha senior team
members. LEAP Alpha team will select four to six GP Partners to serve in this capacity. There
will be a separate GP support group to:
help GP Partners better work with us and follow our mindset about our investment
strategy and value to portfolio companies
conduct extensive and intensive research about what kinds of American business would
be attractive to Chinese acquirers
assess and improve these target companies' China business plan and help them to find
right partners in China
GP Partners’ potential benefits include but not limited to:
Additional capital source from Chinese investors
Higher rate of return by selling to Chinese acquirers
Exit channels to existing or referred portfolios, commission fee expected
A strategic partner in LEAP Alpha that has plans to grow to an expected 10
Billion AUM, much higher management fee and carried interest*
Additional brand recognition in Asia by cooperating with LEAP Alpha, possibly
attracting more Chinese LPs for their funds
Attract more US and other international institutional LPs by their higher return
than typical North America PE firms
Cash out by selling shares to an asset management firm in China
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Comparison of GP Partners
LEAP Alpha provides different cooperation forms of co-invest, co-transaction, co-manage and
seeded fund with our GP Partners, based on the ability of them to bring target companies being
acquired by Chinese acquirers.
Seeded Fund:
As the lead investor, we could take shares/equity of the emerging manager thus not only get
benefit from their possible higher rate of return compared to established firm. Those shares
enable us to share the long term profits from them.
Co-Manage GP:
Co-Manage Partners are responsible for deal flow sourcing, due diligence, transaction, post-
invest management, exit, etc. It can be a side fund affiliate to Co-Manage Partner or within Co-
Manage Partner’s next round fund.
Co-Transact GP:
According to the increasing number of attractive target companies LEAP Alpha team source, we
would not have sufficient time and investment professional to engage into every single company
we have interests. Co-Transaction Partners help us in the investment operations. The main
difference between Co-Manage Partner and Co-Transaction Partner is that Co-Manage Partner is
responsible for deal sourcing and exit channel development while Co-Transaction Partner only
participate in the investment transaction. Co-Transaction can be Private Equity, Investment
Banking, Management Consulting, etc.
Co-Invest GP:
Co-Invest Partner reserves the flexibility in its original deal focus and investment criteria. If
there is an investment target that Co-Invest Partner deliver to LEAP Alpha and approved by
LEAP Alpha Investment Committee having Chinese angle, we will co-invest with Co-Invest
Partner on a deal basis. However, LEAP Alpha team might not be able to add more value by
introducing Chinese exit channel to our Co-Invest Partners, thus losing the potential opportunity
of higher rate of return. Meanwhile, LEAP Alpha team reserves the right of exit channel
opportunities in addition to Chinese acquirers.
The form of cooperation is one of the most important factors that will affect percentage of
carried interest sharing between GP Partners and LEAP Alpha team. Different forms of
cooperation could be changed given both parties’ agreement at the beginning of each fund.
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Weak Strong
Co-Investment Seeded-Fund Co-Transaction Co-Manager
Partnership Types
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Seeded Fund
LEAP Alpha design this product and built the platform in order to attract more and more seeded
emerging managers in the long run and take advantage of the booming cross border acquisition
between China and US. However, we understand it takes time for us to find enough seeded
emerging managers. LEAP has a plan to short term and long term GP Partners cooperation.
Short Term Plan of GP Partner Cooperation
Long Term Plan of GP Partner Cooperation
Co-
Manage
LEAP Co-
Invest
Co-
Transaction
Co-
Invest
Co-
Manage
Co-
Transaction
Seeded
Funds
LEAP
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Leap Alpha Venture Business Summary Page 37 of 50
They could be emerging managers, established managers, pledge fund or investment bank,
private debt fund, or secondary fund especially direct secondary. LEAP could support them to
build such skill sets and enter into Asia market, as long as they would originate deals with China
angles.
Values LEAP could bring to US Emerging Managers:
• up to half amount of fund leading commitment, we would bring 50M-100M to each fund;
• deal (with China angles) search and transaction support;
• Asia market development or multiple exit channels in Asia for higher return 20+% IRR;
• partner with China GPs in same sectors, resulting more cross border M&A opportunities;
LEAP is launching the PE seeder strategy, in which our investors could benefit from co-
investment, secondary, and cross border M&A opportunities that Chinese acquirers provide
quick liquidity with potential alpha return. High rate of return result from Asia alpha and
seeder’s long term carry sharing also makes our strategy differentiated and attractive. LEAP will
seed emerging managers, in selected sectors including consumer product, life style services,
technology enabled services and niche manufacturing, to ensure a sustainable and scalable
business growth.
