Features of Venture Capital Development

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The findings of a survey carried out by the Ministry of Science and Technology show that China’s fast developing venture capital sector features a drastic increase of investment institutions, strength, and large input in high technology.

Feedback from l34 venture capital organisations shows that 62% of them were registered in l999 and 2000, during which 70% of the total capital was added.

According to conservative estimations there are now more than 200 and their distribution is closely related to economic development and the development of science and technology. They are concentrated in areas such as Beijing, Shanghai and Shenzhen, which boast an average of over 60 venture capital organisations each; there are approximately ten in Nanjing, Hangzhou, Tianjin and Guangzhou; five in Dalian, Shenyang, Xi’an, and Chengdu; one to two in the provincial capitals and none in a few cities in the Western Region.

The majority of the institutions undertaking venture capital business fall into the following genres: venture capital companies, venture capital management companies and companies (or enterprises) affiliated to venture capital departments that are non-independent incorporated entities. Amongst the large numbers of venture capital companies, about 6l% of the total are being surveyed.

Looking at the organisational set up, there are limited liability companies and stock limited liability companies, which hold 83% and 17% of the market respectively. There are seven major types, with solely state-owned accounting for only 19%, with less than 2% in Beijing, Shanghai, and Shenzhen; those with government equity participation at about 20%; non-governmental independent institutions about 44%; foreign investment institutions account for 13%; the other three types are those affiliated to listed companies, large companies and specialised investment institutions, investment institutions set up by technology development zones and growth parks, and venture capital departments of securities institutions. However, these typecasts are becoming increasingly diversified.

With regard to the source of capital, the proportion of government capital to the total of venture capital has decreased to about 30%, while capital provided by domestic enterprises has risen to over 40%, indicating that non state-owned capital is gradually becoming the main source.

The investment institutions have a strong desire to make an input, for example the 95 under survey had made an accumulated investment of RMB5.56bn in 663 enterprises by 2000, which accounts for 30% of the total investment made in the same period; investment made in 386 enterprises in 2000 came to RMB2.23bn. The main objects of investment are new and high-tech enterprises focused on computer and IT based communication and biomedicine, leaving the investment in traditional non-technologic enterprises at a mere 5%; the proportion of the former is markedly higher than the average world level.

Medium and small sized enterprises are given priority support from the investment institutions. The survey shows that the average amount of investment rests at about RMB8mn. The smallest amount of less than RMB3mn made by the institutions included in the survey accounts for 80% of all the surveyed institutions and the largest amount of RMB20mn accounts for over 60% of the total, and even this is inclined to be small when compared with institutions abroad.