Five Major Problems In Venture Capital

As the most active factor in the market economy, small and medium-sized enterprises play an increasingly important role in improving the market economic system, increasing economic restructuring, promoting market competition and technological progress, facilitating people's life and increasing employment.

Therefore, governments around the world are actively adopting policies and measures to support the healthy development of SMEs.

With the support of the government, China's small and medium-sized enterprises have developed rapidly.

In 2003, there were more than 800 SMEs, accounting for more than 99% of the total number of enterprises.

More than 75% of urban employment population is in small and medium-sized enterprises, and 60% of GDP is created by small and medium-sized enterprises.

However, the development of small and medium-sized enterprises has also encountered many difficulties. Among them, there are some problems existing in the enterprises themselves, as well as some obstacles in policy and system.

On June 23rd, 2004, in the joint venture between the national development and Reform Commission and the US Department of Commerce, "the Sino US SME and Venture Capital Forum in 2004", senior figures, officials and experts from the Chinese and American government departments, together with experts in the field of venture capital, jointly set up a solution to the 5 major problems encountered in the development of China's SMEs and venture capital.

The financing system of SMEs in China is still not perfect, especially the venture capital mechanism construction is lagging behind. Venture capital development is just beginning.

According to statistics, by the end of 2003, there were only more than 200 households in all kinds of venture capital institutions in the country, and the total scale of available capital was only 50 billion yuan.

Due to the lack of necessary incentive mechanism, less than 30% of investment in SMEs is very limited, so far from meeting the needs of SMEs development.

What measures will be taken by financial regulators and banks and other financial institutions to improve SMEs' financial services?

Zhu Zhigang, Vice Minister of finance, said that the three steps should be taken to solve the problem of financing difficulties for SMEs.

First, we should promote the reform of the financial system and the innovation of financial instruments. Through the establishment of an incentive mechanism, we should develop local small banks and private credit institutions in an orderly way, and encourage commercial banks to further improve loan conditions, loan methods, loan varieties and approval procedures.

Secondly, to help SMEs improve their credit level, the government should help SMEs establish a credit system with SMEs, business operators and intermediaries as the main body, with credit registration, credit collection, credit evaluation and credit release as the main content.

Thirdly, we should pay attention to the development of capital market, establish and perfect the venture capital mechanism, and expand the direct financing channels for SMEs.

Tang Shuangning, vice chairman of the Banking Regulatory Commission, believes that commercial banks should accurately locate in the market competition, design innovative products and improve financial services for SMEs in light of the risk and return characteristics of SMEs.

Local financial institutions are familiar with the local situation, and are most likely to master the operation and prospects of the local SMEs and their credit level. They can better overcome the problem of asymmetric information and high paction costs, and accurately price them, so that they can be more suitable for providing services to SMEs.

However, from the perspective of the development and distribution of financial institutions in China, it is not suitable to develop new local commercial banks in general. Instead, it is necessary to restructure existing urban commercial banks and urban credit cooperatives through introducing foreign strategic investors or attracting private capital, improving their stock rights structure, improving their corporate governance and enhancing their business vitality, so as to better serve SMEs.

Tang Shuangning also believes that it is necessary to encourage various guarantee agencies to provide credit guarantee for small and medium-sized enterprises, support small and medium-sized enterprises to carry out various forms of mutual financing guarantee in accordance with the law, establish a credit collection and evaluation system for small and medium-sized enterprises, service centers for small and medium enterprises, and small and Medium Enterprises Association, etc., and create favorable external conditions for financing of small and medium-sized enterprises.

On the basis of the market, the government has played a leading role in solving the financing problems of small and medium-sized enterprises by developing finance. It is a successful practice in many countries.

In the United States, there are developed financial systems with the core of SME. Japan has 8 policy financial institutions related to the development of small and medium-sized enterprises. Korea is a small and medium-sized enterprise developing financial system composed of policy banks, various funds and second board markets. "

Gao Jian, vice president of the State Development Bank, talked about the role of development finance in the financing of small and medium-sized enterprises. He believed that by making use of the financing advantages of development finance, we could promote the system construction of venture capital enterprises and integrate institutional resources to make profits.