Seeder Strategy mitigates the risk that some managers may not find enough deals with China
angles. It takes time for most of managers to develop new skillset in identifying deals with China
angles, to make sure those prospective portfolios could be acquired by Chinese listed companies
with significant premium due to the synergy between them and the much higher P/E ratio in
Chinese stock market. More and more China Operation of US business service companies would
be sold to Chinese counterparts or competitors if they can’t achieve their goal in Chinese market.
US companies could be shareholders of Chinese listed or pre IPO companies through such
transactions, thus sharing much higher return from Chinese stock market than continuing their
China operation. Uber China’s merge with DiDi is a good case. Service companies from US may
have some difficulties to beat local players in China, especially those supported by major private
equity firms, so M&A could be a good exit. Such strategy with China angles or dynamics may
take time for most of PE firms in States to take due to different market landscape or traditional
practice in developed countries or matured market. We expect Emerging Managers could be
more flexible, innovative, entrepreneurial and hard working to meet the huge demand of Chinese
investors’ interest in M&A or global business expansion in a few sectors, by actively learn how
to souring or originate deals for Chinese investors. It’s the core of our business
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PE seeder strategy will enable us solve two problems at the same time:
Sufficient deal flow origination, for our fund II, targeting 1 billion or even more capital to
be invested out to more than 50 target companies within two years
Higher return by combing Asia alpha and seeder’s long term carry sharing
With hundreds of emerging managers come into the market every year, we could ensure
sufficient deal flows when the fund size grows multi billion. The seeded fund could be emerging
managers, established managers, pledge fund or investment bank, private debt fund, or secondary
fund especially direct secondary. Emerging managers tend to perform better across asset classes,
with similar or less risk than larger, established firms.
We believe the seeder strategy, that provides a 20% plus IRR, is necessary to attract and
maintain the long term capital from China (competitive PE or HF in China could generate an
annual return of more than 30%). Being able to invest out more and more capital within a
specified time could also be effectively solved by seeding emerging managers. Therefore we
could build up a scalable business.
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Innovation:
Many emerging managers rise from established firms. When they branch out on their own,
talented managers take legacy information and experience with them while also taking advantage
of the entrepreneurship and benefits inherent in being emerging managers.
By partnering with emerging managers, LEAP Alpha creates diversified, risk-adjusted portfolios
while providing expert access to undiscovered investment talent and tomorrow’s stars.
Emerging managers tend to perform better across asset classes, with similar or less risk than
larger, established firms. By seeding emerging managers with our investors, we could:
find more high-motivated managers sourcing the deals we are expecting
have a higher rate of return compared to investing in matured fund managers
generate a scalable business for our ongoing expansion client base
Most current emerging manager seeders in the market provide 15% to 20% of the committed
fund. LEAP could introduce maximum 50% of the fund. Not to mention other intangible assets
including Asia market expansion and exit channel development for their portfolios, as well as
strategic partnering with fund mangers for Asia/China. These will give us a bigger bargain power
with emerging managers and maximize our LP’s rate of return.
Cooperation with GP Partners is a dynamic process. We will continuously evaluate the deal flow
origination ability of our GP Partners. LEAP Alpha reserves the right to introduce new GP
Partners, maintain existing GP Partners, and cease cooperation in the following rounds of fund.
LEAP Alpha also provides forms of co-invest and co-manage with our GP Partners, based on the
ability of them to bring target companies being acquired by Chinese acquirers. This is one of the
most important factors that will affect percentage of carried interest sharing between GP Partners
and the LEAP Alpha team.
The four to six partners could be very flexible in their types as long as they would source deals
being interested to Chinese acquirers and work together with LEAP to implement overseas
expansion. GP partnerships could be a pledged fund or a committed fund team, principal
investment team in an investment bank, private debt fund, mezzanine fund, direct investment
team in family offices, listed private equity fund, FOF, secondary fund, alternative asset firm, or
private market group.
The rest of this page is intentionally left blank for further illustration of specific partner(s).
