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On China's venture capital exit mechanism

Author: TangFanYa From: www.yourpaper.net Posted: 2010-06-02 22:09:35 Read:
Paper Keywords: venture capital exit mechanism IPO mergers and acquisitions
Abstract: This article aims through the introduction of venture capital exit mechanism as well as today's China venture capital exit mechanism for the status quo with the United States compared to come to the crux of the problem? Put forward a sound capital market, the government functions and investment institutions in three areas for improvement? This Improvement of China's venture capital exit mechanism.
A venture capital exit mechanism Overview
Venture capital exit mechanism? Risk investment institutions in the investment risk enterprise development is relatively mature or can not continue the healthy development of the case? Invested capital from the equity form into capital form? Realized capital gains or to avoid and reduce property loss mechanism? supporting institutional arrangements. Risk insurance investment is the nature of the pursuit of high returns? Such return can not be like a traditional investment mainly from investment accounts? But instead relies on the "inputs - recycling - and then put into the continuous cycle value added. Investors only clear to see that the export of capital movement? Funds will be put at risk enterprises. ? A smooth exit mechanism is the key to expand the venture capital sources? This from the source to ensure the sound operation of the circulation of capital. It can be said? Exit mechanism for venture capital circulating the central link. Venture capital exit following forms??? IPO. Refers to the risk investors through venture company shares publicly traded? Owned by private equity capital is converted into common equity capital? Changed hands in the trading market to obtain a recognized way to achieve capital appreciation. The?? Mergers and acquisitions. Including merger (Merger and acquisition (Acquisition)? When the risk enterprise development to a mature stage? Risk enterprise risk investment institutions packed into a project? Sold to strategic investors? To investment quit? Risk-benefit.?? repurchase repurchase risk management of the enterprise or employees in cash, notes and other securities repurchase shares outstanding venture company? making venture capital companies to withdraw from the risk behavior.?? liquidation is dissolution or bankruptcy due to poor management and other reasons? then clean up and dispose of their property, debt, debt? risk investments have quit.
Analysis of Sino-US venture capital exit mechanism
U.S. venture capital exit mechanism for the development of the status quo.
In 1998, the number of mergers and acquisitions of U.S. venture enterprises reached 202? $ 7.9 billion to raise money? Public offering the same period was only 75? Funds raised $ 3.8 billion. Number of risks mergers and acquisitions in 2001 to reach 305? Nearly 10 times higher than the number of IPO. By the second board market in the United States in recent years due to the IPO? Mergers and acquisitions and exit in the entire venture capital exit the proportion is growing. The following table can be more intuitive reaction to U.S. venture capital exit?

China venture capital exit mechanism for the status quo.
From the following table of data can be seen compared to the U.S. venture capital has experienced 50 years of wind and rain? Risk Investment only 20 years of history? Although the rapid development? Exit mechanism for venture capital in China compared to the United States, there are still some gaps ?

