What is the current situation of investment decision-making of enterprises in China?

The Present Situation and Challenges of Venture Capital in China

Venture capital is the booster of high-tech development and one of the key elements of the sustainable development of national economy, with the characteristics of high investment, high risk and high return. China has developed venture capital for 20 years, but it is still in its infancy compared with developed countries abroad. There are many problems such as small total venture capital, single source of funds, poor capital withdrawal mechanism, imperfect relevant legal system and lack of professional talents. Through the analysis of the present situation of venture capital development in China, this paper expounds the problems and challenges existing in the development of venture capital industry in China, and puts forward some suggestions on developing the venture capital system in China.

Keywords: venture capital; Current situation; challenge

I. Overview of Venture Capital

1. The characteristics of venture capital

Venture capital is an investment method in which specialized personnel and institutions provide long-term equity financing and value-added services to newly established or rapidly growing unlisted emerging enterprises with great potential and risks, so as to cultivate the rapid growth of enterprises, and then withdraw from investment through listing, merger or other equity transfer several years later to obtain high investment returns. Typical venture capital usually has the following basic characteristics:

(1) The investment targets are mostly small and medium-sized enterprises in the initial stage, mostly high-tech enterprises.

(2) The investment period is at least 3-5 years, and the investment method is generally equity investment, which usually accounts for 65,438+00%-49% of the equity of the invested enterprise, and it is not required to obtain the controlling stake or any guarantee or mortgage.

(3) Investment decision-making is based on high specialization and procedure.

(4) Venture capitalists generally do not participate in the operation and management of invested enterprises, but provide value-added services; In addition to seed financing, it generally meets the financing needs of the invested enterprises in the future development stage.

(5) Because the purpose of investment is to pursue excess returns, when the invested enterprise adds value, investors will withdraw their capital through listing IPO, mergers and acquisitions or other equity transfer methods to realize value-added.

(6) The risk is extremely high, and the possibility of investment failure is about 70% on average, but once it is successful, it will get excess returns.

2. Classification and function

There are many standards for the classification of venture capital types. According to the investment mode, it can be divided into "leveraged" venture capital and "equity" venture capital, and the latter is the investment mode usually adopted in the world. According to the different development stages of the invested enterprises, venture capital can be divided into seed capital, import capital, development capital and venture capital.

The basic function of venture capital is to provide equity capital necessary for small and medium-sized enterprises to start and develop. The basic operation mechanism of venture capital is that venture capital is incorporated into venture capital by venture capital companies and invested in carefully selected venture enterprises or projects, so as to cultivate the development and growth of venture enterprises and realize normal market operation, and then diversify investment to find new projects. It can be seen that venture capital mainly has several functions, such as capital amplifier, risk regulator and business incubator.

3. The operation of venture capital

Venture capital mainly includes project evaluation and selection, negotiation and signing of investment agreement, cultivation of venture enterprises and realization of investment income.

(1) project evaluation and selection. The management ability of entrepreneurs (teams), the uniqueness of products or technologies and the market scale of products constitute the main components of the decision-making evaluation index system. On this basis, the "three laws" of venture capital decision-making are obtained:

First Law: Never choose more than two risky projects.

Second law: V=P×S×E

Among them, V represents the total evaluation value, P represents the market size of the product, S represents the uniqueness of the product, service or technology, and E represents the quality of the management team (entrepreneur).

The third law: invest in the project with the largest P value.

(2) Negotiate and sign an investment agreement. What the venture enterprises care about is to have enough funds to meet the operation of the enterprise and ensure the profit target and the management right of the enterprise. The two sides determine the share of venture capital by predicting the future profits of venture enterprises, and finally form a comprehensive and detailed venture capital agreement such as project equity distribution, investment amount and gambling terms.

(3) Cultivate venture enterprises. After the signing of the agreement, the venture capital company keeps close contact with the venture enterprise, and generally monitors the enterprise through management reports, regular visits to the enterprise, and being a member of the board of directors of the enterprise, so as to find and solve problems. Generally speaking, venture capital companies will also provide value-added services such as professional consulting for venture enterprises by virtue of their expertise in management, law and finance.

(4) Realize investment income. The exit mode and timing of venture capital depend on the maximization of the overall portfolio income of venture capital companies. The exit methods mainly include public listing of shares of venture enterprises; Other large companies buy venture enterprises and resell them to other investment companies; The repayment agreement is implemented, and the venture capital enterprise repurchases its own shares from the venture capital company.

