On Status Quo Of Venture Capital And Legal Countermeasures In China

Regarding venture capital, scholars have long been focusing their attention mainly on the following two aspects:research on the organizational form of venture capital institutions; and demonstrating that it is high time Growth Enterprise Market is launched in China. After limited partnership had been legally established, most authors began to make appeals to the government that China should launch Growth Enterprise Market as soon as possible. However, few attempted to forecast a legal system to avoid subsequent problems. There are two reasons for this. On the one hand, the usually deferred legal systems prevent scholars from giving accurate prediction over the tendency of the future securities market; on the other, given that venture capital serves as huge driving force for China's economy, scholars, fearing that the government may further postpone the launch, choose to avoid the negative impact following the launch of the growth enterprise market so that venture capital can have a market from which it can be withdraw without trouble.It is a year now since the growth enterprise market was first launched. To tackle the various problems concerning venture capital and the growth enterprise market, the author analyzes the trails of China's venture capital development and offers the following account of the growth stages:budding, growing, bottom-out, flourishing and improving. At the stage of improvement, the best approach to the above mentioned problems is legal regulation of the securities market according to the past experiences from the US. In order to achieve refined legal regulation of venture capital, this paper starts with the concept of venture capital and anatomizes its relationship with private equity investment, private securities investment, industrial investment and strategic investment.Concept is the logic foundation of any subject. So only through firm grasp of the essence of each concept, can we make the legal system more complete. Only when we know the subtle differences between Venture Capital and Private Equity etc, can we provide more adequate protection for Venture Capital investment liable to greater risks of failure. For example, Venture Capital mainly involves small and medium-sized businesses at the Seed Stage or initial stage, so it faces greater risk than Private Equity which mainly concerns mature enterprise. Therefore the law should show tendency to support them.With comprehension of venture capital, the author then summarizes, through a year's observation of China's securities market, the new problems confronting venture capital after the growth enterprise market is was launched. Experiences from the US indicate that the optimal choice for addressing the problems is regulation by law. Thus the causes for the following four issues are discussed in connection with China's growth enterprise market:entrepreneurs take advantage of venture capital investment for cash; the growth of venture capital cost increases investment risks; venture capital faces legal risks and the growth enterprise market has the ultra-raised funds problems. Suggestions are provided for legislation.As to the problems of monetization, China should prolong the transfer of quitting high-ranking executives to one year or adopt agreement restrictions to safeguard the interests of investors. To deal with the investment risks increases due to growth of venture capital costs, local governments ought to carry out the relative regulations by the State Council and break the investment barrier of the venture capital investment. Appropriate local acts and regulations are to be drafted to direct the coordinated development of the economy in the respective regions. With regard to the legal risks for venture capital, China should improve the whole legal system including that of intellectual property and meanwhile implement research into judicial practices. Relative policies are to be pursued and modification of the recommendation systems should be adopted as the only alternative to the problem. To resolve the last problem of the ultra-raised funds, the author holds that joint efforts of multi-systems are necessary. On the one hand, businesses to go public should reveal a clear picture of their fund-raising plans; supervision should be enhanced on the recommendation institutions to prevent malicious publicity. On the other hand, approval procedures are to be expedited to enable growth enterprises to go public so that more investment opportunities are provided for the general public. By means of increased listed companies and shares, offering prices can be reduced to reasonable level to avoid ultra-raising.The author argues that the above problems do not form a relationship corresponding to their underlying causes. Rather correlate to and act on one another. Complete solution to these problems requires the state to formulate rules and regulations in line with the situation in China so as to bring about the maturity and prosperity to venture capital and capital market in China.