Venture Capital Guiding Fund for Technologybased SMEs

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

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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

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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
Million RMB
IPO
Lack of VC investment In early stage
3rd Round
35-45
ProfitgtRMB30m
25-35
2nd Round
Breakeven,Profitable
10-15
Most VC funds invest in mature stage
1st Round
Revenue
Seed
3-5
Prototype
Establishment
2
3
4
5
6
Yrs
7
8
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
Foreign VC
6
Government
Others
16
13
SOE
Individual
17
5
Bank
8
Listed
company
LLC
4
31
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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
  RD but weak in management, sales marketing,
  fundraising etc.

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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

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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

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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

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Strategy of VC Guiding Fund

• Candidate category of VC Guiding Fund
• VC firms
• VC management firms
• Incubators with investment skills
• Potential deal flow

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Strategy of VC Guiding Fund

• Four ways of VC Guiding Fund
• Fund of funds lt25, 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

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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

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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

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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

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Thank You!