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 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 Background of VC Guiding Fund 1. No. of VC investment organizations in China increased significantly in 21 century No. of VC Investment Organizations in China 450 400 350 300 250 200 150 100 50 0 Y1994 Y1995 Y1996 Y1997 Y1998 Y1999 Y2000 Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Background of VC Guiding Fund 2. The amount of VC investment in China also increased significantly in 2007 VC Investment Amount in China 120 100 80 Billion 60 RMB 40 20 0 Y1 4 Y1 5 Y1 6 Y1 7 Y1 8 Y2 9 Y2 0 Y2 1 Y2 2 Y2 3 Y2 4 Y2 5 Y2 6 7 99 99 99 99 99 99 00 00 00 00 00 00 00 00 Y1 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 Others Others 40% 41% No. of Amount in Technology Technology Based Based Program Programs 60% 59% No. of Technology Based Program Others Amount in Technology Based Programs Others 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 35-45 3rd Round Profit>RMB30m 25-35 Lack of VC investment 2nd Round Breakeven,Profitable In early stage 10-15 1st Round Revenue Most VC funds invest 3-5 Seed in mature Prototype stage Establishment 2 3 4 5 6 7 8 Yrs 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% 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. 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 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 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 Strategy of VC Guiding Fund Candidate category of VC Guiding Fund VC firms VC management firms Incubators with investment skills Potential deal flow 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 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 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 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 Thank You!
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