China Securities Regulatory Commission (CSRC) Chairman Wu Qing stated on September 24th at a press conference held by the State Council Information Office that six measures will be issued to promote mergers and acquisitions. In addition, efforts will be made in conjunction with all parties to facilitate the circulation of each link in the "raising, investing, managing, and exiting" cycle of private equity venture capital funds. The continuous voice of the regulatory authorities on the venture capital market is not only a timely response to market concerns but also implies that related policy measures may be implemented intensively.
Venture capital is crucial for technological innovation, industrial upgrading, and high-quality development. Especially in nurturing and developing new quality productive forces, venture capital plays an indispensable "incubator" function. However, with a large number of venture capital funds maturing in recent years, the issue of difficult exits has gradually become prominent, becoming a blockage in the "raising, investing, managing, and exiting" chain. Data from Zhizhong shows that from 2011 to the first half of 2024, a total of 65,000 funds were filed, involving nearly 50,000 unlisted companies. The large market stock and changes in the environment have put pressure on funds in the exit period. The difficulty in exiting has made it hard for venture capital funds to flow back in time, with some venture capital fund investors being "afraid to invest" or "unwilling to invest". The virtuous cycle of "investment - exit - reinvestment" has been broken, leading to a negative feedback effect of "difficulty in exiting - unwillingness or fear to invest - difficulty in fundraising". At the same time, the scarcity of high-quality projects coexists with the phenomenon of fund investors being afraid to invest, exacerbating the financing difficulties of innovative small and medium-sized enterprises, which is not conducive to the steady recovery of the real economy.
For venture capital, "raising, investing, managing, and exiting" is a complete chain, and any blockage in any link will cause the entire industry to be blocked. The author believes that timely and effective unblocking of the exit link of venture capital funds is the key to unblocking each link of "raising, investing, managing, and exiting" at present. Efforts should be made from multiple aspects such as enriching exit channels, strengthening patient capital, and boosting investor confidence to solve the exit problem, facilitate investment circulation, and further stimulate market vitality.
In terms of enriching exit channels, in addition to the main channel of IPO, exit methods should be further enriched. Drawing on international mature experience, exits can be achieved through various means such as mergers and acquisitions and share transfers. This requires actively optimizing merger and acquisition policies, fostering and supporting the development of merger funds; improving the pilot of private fund share transfers. Looking at overseas markets, mergers and acquisitions are an important way to achieve exits, and more cases should be promoted as soon as possible to create a demonstration effect. In fact, pilot programs to expand exit channels are gradually being carried out, and their effectiveness is gradually emerging. For example, pilot programs for the physical distribution of stocks by private equity venture capital funds have been carried out, allowing the distribution of listed company stocks held by investors through non-trading transfers.
In terms of strengthening patient capital, state-owned capital has become the main force in the venture capital market. However, the rigid pressure of state-owned capital preservation and appreciation, the practical demands of attracting investment, and the short-cycle assessment mechanism do not fully match the risk investment attributes of the venture capital market. This requires improving policies and measures related to state-owned capital investment, assessment, fault tolerance, and exit in practice, encouraging state-owned capital to become a long-term investment model that invests early, small, and in technology. At the same time, in terms of institutional design, further play the role of the "reverse linkage" mechanism between private equity venture capital fund share reduction and investment period, enhance the incentive strength of the mechanism, and guide more social funds to become "patient capital". In addition, optimize risk factor management, guide long-term funds such as insurance funds to invest in venture capital, and expand the scope of direct equity investment pilot programs for financial asset investment companies. Regarding the latter, Li Yunze, director of the China Banking and Insurance Regulatory Commission, stated at a press conference held by the State Council Information Office on September 24 that a series of measures will be taken, including expanding the scope of pilot cities, appropriately relaxing restrictions on equity investment amounts and ratios, and establishing a long-cycle, differentiated performance assessment. It can be expected that under a variety of measures, the industry's "shortage of long-term funds" problem is expected to be alleviated, thereby reducing the pressure of concentrated exit of venture capital funds.
In terms of boosting investor confidence, since this year, the country has attached great importance to the high-quality development of venture capital, and a series of policy measures have adhered to problem orientation and faced industry dilemmas. The State Council's executive meeting held on June 7th studied policy measures to promote the high-quality development of venture capital. On June 19th, the General Office of the State Council issued several policy measures to promote the high-quality development of venture capital, which the industry calls "Venture Capital 17 Articles". The State Council's executive meeting held on September 18th clearly proposed to quickly unblock the blockages and blockages in each link of "raising, investing, managing, and exiting"; promote state-owned capital investment to become more responsible long-term capital and patient capital; and consolidate the institutional foundation for the healthy development of venture capital. The implementation of relevant policies is conducive to promoting the standardized and healthy development of the venture capital industry.
Developing venture capital is an important measure to promote a virtuous cycle of science and technology, industry, and finance. A variety of measures to unblock the exit channels of venture capital funds and promote a more virtuous cycle of venture capital funds are the foundation and premise for venture capital funds to support technological innovation. We look forward to the effective implementation of a series of policy measures, the promotion of more "pilots", and allowing more venture capital institutions to cross reefs and shoals, truly becoming close partners accompanying "hard technology" for a long run.