In order to improve the financing system of China's small and medium-sized enterprises and give full play to the role of small and medium-sized enterprises in promoting economic development, China should speed up the establishment of venture capital investment mechanism.

At present, the venture capital enterprises in China are limited to the establishment of a company. There are still some obstacles to the establishment of a limited partnership in China. Two

From a foreign perspective, it can be established in the form of a company or limited partnership.

How can we break through the obstacles by legislation and explore the organizational form suitable for venture capital enterprises in China?

Li Yining, director of the venture capital research center of Peking University, believes that in the long run, it is necessary to amend the company law and the partnership law to adapt to the needs of venture capital companies and venture capital limited partners.

"However, in view of the fact that the two laws have been amended in an all-around way, the 10 ministries and commissions of the State Development and Reform Commission and other State Council departments are making a realistic choice according to the provisions of the company law" separately stipulated by the State Council ", and by setting up a" management method for venture capital enterprises "to establish a legal system to meet the requirements of venture capital funds.

Zhang Dongsheng, director of the finance division of the national development and Reform Commission and leader of the drafting group of the management method of venture capital enterprises, revealed that the establishment of venture capital enterprises is one of the main contents in the proposed Interim Measures for the management of venture capital enterprises.

At the same time, Zhang Dongsheng also said that the draft also set aside reserved space for future limited partnership.

Moreover, in order to maintain consistency with the direction of investment system reform, the draft will not adopt the approval system or approval system, but adopt the filing system, but enterprises implementing the filing system must also meet certain conditions.

In order to avoid some institutions that are not really engaged in venture capital and enjoy the name of "venture capital" and enjoy the state's policy support for venture capital enterprises, the government will first give a clear legal definition to venture capital enterprises before giving them necessary policy support.

In order to embody the policy intention of the state to develop professional venture capital enterprises and guide them to support small and medium-sized enterprises, the draft also requires that venture capital enterprises must invest their main funds in unlisted enterprises, especially small and medium-sized enterprises, and not engage in non venture investment businesses such as stock and real estate.

In foreign countries, private placement of various types of securities, such as securities investment funds and venture capital funds, is usually regulated through the Securities Act. However, when China formulating this law, it only takes into account the adjustment of the public offering of securities, which makes it difficult for venture capital enterprises to set up by private placement.

To this end, Li Yining said it is necessary to further modify the relevant contents of the securities law to solve the problem of private placement in venture capital enterprises.

Answer: we should revise and improve the company law and partnership law as soon as possible, so as to provide more legal protection for the establishment and operation of venture capital funds.

Before the revision of the company law and the partnership law, we can use the provisions of the "company law" and other laws "separately stipulated by the State Council" to study and Formulate Interim Measures for the management of venture capital enterprises, so as to provide special legal protection for venture capital funds in the form of company and limited partnership.

In the course of operation, venture capital investment is faced with both the business risk of the invested enterprise and the moral hazard of the invested enterprise, and the government needs to provide policy support for the three venture investment.

Since 1999, the relevant departments of the Chinese government have put forward in the opinions on establishing a venture capital mechanism that the state should use fiscal and monetary policies to encourage the development of venture capital institutions.

The SME Promotion Act promulgated in 2002 also stipulates that the state should use tax policies to encourage venture capital institutions to increase investment in small and medium-sized enterprises.

How to implement it concretely?

It is a common practice in the world to use fiscal policy to support the development of small and medium-sized enterprises.

In January 1, 2003, China promulgated the law on the promotion of small and medium enterprises, which clearly defined the responsibility of financial support for the development of SMEs.

There are 3 main policies and measures for financial support for the development of SMEs: preferential tax policies.