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Leap Alpha Venture Business Summary Page 40 of 50
Investment Committee
The primary purposes of the Investment Committee of the Board of Directors of LEAP Alpha
are to assist the leadership team in:
1. reviewing LEAP’s investment policies and strategies
2. reviewing performance and valuations
3. overseeing LEAP’s capital and financial resources
No investments on behalf of LEAP Alpha Co-Investment Fund, LLC will be made without the
Investment Committee’s explicit approval. LEAP Alpha will assign a member in each GP
Partners’ Investment Committee as well. This senior member from LEAP Alpha has the right to
vote on important matters. Investments will be made only by approval by both LEAP’s
Investment Committee and GP Partners’ Investment Committee.
The Investment Committee will have the main responsibility to identify appropriate investment
targets that fulfil our targeted attributes.
LEAP IC
GP IC GP IC GP IC GP IC
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Investment Committee Goals and Responsibilities
In order to carry out its mission and function, Investment Committee has the authority to perform
the following:
Oversea Investment policies, strategies, transactions and program of LEAP Alpha and
GP Partners;
Review Investment policies, strategies, transactions and program of LEAP Alpha and
GP Partners to ensure they are consistent with goals and objectives of LEAP Alpha;
Evaluate and approve or disapprove each proposed Investment on behalf of LEAP
Alpha;
Determine whether applicable Investment policies are consistently followed and that
procedures are in place to ensure that LEAP Alpha and GP Partners portfolios are
managed in compliance with LEAP Alpha policies;
Review the performance of the Investment portfolios of LEAP Alpha or GP Partners;
Approve LEAP Alpha Investment policies and guidelines, periodically review and
make any necessary changes to policies and report such changes to Board;
Report Investment Committee’s actions and recommendations to the Board at
regularly scheduled Board meeting following any meeting of Investment Committee;
Perform any other activities of the Board deems necessary.
Investment Committee Membership
LEAP Alpha will implement and install Investment Committee members from both China and
US to better execute investment policies in serving Chinese investors and acquirers. There will
be seven permanent members in Investment Committees:
Chief Investment Officer
two Board Members
representative from Strategic Partner
investment professional from US private equity firm that has abundant experience in due
diligence in mid-market companies
Investment professional from China that has a solid track record of cross border
acquisition between China and US
lawyer
Members of Investment Committee will serve until their resignation, death or removal from the
Board or until their successor are appointed.
Meetings
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Leap Alpha Venture Business Summary Page 42 of 50
Meetings of Investment Committee will be held as often as the Committee determines is
appropriate to carry out its responsibilities. The Chief Investment Officer, in consultation with
other Committee members, will determine the frequency and length of the meetings and will set
agendas consistent with policies. Minutes will be prepared and filled with the minutes of the
Board and Investment Committee will report to the Board the results of its meetings. The
minutes contain the following information: the agenda of the session, the number of the session,
the date of the session, present and absent members and decisions rendered on certain issues.
Minutes and supporting documentations of Investment Committee meetings shall be kept as
permanent and confidential. Chief Investment Officers from GP Partners reserve the right to
attend LEAP Alpha Investment Committee meetings while do not have voting rights.
Voting Rules
As a rule, the Investment Committee renders decision at sessions. The presence of five of the
seven members that serve on the Investment Committee shall be necessary to establish a meeting.
All members of the Investment Committee must express their viewpoints in order for any
decision to be rendered. Decisions are made by majority vote of members of Investment
Committee. No Investment on behalf of the Company will be made without Investment
Committee’s approval. The Investment Committee must discuss any proposal and render a
decision within a reasonable time.
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Market Opportunity and Comparative Advantage
Market Opportunity
According to the Rhodium Group, in 2006, China did 39 deals worth $195 million in the United
States. By 2015, that had mushroomed to 171 deals worth $15.3 billion. Since 2005, Chinese
investments have been concentrated in New York, California, Virginia, and Texas. For first half
of 2016, Chinese companies invested $18.4 billion in the U.S., more than triple the amount
invested in the first half of 2015. This increase was largely driven by private sector acquisitions –
there were more than 55 completed deals - in services, technology and consumer-oriented assets
as well as green-field projects in real estate and manufacturing. The largest Chinese acquisition
so far this year was Haier’s $5.6 billion acquisition of General Electric’s appliance division.
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The ongoing overhaul of China's growth model, lower political barriers for outbound investment,
and greater confidence by Chinese businesses to invest overseas will propel an outflow of
hundreds of billions of dollars from China in the coming decades. LEAP Alpha foresees the
increasing trend of cross boarder acquisition especially between China and US within the next
few decades. In mandarin, LEAP Alpha believes in taking advantage of tail wind (顺势而为) to
integrate resources in this industry, thus better serving Chinese investors.
