On the occasion of the three months of the release of the "Several Policies and Measures to Promote the High-quality Development of Venture Capital" (hereinafter referred to as the "17 Venture Capital Articles"), the executive meeting of the State Council (hereinafter referred to as the "National Standing Meeting") held on September 18 studied important measures to promote the development of venture capital, and the status of venture capital was clearly defined as "related to scientific and technological innovation, industrial upgrading and high-quality development." ”
The National Standing Committee first pointed out that "it is necessary to dredge the blockages in all links of 'fundraising, investment, management and withdrawal' as soon as possible", and put forward several specific measures, especially for "difficulty in fundraising" and "difficulty in exiting" to specify solutions.
The social capital "merger and acquisition" market will usher in spring
According to the data released by the Qingke Research Center, in the first half of 2024, the number of IPOs (initial public offerings) of Chinese enterprises was 82, a year-on-year decrease of 62.4% and a decrease of 87.0% from 2021, and the IPO market continued to contract. Among them, in the first half of 2024, there will be 55 VC (venture capital)/PE (private equity)-backed IPOs, involving 253 institutions, and in the first half of 2023, a total of 139 VC/PE-backed IPOs will involve 579 institutions, with the number of institutions with IPOs falling 56.3% year-on-year and 69.8% compared with the first half of 2021. Among them, a total of 9 institutions will receive three or more IPOs in the first half of 2024, 42 in the first half of 2023, and 58 in the first half of 2022.
On the issue of "difficulty in exiting", the National Standing Committee directly proposed to "support the domestic and overseas listing of qualified science and technology enterprises, vigorously develop the equity transfer and merger and acquisition markets, and promote the pilot of in-kind distribution of shares", these measures are aimed at ensuring the smooth exit channels.
M&A has become an important channel for social capital to solve the exit. According to the analysis of the "FOF Research Center", the "encouragement of social capital to set up market-oriented M&A FOF or venture capital secondary market fund" proposed by the National Standing Committee is particularly crucial. The fund raised and established by stepping on the wave of "entrepreneurship and entrepreneurship" in 2015-2016 has entered the critical stage of withdrawal. As the pace of IPOs slows down, VC/PEs have to turn to other channels such as mergers and acquisitions to address the huge exit demand.
It is reported that there were very few parent funds in the parent fund industry specifically for mergers and acquisitions, and this year many places have explored the establishment of mergers and acquisitions-related parent funds. For example, in April, Guangzhou issued the "Notice on Several Measures to Further Promote the Transfer and Transformation of Scientific and Technological Achievements in Guangzhou", proposing the establishment of a Guangzhou M&A and reorganization parent fund. Yesterday, after the National Standing Committee issued a statement to encourage market-oriented mergers and acquisitions of the parent fund, it will play an exemplary leading role, and it is expected that more mergers and acquisitions of the parent fund will appear.
"Patient capital" has become a high-frequency keyword, and state-owned assets "shoulder the burden"
"Patient capital" is a high-frequency keyword in recent times. The so-called "patient capital" refers to capital that focuses on long-term projects or investment activities, does not focus on the pursuit of short-term returns, and has a high tolerance for risk.
The National Standing Committee emphasized that it is necessary to promote state-owned capital to become more responsible long-term capital and patient capital.
It can be said that the long-term, continuous and risk-tolerant characteristics of patient capital coincide with the characteristics of long cycle, strong uncertainty and high failure rate of scientific and technological innovation. On April 30, the meeting of the Political Bureau of the Central Committee pointed out that "it is necessary to strengthen the layout of national strategic scientific and technological forces, cultivate and expand emerging industries, advance the layout and construction of future industries, and use advanced technology to empower the transformation and upgrading of traditional industries." It is necessary to actively develop venture capital and expand patient capital. ”
As a new concept in the financial field, "patient capital" was mentioned for the first time at the meeting of the Political Bureau of the CPC Central Committee, and combined with the cultivation and development of new quality productivity, indicating that it is necessary to correctly guide capital to support strategic emerging industries and future industries, and use long-term, continuous and patient capital to achieve breakthroughs in scientific and technological innovation and industrial upgrading.
At the end of August, the National Standing Committee stressed the need to cultivate and expand "patient capital" such as insurance funds, break down institutional barriers, improve the assessment mechanism, and provide stable long-term investment in the capital market and scientific and technological innovation.
So, why did this National Standing Committee "name" state-owned capital to become patient capital? It is worth noting that driven by the innovation and development strategy, state-owned background funds have grown rapidly, and gradually began to invest in the equity of science and technology enterprises in the form of limited partners (LPs) or direct investment. According to the statistics of ZERONE, a financial information company, in 2023, the government and state-owned LPs will account for 73% of the capital, of which 65.6% will be subscribed by government funds. It can be seen that state-owned assets have become the absolute main force of investment in China's venture capital market.
In addition, because many funds are currently in the predicament of "difficulty in raising funds", it is necessary for state-owned capital to assume more responsibilities and become the main force of patient capital, which can alleviate the dilemma of "difficulty in raising funds" to a certain extent.
However, in the traditional assessment system, the "loss range" is regarded as a red line, resulting in the "dare not invest" attitude of "preferring to miss rather than take the fault" when facing investment decisions. To a certain extent, this will lead to the blockage of state-owned assets on the road to becoming long-term and high-risk patient capital. Under the mission of state-owned assets to become the main force of patient capital, it is more urgent to improve the capital, assessment, fault tolerance and exit measures of state-owned funds.
Regarding the assessment of state-owned assets and fault tolerance, Guangdong has made active explorations
In order to solve the urgent needs in terms of assessment and fault tolerance, the National Standing Committee also proposed to improve the relevant policies and measures for the contribution, assessment, fault tolerance and withdrawal of state-owned funds.
In fact, in the "17 Articles of Venture Capital", the State Council proposed to "optimize the management of government-funded venture capital funds, reform and improve the fund assessment, fault tolerance and exemption mechanism, and improve the performance evaluation system." systematically study and solve the problem of centralized exit of government-funded venture capital funds"; "Implement and improve the management system for state-owned venture capital. Improve the management system of state-owned venture capital and the exemption mechanism for due diligence compliance responsibilities that conform to the characteristics and development laws of the venture capital industry, and explore the assessment of state-owned venture capital institutions in accordance with the entire fund life cycle. ”
In this context, Guangdong Province closely followed the "17 Venture Capital" launched by the State Council, and actively explored the assessment and fault tolerance of state-owned assets.
At the end of July, Articles 40 and 41 of the "Guangdong Provincial Science and Technology Innovation Regulations" introduced by Guangdong Province have attracted attention from the outside world:
Article 40 - The provincial people's government's departments of science and technology, finance, state-owned assets supervision and administration set different assessment indicators for the investment period and exit period of state-owned angel investment funds and venture capital funds, comprehensively evaluate the overall operation effect of the fund, and do not take the preservation and appreciation of state-owned capital as the main assessment index.
Article 41 - Provincial and prefecture-level and above-level people's governments shall establish and improve performance evaluation, incentive and restraint and fault-tolerant mechanisms for state-owned venture capital institutions, and promote state-owned venture capital institutions to increase support for start-up science and technology enterprises.
It is worth noting that Guangdong, as a strong province in scientific and technological innovation, is the first province in the country to propose that state-owned venture capital "does not take the preservation and appreciation of state-owned capital as the main assessment index". Looking at the whole country, Anhui, Hubei and other provinces have also put forward similar measures, with the goal of improving the fault tolerance rate of state-owned venture capital to varying degrees and loosening the constraints on "patient capital".
Author丨Cheng Lingyu