Second, the development of venture capital industry in China

1. Investment overview

The venture capital industry in China experienced the development peaks in 2000 and 200 1, and then went to the bottom with the temporary closure of the domestic growth enterprise market and the bursting of the Nasdaq network bubble. Until 2004, due to the expected improvement of the capital market exit situation and the recovery of the network tide, the total investment of venture capital industry rose sharply. According to statistics, in 2004, Chinese and foreign venture capital institutions invested in 253 mainland and related enterprises. The total investment reached US$ 6,543.8+US$ 26.9 million, a record high, in which the number of investment cases increased by 43% and the investment amount increased by 28% compared with 2003, and the venture capital industry entered a period of comprehensive recovery and accelerated development.

2. Industry distribution analysis

Venture capital institutions usually consider the growth, innovation, market prospect and management team of specific enterprises when choosing investment targets. The survey shows that the traditional manufacturing industry has replaced the software industry and become the industry with the most concentrated venture capital projects, indicating that the motivation of venture capital to avoid risks and short-term profit orientation has been significantly enhanced. Venture capital obtains the dividend of the stable development of traditional manufacturing industry through equity participation, which increases the profit flow and meets the requirements of shareholders of venture capital companies.

3. Regional distribution analysis

Venture capital is concentrated in high-tech projects and economically developed areas, mainly pointing to Shanghai, Shenzhen, Jiangsu, Zhejiang, Beijing, Tianjin and other places. Among them, Shanghai has the largest number of venture capital institutions, but the total amount of funds is less than that of Shenzhen. Although Beijing has few institutions, it manages many funds. In addition, venture capital has a strong regional concentration. The investment intensity in Beijing-Tianjin-Hebei region is the highest, and there is little difference between the Yangtze River Delta and the Pearl River Delta, but there is a big difference between the three northeastern provinces and other regions.

4. Stage distribution analysis

According to the different development stages of a startup, its life cycle can be divided into five stages, namely, seed stage, development stage, growth stage, expansion stage and maturity stage. Venture capital institutions will formulate specific investment countermeasures according to the characteristics of different stages of enterprises.

Foreign venture capital is generally concentrated in the stages of development, growth and expansion, and the proportion of investment in seed stage and mature stage is relatively small, especially in seed stage, which is only about 5%. Since 2003, the distribution of venture capital is basically "normal distribution": the middle is big and the two ends are small. Projects are mainly concentrated in the growth period, with the least proportion of seed stage, which is basically consistent with the distribution of venture capital stages abroad.

5. Exit status of venture capital investment projects in China.

Since 2003, although China's venture capital has made gratifying progress, many venture capital institutions have successfully withdrawn. However, compared with foreign countries, the proportion of listed acquisitions of other enterprises is obviously low, which has not changed. It is worth noting that most venture capital institutions "retreat" because China Growth Enterprise Market has not been opened for a long time, that is, venture capital institutions choose more mature and larger traditional projects in order to avoid risks and obtain stable income. Since 2005, with the deepening of share reform in China's securities market and landing in overseas capital markets, the number of people who quit through IPO has increased significantly compared with previous years, and many China enterprises supported by venture capital have listed in the US, Hongkong and Singapore markets.

Third, the challenges faced by China's venture capital industry

1. The capital scale is small and the source channel is single.

The subjects of venture capital include government, financial institutions, venture capital companies and angel investors. At present, the venture capital institutions in China are mainly founded by the government or state-owned enterprises, and the government shares. From the experience of foreign countries, the main body of venture capital should be individuals and enterprises who are willing and able to take risks. Without the participation of private capital, the number and scale of venture capital funds can hardly increase greatly, which is far from meeting the needs of China's high-tech industry development and the goal of the best investment portfolio.

2. Risk investment subject dislocation

Venture capital institutions are the real subject of venture capital market. Is a professional fund manager who provides venture capital for venture enterprises. Starting with the venture capital raised by venture capitalists, venture capital institutions seek, investigate and screen investment projects, formulate investment plans, supervise and manage investments and provide necessary help, and withdraw investments in an appropriate way at an appropriate time, and distribute the principal and realized profits to investors.