Chinese investors have a strong desire to allocate or purchase assets overseas. Entrepreneurs and
senior executives want to acquire U.S. companies with advanced technologies and leading
brands to support the growth of their enterprises. However, most of them are still facing the
challenge of an unfamiliar environment, legal system, financial markets, investment product, and
foreign language.
LEAP team is designing this platform to satisfy the following demands:
• Chinese listed companies have a strong desire to acquire companies in US or Europe,
mostly for strategic development purpose;
• Chinese GPs plan to invest in US companies in their specialized sectors, generating
synergies by facilitating the cooperating with their portfolio companies or other
established resources in China;
• Chinese asset management firms are eager to create/acquire a cross culture and cross
border platform to expand their private equity businesses in US market more efficiently
and productively;
• Chinese individual and institutional investors have strong interest to allocate their assets
oversea, primarily in US
Competitive Advantage
LEAP’s core competence is its direct approach to cross-border investors/acquirers, most of
whom are board members or controlling shareholders of listed companies in China. By providing
good investment options for Chinese investors, even larger networking can be expected. LEAP
Alpha has set up an innovative investment platform, providing customized investments for
Chinese Investors. This platform can be extended to many different areas.
We believe all parties' interests are well aligned in this investment model. We could work
together to make those companies more powerful and more profitable by leveraging the Asian
market.
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Revenue Projection
Management Fee
LEAP Alpha will raise a committed co-investment private equity fund with a target size of $500
million. Management fees from investors/LPs would be 2.5% of fund size ($ 500 million) each
year. Within the co-investment structure, approximately $100 million will be managed directly
by the LEAP Alpha team and approximately $400 million co-managed with selected GP Partners.
LEAP Alpha expects $12.5 million in management fees annually. A portion of that annual
management fee may go to selected GPs in Co-GP arrangements. We target an investment period
of three to four years for LEAP Alpha to fully commit the raised $500 million to invest in 25 to
30 target portfolio companies.
Once the first co-investment fund is fully committed, LEAP then plans to raise LEAP Alpha Co-
Investment Fund II, with a target size of $1 billion. Management fees would increase
correspondingly, which is expected to be 25 million in the next three years.
Carried Interest
LEAP-managed fund
We target the IRR of this allocation to be a minimum of 25%, the fund life will be 5+1 years,
therefore in ~6 years; the $100 million allocation will grow to a projected $ 380 million
(representing a 3.8x return). After deducting three years management fees of $7.5 million, the
fund's retained profit will climb to $272.5 million. With a 20% carry interest to the fund manager,
this LEAP-managed fund earns $54.5 million of carried interest based on our role/contribution of
shares in this fund management company.
LEAP Co-managed fund
We target the IRR of this fund to be a minimum of 25%, the fund life will be 5+1 years,
therefore in ~6 years; the $400 million will grow to a projected $1.52 billion (representing a 3.8x
return). After deducting three years management fees of $30 million, the fund's retained profit
will climb to $1.09 billion. With a 20% carry interest to fund manager, this LEAP co-managed
fund earns $218 million based on our role/contribution of shares in this fund management
company. LEAP team will split 40% of the carry interest of the co-managed fund, which is $87.2
million. The total first fund carried interest for the LEAP team is $142 million.
LEAP intends to split carried interest with its GP Partners. The percentage splits varies. LEAP
takes 30% to 60% of the co-managed fund carried interests while GP Partners take 40% to 70%.
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The factors that affect percentage of split include:
Selling price/rate of return
EBITDA improvement
Exit efficiency
Deal flow resources
Ability to execute overseas expansion
Commission fee
Each year we could assist China acquirers (which are not our LPs) by closing an acquisition of a
US private company which is not in our portfolio. For such a transaction, LEAP Alpha would be
paid an advisory commission. LEAP Alpha charges a commission fee for facilitating the M&A
transactions on an average commission rate of 5%; depending on the size of transactions and our
connection with targets/acquirers. Usually such transactions have a minimum size of $200
million.
Placement fee
LEAP Alpha can assist our GP Partners raise capital for their funds from Chinese investors each
year with a minimum size of $100 million. LEAP would charge a 2% placement fee for role.
Cash Out
LEAP Alpha is actively approaching Chinese Asset Management Firms, with AUM ranging
from $ 20 billion to $100 billion US dollars. It is possible for the LEAP Alpha team to become
the overseas private equity arm of an asset manager from China and shareholders could cash out
during the process, maximizing our shareholders’ return.