Source? Songqi? "China Venture Capital Development Report 2004"? Economic Management Press? 2004
Venture Investment in China out of the way? Listed proportion of 15%? Mainly due to the underdevelopment of the domestic market led to the high proportion of overseas listed? This makes some excellent enterprises in China's domestic voluntary long-term free outside? Is not conducive to the national venture capital long-term development. The proportion of mergers and acquisitions in all out of the way is relatively high? 37? 4% as of 2003 the cumulative number? 2003 new exit? The acquisition ratio reached 40? 4%? Take visible the acquisition to withdraw from the project The proportion is increasing year by year? most of which is the territory of a non-listed or acquisition of natural persons? mainly due to the limited legal person shares trading? mergers and acquisitions by cash rather than equity swap? which increases the difficulty of the transaction. Single out of the way it makes compared to the international high proportion of repurchase and management buyouts.
Three of China's venture capital exit mechanism.
Lack of exit is reasonably necessary to market and institutional arrangements. The motherboard market threshold is too high? Difficult to form the main exit channels for venture capital. General risk enterprises will be difficult to only Ventures in China generally smaller? Taking into account the pressure of the return on short-term funds and diversified holding a risk reduction requirements? Unlikely to be the vast majority of money into a venture company? rely on venture capital to achieve the requirements listed on the Main Board. China's current over-the-counter market is mainly concentrated in the provinces, municipalities and property rights trading center? Resulting in high transaction costs? Transaction process is a long one? Easy to miss the best time to exit? Property rights trading kind of non-securitization transactions accounted for a very large proportion? Does not allow non-listed companies trading? regulatory backward. The lack of effective market intermediary service system. Of the lack of venture capital exit intermediaries providing special services? Existing intermediaries mixed fish heads? Practitioners good and bad? Unsatisfactory quality of service. Even more worrying is that some of the professional ethics weak? Which increased the exit process of information search costs, negotiation costs and operating costs? Reduce the efficiency of market transactions? Also increases the potential moral hazard of exit process.
Single risk capital exit. More popular with the international exit, such as publicly traded on the sale of the business, share repurchases, liquidation of the company compared to? Risk capital exit China due to various limitations and constraints? Can actually use very little. In the United States, for example? Because of its relatively perfect market? Making it into mergers and acquisitions mainly in the case of securities markets dominated by the IPO? While China's market environment due to the more restrictive, the strength of domestic venture company limited mergers and acquisitions can not become completely dominant. And in this way has no clear legal status can only take over-the-counter transfer agreement? Legal person shares can not be in circulation?? And more in cash transactions? This greatly reduces the capital gains of the venture capital company? While increasing transfer difficult.
Third, China's venture capital exit mechanism proposed
Build a multi-level capital market system.
China's venture capital exit mechanism is a multi-channel, multi-level trading system. Be considered from two perspectives of the long-term goals and short-term task? Establish and improve the trading system focus of the work consists of two: first? Improve China's securities market? Gradual establishment of China's second board market or GEM? Venture capital IPO out of the way to create the conditions. Although China recently established GEM conditions are not met? Departure from the long-term goal to support the development of the venture capital industry? Imperative to establish the GEM market in China. Fact? Our country was founded second board market conditions are ripe.
First, the successful experience of the United States, Hong Kong and other places for reference; second is the establishment of China's SME board and running smoothly? Being accumulated some useful experience; At present, China is actively promoting the reform of the split share. The completion of this reform to lay a solid foundation for the establishment of the GEM market. Second? Establish and improve the multi-level capital market system? The flexible exit mechanism for venture capital to create the conditions. In Western countries? Venture capital exit mechanism is a multi-channel, multi-level, flexible trading system?? Backdoor listing in addition to IPO, equity transfer (sale), mergers, acquisitions, corporate buybacks, management buyouts, liquidation, etc.? also commonly used in venture capital exit channels. But? Diversification of venture capital exit mechanism based on a multi-level capital market system. China's capital market development in the relatively short history? Multi-layer capital market system there are still many problems to be solved? Establish and improve China's multi-level capital market system the main work includes: First, to selectively create several regional securities trading center . The second pilot venture capital companies trading in the shares in the share transfer agent system. The third is to improve the construction of China's property rights trading center? Provide more convenient conditions for the circulation of shares of venture capital firms.
Increase government support for venture capital.
Government support is a common practice of the venture capital industry in the development of the world? It will create a good atmosphere for the whole community development venture capital? Favors the formation of a sound risk investment mechanism of a country. The current focus of our government to support the development of the venture capital industry should strive to create a favorable policy institutional environment. Many countries or regions around the world have developed a range of financial and tax incentives to encourage the development of venture capital industry? Learn from foreign experience? Our country should also be in the original policy based on? Taxation, credit, guarantees, government subsidies? Increase policy support for venture capital. In the process of venture capital operations? Involve more complex social and economic relations? Necessary to establish and improve relevant laws and regulations venture capital? Provide legal protection for the normal operation of venture capital. View of the status quo of China's venture capital regulations seriously lagging behind? Recent developments in China venture capital industry focus of the work should be placed on the establishment of laws and policies on the support system of the venture capital industry. First, as soon as possible by enacting "risk investment law" venture capital fund "the core of the venture capital industry regulations; combined with the needs of the development of venture investment? Amendments to improve the" Company Law "Partnership Enterprise Law", "Patent Law" small and medium-sized Enterprise Promotion Law "and other relevant laws and regulations; combined with the" Interim Measures for the Administration of Venture Capital Enterprises? develop a complete set of implementing rules and specific management practices.
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