At present, the main structure of venture capital in China is unreasonable, so we should gradually change the current situation of government-led venture capital and form a private-led venture capital pattern. Vigorously develop venture capital enterprises with private capital as the main body, such as limited partnership system, trust fund system and company system. Transfer to

3. It is difficult to realize and withdraw the profits of venture capital.

High risk usually means high income, and the key to obtaining high income and transferring high risk is to quit. The purpose of venture capital is to make a profit, not to control the company. Therefore, in order to promote the healthy development of venture capital industry and give full play to its role in promoting high technology, it is necessary to improve the exit mechanism of venture capital.

There are three main ways to realize the recovery of venture capital, namely, publicly listing IPO, selling shares and liquidating assets due to investment failure. At present, China's venture capital still lacks a smooth exit path, which is mainly manifested in the high listing threshold of the A-share main board trading market; Lack of perfect property rights trading market; The GEM market, which provides exit channels for venture enterprises, has not yet been established.

4. The legal system is not perfect

Venture capital has been practiced in China for a long time, but there is still no legislation on venture capital funds. Due to the imperfect construction of laws and regulations, illegal fund-raising activities in society have been repeatedly banned; In terms of taxation, although the state enjoys the preferential income tax rate of 15% for high-tech enterprises, there is no preferential income tax for investors of high-tech enterprises, and the dividends and bonuses obtained by venture capitalists in high-tech enterprises are subject to double taxation. This lagging legislative situation has seriously restricted the operation and development of venture capital in China.

5. Lack of venture capital professionals

Venture capital is a special financial activity that spans the two major fields of science and technology and finance, involving many disciplines such as evaluation, investment, management, auditing and high-tech expertise, and has strong practicality and comprehensiveness. Venture capitalists should not only understand technical theory, but also understand management innovation; Understand both industrial operation and capital operation; A compound senior talent who can not only understand the function of venture capital, but also understand the operation rules of international venture capital. High-quality venture capitalists are the soul of venture capital, which is exactly what our country needs and lacks most at present.

Four. Challenges and Suggestions for the Development of Venture Capital in China

1. Expand the total amount of venture capital and cultivate diversified market players.

According to the successful experience of foreign countries and the development trend of China, we can broaden the sources of venture capital from institutional investors, large domestic enterprises, private capital and government funds.

2. Establish a set of investment mechanism to spread risks.

We can spread risks by investing in multi-stage enterprises and batch investments, portfolio investments, joint investments, contract constraints, management consulting and strict implementation of business plans.

3. Establish an innovative organizational system and cultivate venture capital talents.

Compared with general corporate organizations, limited partnership can effectively reduce operating costs and agency costs, and effectively reduce agency risks through appropriate governance structure and a series of contractual arrangements of incentives and constraints among relevant stakeholders. We should adopt various ways to cultivate and introduce talents, and improve the incentive and restraint mechanism on this basis.

4. Establish a smooth exit channel for venture capital.

The successful withdrawal of venture capital not only means high return, but also is the basis for the continuous circulation of venture capital. We should not only learn from foreign successful experience, but also establish an exit mode suitable for China's economic operation mechanism. For example, buying a shell or listing on the main board in China, giving full play to the advantages of the secondary market, establishing and developing OTC and regional equity transfer markets, opening the Growth Enterprise Market as soon as possible, listing on the foreign secondary market or Hong Kong Growth Enterprise Market, mergers and acquisitions, corporate buybacks, liquidation and withdrawal, etc. Venture capital without exit channels has no future. Therefore, in order to realize the healthy development of venture capital, we must improve the venture capital system and ensure the smooth exit channels of capital.

5. Improve the relevant legal system

Amend the Partnership Enterprise Law to clearly stipulate that limited partnership is an important organizational form of enterprise partnership in China, and clearly stipulate the binding conditions and legitimate rights and interests of partners, but the relevant details should not be too detailed; Revise the commercial banking law, insurance law and pension fund management measures, appropriately relax the investment restrictions on institutional investors and allow them to participate in venture capital appropriately. Modify the tax legal system to avoid double taxation.

Venture capital is a systematic project. Its full development needs the joint efforts of financial circles, legal circles, educational institutions, scientific research institutions and intermediary institutions. The government should create a good market environment for its development, get rid of administrative intervention and act in full accordance with market rules; Accelerating the development of venture capital in China requires a complete investment system, including not only a sound, mature and standardized support system, but also a set of risk-dispersed investment mechanism and effective management mechanism. It is of great significance for the development of China's national economy to construct China's venture capital system and promote its benign development.