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Venture Capital Guiding Fund for Technology-based SMEs

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  • 1. Venture Capital Guiding Fund for Technology-based SMEs Li Wenlei Administration Center of Innovation Fund for Technology-based SMEs Ministry of Science and Technology, P.R. China July 3, 2008
  • 2. Outline
    • Background of VC Guiding Fund
    • Objectives of VC Guiding Fund
    • Strategy of VC Guiding Fund
    • Operation of VC Guiding Fund
    • Current Achievement & Next Plan
  • 3. Background of VC Guiding Fund 1. No. of VC investment organizations in China increased significantly in 21 century
  • 4. Background of VC Guiding Fund 2. The amount of VC investment in China also increased significantly in 2007 RMB
  • 5. Background of VC Guiding Fund 3. No. & amount of VC investment in technology based companies occupy about 60% among the total no. & amount of VC investment in China
  • 6. Background of VC Guiding Fund 4. Lack of VC investment in early stage of tech-based SMEs due to high risk and high uncertainty Establishment 2 3 4 5 6 Yrs 1st Round 2nd Round 3rd Round IPO Seed 7 Million RMB 3-5 10-15 25-35 35-45 Prototype Revenue Breakeven,Profitable Profit>RMB30m 8 Most VC funds invest in mature stage Lack of VC investment In early stage
  • 7. Background of VC Guiding Fund 5. Government and state-owned VC investment is still the largest source of VC, the portion of private VC is insufficient compared with mature foreign VC market LLC 31% Bank 8% Individual 5% Others 13% SOE 17% Listed company 4% Government 16% Foreign VC 6%
  • 8. Background of VC Guiding Fund
    • 6. The development of tech-based SMEs in China
    • Over the past 20 years, tech-based SMEs in China contributed 65% of patents, 75% of technology innovations and 80% of new products.
    • Lack of capital is the biggest bottleneck for the growth of tech-based SMEs.
    • Most founders of tech-based SMEs are strong in R&D but weak in management, sales & marketing, fundraising etc.
  • 9. Objectives of VC Guiding Fund
    • To ease up the bottleneck of fundraising of tech-based SMEs by encouraging earlier-stage VC investment.
    • To attract private capital flowing into VC by profit sharing policy
    • To develop tech-based founders on entrepreneurship by post-investment management
    • To foster professional early-stage investment and management team
  • 10. Strategy of VC Guiding Fund
    • Innovation of Government Financing
      • Indirect investment: leverage the methodology of VC and guide the investment of multiple private capital sources
      • Equity investment vs grants
      • VC experts appraisal vs technology experts appraisal
  • 11. Strategy of VC Guiding Fund
    • Target on Demand of tech-based SMEs
      • Focus on earlier-stage tech-based SMEs
      • Leverage more equity investment
      • Bring more added value through VC experts to foster professional early-stage investment and management team
  • 12. Strategy of VC Guiding Fund
    • Candidate category of VC Guiding Fund
      • VC firms
      • VC management firms
      • Incubators with investment skills
      • Potential deal flow
  • 13. Strategy of VC Guiding Fund
    • Four ways of VC Guiding Fund
      • Fund of funds: <=25%, with condition, sharing profit principle
      • Parallel investment: max. of 3M RMB, 50% profit as reward to VC
      • Subsidy to VC: 5% of investment amount with max. of 5M RMB
      • Pre & Post-investment subsidy: max. of 3M RMB
  • 14. Operation of VC Guiding Fund
    • Interim Measures on Administration of Venture Capital Guiding Fund for Tech-based SMEs (Caiqi 2007 128#) was promulgated by Ministry of Finance and Ministry of Science and Technology (MOST), effective as of July, 2007
    • Fund source comes from central financial budget annually
  • 15. Operation of VC Guiding Fund
    • Ministry of Finance and MOST are co-in charge of decision making
    • Investment Advisory Committee provides expertise in VC investment
    • Administration Center of Innovation Fund is responsible for daily operation
    • Local governments recommend qualified VC firms
  • 16. Current Achievements and next plan
    • 95 qualified VC firms applied for VC guiding fund in 2007
    • 50 VC firms got guiding fund subsidy , with amount of 71M
    • 52 early-stage tech-based SMEs got Pre-investment subsidy with amount of 29M
    • On-going allocation of subsidy to VC and Pre & Post investment subsidy
    • Pilot the fund of funds and parallel investment
  • 17. Thank You!

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