The main means of financial support for SMEs is tax policy, which can benefit all SMEs and is the most fair and pparent incentive policy.

For enterprises that do not exceed the prescribed limit of annual taxable income, a low income tax rate shall be applied. Enterprises that are newly established third industries, enterprises with high and new technology and a certain percentage of laid-off and unemployed persons shall be subject to preferential tax policies such as reduction or exemption of income tax within a certain period.

Expenditure policy.

The SME Promotion Law clearly stipulates that the state finance should arrange special funds to support the development of small and medium-sized enterprises.

According to the law, China's finance, within the scope of the state's financial resources, according to the requirements of WTO rules, arranges special funds to support the development of small and medium-sized enterprises, focusing on technological innovation of SMEs and the construction of SME Service System.

In the construction of service system, the emphasis is on supporting entrepreneurial guidance, training, information service, credit collection and evaluation system.

Government procurement.

At present, relevant government departments are studying and formulating the implementation measures of government procurement to promote the development of small and medium-sized enterprises, encouraging SMEs to actively participate in government procurement.

The Interim Measures for the management of venture capital enterprises will set up a venture capital guiding fund to support the establishment of venture capital enterprises, and allow venture capital enterprises to invest in long-term equity funds borrowed from banks or issuing bonds, and give tax policy support on the basis of double taxation.

Li Yining believes that the insurance law and the banking law should be further amended to provide a legal basis for the small proportion of insurance funds and bank funds to enter the venture capital field.

Answer: we should improve the policy support system of venture capital as soon as possible. Under the premise of solving the double taxation problems of venture capital enterprises, we should study and formulate tax policies to promote the development of venture capital enterprises.

The four question is the establishment of a policy venture capital fund. It is a common practice to guide commercial venture capital funds to invest in the small and medium enterprises in the early stage of the venture.

Some local governments in China have also made active explorations in this area, but how to give play to the guiding role of government policy venture capital funds?

In 1998, under the suggestion of many people at home and abroad, the leading group of national science and Education decided to introduce the new support method of innovation fund.

Jointly organized by the Ministry of science and technology and the Ministry of finance, the innovation fund was officially launched in May 1999.

Through the free subsidy and loan discount, the innovation fund has received 20449 projects, and 4946 projects have been funded. The total amount of subsidy has been 3 billion 300 million yuan, and its economic and social benefits have begun to appear.

According to preliminary statistics, in the 1690 projects that have been completed, 910 million yuan has been subsidized by the innovation fund, and the sales revenue has reached 26 billion 920 million yuan, an increase of 14 times, the tax paid up to 3 billion 330 million yuan, an increase of 18.5 times, and the number of new employment increased by 67 thousand times, an increase of 1.5 times.

Ma Songde, Vice Minister of the Ministry of science and technology, believes that there are still 3 main problems in the Innovation Fund: the innovation fund has not been very smooth in guiding and mobilizing financial capital to invest in technology oriented SMEs. The combination of innovation funds and venture capital institutions is not enough, and there is no mutual fund chain between them. The combination of innovation fund and technology financial intermediaries is not enough to form a reasonable and efficient division of labor system.

Liu Jianjun, deputy director of the venture capital research center of Peking University, thinks that general venture capital funds often have to wait for enterprises to enter the "expansion period" before investing. In the "seed period", venture capital usually does not invest in them.

Therefore, the establishment of various kinds of policy oriented venture capital fund to make up the capital gap of the entrepreneurial activity has become the inevitable choice for the development of the entrepreneurial economy.

Liu Jianjun suggested that, when encouraging and regulating local governments to set up a policy venture investment fund, we should set up a state or central policy venture investment fund as soon as possible.

The source of its funds may be taken into consideration from the "National SME development fund" under study and design, and some special funds may be arranged separately.

In the course of operation, it is not appropriate to directly engage in venture capital investment with venture capital investment fund, and mainly run by participating in the establishment of commercial venture capital fund.

At the same time, in order to ensure policy acceptance