What are the forms of corporate venture capital firms

Corporate venture capital institutions and limited partnership venture capital institutions are two different forms of organization. Corporate venture capital organizations operate soundly, but the constraints and incentives are not sound, not conducive to the cultivation of the investor class, and there are double tax obligations. In contrast, limited partnership VCIs have a flexible and efficient mechanism, which is conducive to fostering an investor class, enjoying tax incentives and having a sound incentive and constraint mechanism. However, the limited partnership system also has shortcomings such as high capital risk and short duration. For developing countries like China, the establishment of limited partnership venture capital institutions requires more preparatory work.

1. Corporate Venture Capital Institutions

Corporate Venture Capital Institutions (VCIs) are a form of venture capital investment in which the contributor initiates the establishment of a limited liability company (LLC) or a joint-stock company (JSC), and the contributor, as a shareholder of the company, shares in the profits of the company through the commercial operation of the company's organization. Corporate venture capital organizations have a large capital scale, sound and transparent operation, low operational risk and safe capital.

The defects of the corporate system are manifested in the following aspects:

(1) Inadequate constraints and incentives, high agency costs and low operational efficiency. Corporate system has a board of directors, shareholders' meeting, supervisory board tripartite **** with the guarantee of the company's safe and sound operation, so the operation tends to avoid risk, looking for those who are less risky and can produce positive cash flow of the project investment, which is contrary to the original intention of venture capital, because the risk of venture capital investment recognizes the risk of the project, investing in the high risk of high-yield, generally invested in small and medium-sized high-tech enterprises, which are not able to produce positive cash flow in a long time. are not able to generate positive cash flow, and the potential risk is huge. Insufficient incentives in the corporate system, the interests of employees and the company's interests are not closely articulated, coupled with information asymmetry caused by a variety of agency risks, making the corporate system of venture capital institutions operating efficiency is relatively low.

(2) Not conducive to the cultivation of the investor class. Venture capital is a professional investment behavior, which requires investors to have knowledge of finance, science and technology, law and other aspects as well as keen insight and rich investment experience. At present, China is in great need of such professional investors, while the corporate system is an institutional decision-making mechanism, and there is no good incentive mechanism, not conducive to the cultivation of venture capitalists.

(3) Double tax obligations. Since the company is a legal entity, the shareholders and the company have to pay double income tax on the company's profits, which is undoubtedly unfavorable for encouraging more capital to intervene in the field of venture capital.

2. Limited Partnership Venture Capital Institutions

Limited partnership is the main body of venture capital in the United States. It has played a pivotal role in the economic and technological development of the United States in recent years. Whether it is government-supported venture capital or venture capital operated by independent market entities, limited partnership has become the main form of organization for the development of venture capital. The limited partnership is generally initiated by the venture capital organization, as a general partner, absorbing other contributors such as enterprises, social insurance funds, insurance funds, banks, private investors, as a limited partner, the same as shareholders of the company, only limited liability.

Limited partnership is the most suitable form of organization for venture capital, which overcomes the above defects of the corporate system with the following advantages:

(1) Flexible mechanism and high efficiency. Limited partnership does not need a special board of directors, shareholders' meeting, supervisory board of such constraints, its operating organization is composed of general partners, limited partners are only responsible for capital contribution, while the general partners are composed of professional venture capitalists, the number of people without fixed restrictions, but much less than the corporate system, so that the decision-making is very rapid, very high efficiency.

(2) It is conducive to the cultivation of a class of venture capitalists.

(3) Tax benefits. The limited partnership is not an independent taxable entity, and only the contributors pay income tax on the earnings of the partnership. This avoids double tax liability.

(4) The biggest advantage of limited partnership is its perfect incentive and restraint mechanism. Limited partnership realizes incentives and constraints through the setting of capital contribution, management, risk and return, and assumption of responsibility, which makes the agency cost reduced to the lowest point. The general partner is fully responsible for the use, operation and management of the capital, and can withdraw a management fee equivalent to about 3% of the total capital from the annual operating income, and can share about 20% of the income when the project is successful and the income is multiplied. General partners bear unlimited liability for participating in the management, while limited partners bear limited liability only to the extent of their capital contribution without participating in the management. This liability setup precisely solves the various agency costs and risks arising from the information asymmetry between funders and asset managers, and makes the interests of both funders and fund managers effectively protected. In addition, the general partner is often a professional venture capitalist with rich experience, and its good reputation makes it raise funds to partner with other limited partners. Once his investment operation fails and the risk investment capital loses a lot of money, he may not be able to raise enough money for investment. Therefore, this mechanism perfectly solves the contradiction between funders and managers, which is more conducive to the operation of venture capital and the cultivation of venture capitalist class.

Limited partnership also has certain defects, its capital risk is relatively large, the existence of a relatively short period of time, often and specific investment projects **** exist. Need to specialize in venture capital and have certain assets and credibility of venture capital talent, for China such as the capital market is not sound, the lack of investment talent in developing countries, the establishment of limited partnership venture capital body needs more software preparation.

The operation mode and investment strategy of a corporate venture capital firm refers to how this type of firm conducts its business operations and makes investment decisions. This type of firm is usually managed by a professional investment team that will look for potential investment opportunities by gathering market information, conducting due diligence and risk assessment. In terms of investment decision-making, corporate venture capital firms will select investment projects according to their own investment strategies and risk preferences, and conduct capital allocation and post-investment management. In terms of operation mode, corporate VC firms usually work with entrepreneurs to provide capital, resources and strategic guidance to help them realize business growth and value enhancement. In addition, corporate VC firms actively manage their investment portfolios and develop risk control and exit strategies to maximize investment returns. In short, the operating model and investment strategy of a corporate venture capital firm is based on professional investment capabilities and market insights, with the aim of identifying and investing in innovative companies that have the potential to achieve ****same growth and success.

Legal basis:

The Law of the People's Republic of China*** and the State of China on Securities Investment Funds (as amended in 2015):

Chapter XII Fund Industry Associations Article 111 Fund Industry Associations shall perform the following duties: (1) educating and organizing members to comply with the laws and administrative regulations relating to securities investment, and safeguarding the lawful rights and interests of the investors; (2) safeguarding the members' (b) safeguard the legitimate rights and interests of members in accordance with the law and reflect the suggestions and requirements of members; (c) formulate and implement industry self-discipline rules, supervise and inspect the practice of members and their practitioners, and take disciplinary actions in accordance with the provisions for violation of the self-discipline rules and the Articles of Association; (d) formulate industry practice standards and business norms, and organize the practice examination, qualification management and business training of fund practitioners; (e) provide member services, organize industry (v) providing member services, organizing industry exchanges, promoting industry innovation, and carrying out industry publicity and investor education activities; (vi) mediating fund business disputes between members and between members and clients; (vii) handling registration and filing of non-publicly solicited funds in accordance with the law; and (viii) other duties stipulated in the association's constitution.