The Study Of Exit Mechanism Of Venture Capital In China

The venture capital industry, which started after the Second World War, is different from the traditional creditor financing. In its half-century development, it has promoted development of the global high-tech industry dramatically, creating a number of world-class science and technology enterprises. It has played a tremendous role in promoting national economic growth, economic restructuring and technological innovation.The development of venture capital industry in China is slower than that in developed countries because of our different economic systems. On the other hand, private enterprises, especially high-tech enterprises have fully developed in the recent decades, with a strong demand for capital, which can't be satisfied by the way of creditor financing. Along with the prosperity of high-tech enterprises, the venture capital industry in China has made a significant progress, alleviating private enterprises and high-tech enterprises funds bottlenecks directly. At the same time, the venture capital has involved in the new-started enterprises' business management processes, providing valuable support and assistance to them. Our future economic development and restructuring will mainly rely on the development and growth of small and medium-sized enterprises, which inevitably depend on the perfect development of venture capital industry. So the better we set up a consummate venture capital industry, the more far-reaching consequences it will show to our economic development and technological innovation.So far there is not a uniform definition of venture capital in the academic field. Based on a summary of the related variety definition, the whole essay will focus on the exit mechanism of venture capital. The venture capital investment process is often described as consisting of three interrelated stages: fund-raising, investing and exiting. The logic and timing of these stages are well known. Received theory suggests, however, that there are important reverse mechanisms also in place. The existence of these mechanisms means that the exit stage has feedback effects on investing and fund-raising. Because exiting influences the health of the other parts of the venture capital investment process, the availability of exit opportunities can be integral to the long-run development of a venture capital industry.The exit mechanism of venture capital includes two major points: the exit pattern and the exit channel. As far as the exit pattern is concerned, IPO and M&A are the two popular methods. Only in the second-board market and the over-the-count market(OTC) can the two methods be carried out effectively. And compare the exit pattern with the exit channel, the latter is more essentially important than the former. The second-board market is the most important place to implement the exit mechanism, with the supplement of the main board market and the OTC market. The three markets are different levels of a country's capital markets component. Although countries in the design of the exit mechanism differentiated from places, to focus on the development of the second-board market, complemented by flexible OTC market is a common feature.Based on the analysis listed above, the essay focuses on illustrating the current status of exit mechanism of venture capital in China, by using the basic theory of venture capital and the study as well as the statistics from both oversea and domestic second-board markets, hoping to identify some problems and to make rational recommendations.The domestic statistics show that the amount and profit of the venture capitals' exit strategies have been increasing year by year, however there is still some constraints concerning about it First of all, the second-board market has not been fully established yet. The Shenzhen Stock Exchange SME board was designed so similar to the main board that it functions ineffectively and inefficiently as a second-board market. Our OTC market is not yet a unified national market. With the existence of administrative interference, it still highlights the function of servicing the state-owned enterprises. Second, venture capitals still face some legal restrictions about exit, and alternative methods for implementing exit strategy are very limited.An acceptable multi-level capital market is the fundamental key to perfect the exit mechanism of venture capital. It is particular important to establish a second-board market meeting the basic requirements of the existing rules. Meanwhile, it is also highly demanded to unify the property exchange market into a integrate one, changing the property market services and strengthening property market regulation, so it can function as a complementary to the second-board market much better. It also needs to revise the relevant laws and regulations, and to allow to use various financial instruments. Only through these measures can provide forward and backward channels to new-started private enterprises, can promote the development of small and medium-sized and venture capital industry, can accelerate the growth of the nation's economy, and can stimulate the economic restructuring and technological progress.