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Leadership
Jeffrey Sheng, Founder & CEO – China/US
Our 6 to10-person team is leading by Mr. Jeffrey Sheng, who has more than 27 years’
experiences in operation, consulting, business developing and investment both in Asia and States.
Mr. Jeffrey Sheng is a pioneer of private equity, venture capital, and investment banking in
China. He founded LEAP Alpha Venture Resources, an investment and advisory service firm, to
help Chinese entrepreneurs with business financing needs. The majority of the corporate
involved has gone IPO successfully or been acquired by other firms.
Prior to LEAP Alpha, Jeffrey worked at IDG VC. Jeffrey successfully invested in Tencent (HK
0700) in 2000, and its market valuation increased over 100 times within five years when it went
IPO. It is one of his five investments within IDG VC before he started up his own business as a
deal originating and deal making specialist. He has also had more successful deals since, such as
one in 2006 with Eternal Asia (SZ 002183), a supply chain management service company, which
brought investors over ten times return within four years (more deals details refer to List 1: Past
clients).
Jeffrey has extensive and intensive relationship with top PE firms and their portfolios in the
world and is active in facilitating any possible cooperation among them. He also works with
government officers and banks in different levels very effectively. He is regarded as a good
strategist in business model and commercial resources integration by most of his partners in PE
firms, ventures, banks and security firms, as well as government. He has published 16 books on
financial service and entrepreneurship in China. Many of them are adopted by top MBA
programs in China as textbooks. He presents lectures for many entrepreneurs, investment
professionals, government officers and MBA students in China.
Ted Kanarek, Managing Partner – US
LEAP is directed in the US by Ted Kanarek, who brings 20+ years of experience in the asset
management marketplace. Ted was formerly a managing direct at Citi Capital Advisors
overseeing business development for their hedge fund, private equity and infrastructure and real
asset strategies. Ted also had senior roles with Allianz Global Investors, GE Asset Management
and various pension consulting firms. Ted has recently worked with single and multi-family
offices in looking at direct private investing in US lower mid-market companies and assisting
them in souring the opportunities and then setting up the operational team to manage the
investments on their behalf. Ted received his BS in Biology and Mathematics and an MBA in
Finance from Seton Hall University.
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Steven Zhou, Manager – China/US
Steven Zhou is the Business Development Manager and Investment Consultant at LEAP Alpha.
He is a contributing member mainly responsible for developing and designing customized
product for Chinese investors, building team members, specifying target companies attractive to
Chinese investors and acquirers, and connecting partnership financial institutions in both US and
China. Prior to LEAP, Mr. Zhou served as Head of Research at Boston College Endowment and
Summer Equity Research at East Coast Asset Management. Mr. Zhou started his career in China
at Cinda Securities and KPMG, where he accumulated dozens of Institutional Investors and
HNWIs connections. He has a MBA/MSF dual degree from Boston College and passed all three
levels of CFA.
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Timeframe
Strategic Investor
LEAP plans to find a strategic investor to partner with us, as a
targeted 10-30% shareholder. We are talking with a handful of firms
that have plans to launch customized co-investment funds in 2018
and we think the LEAP Co-investment fund is a strategic fit for them.
We are looking for brand recognition, strong research due diligence,
human resources, custody, audit, legal and compliance capabilities.
GP Partners Search
GP Partners are skilled at finding attractive investment opportunities
and generating strong deal flow. This deal flow comes from a
network built from working in particular industries that are attractive
to Chinese investors. We plan to find ~10 investment targets that
satisfy our requirements by the end of first quarter 2017 and then
continue with our due diligence throughout the fund cycle
Angle Investor
LEAP Venture is speaking with Angle Investors from either China or
the US to raise one million as a seed investor. We are willing to
share a percentage of the business based on our valuation. Angle
Investors have an access to first round carried interest, estimated to
be more than $140 million.
Deal Flow Sources
Along with our GP Partners, there are other channels that will
generate appropriate investment opportunities for our investors.
LEAP plans to source 20 potential deals by our team, GP Partners,
single and multi-family offices, investment banking, consulting firms,
and other sources by Q2/Q3 2017.
Capital Raise
LEAP plans to finish raising capital for the first co-investment fund
by 2017. Target size of the commitment fund is $500 million. LEAP
team members will keep updating Investors’ preferences and
summarize demand accordingly. The minimum equity capital of
single investor would be $5 million.
Strategic Partner
GP Partners
Angle Investor
Deal Flow Source
Capital Raise