The Withdrawing Mechanism Of Venture Capital In China

Ever since the rising of venture capital sweeps across America in the 50th and 60th, this industry has influenced the world greatly. The venture capital industry in China has started not until 80th, and it is now at the initial developing stage. Venture capital is defined as Money made available for startup firms and small businesses with exceptional growth potential. Theses innovative enterprises or research are mostly in high technology, in which both the risk of loss and the potential for profit may be considerable. Distinguished from other investments, venture capital not only provides capital support, but also provides managerial and technical expertise.The circulation of venture capital is also the process of venture capital increment. It is constructed with three phases: the raising of funds, the investing of venture capital and the withdrawing of venture capital. At present, the biggest baffle with most foreign and domestic venture capital is the lacking of effective withdrawing mechanism, which is the core of venture capital industry. It decides whether venture capital can get expecting return and capital increment so as to devote into the next round venture enterprise. However, the lack of effective withdrawing mechanism is becoming the bottle-neck of venture capital industry in China.The purpose of venture capital is not to control the venture enterprise, but to gain high investing return from the development of enterprise, to get capital increment and finally withdraw from the venture enterprise. Thus, the withdrawing of venture capital is the key of its circulation and the key for venture capital return.This thesis proceeds with the operating mechanism of venture capital industry; brings forward the application status quo of venture capital withdrawing mechanism in China and relating international applications and experiences. It compares the two main ways of withdrawing venture capital, IPO and M&A, in four aspects: legal barrier, exit return, exit cost and exit timing flexibility. Through the comparison of performances of different withdrawing avenues, we get the target mode of venture capital withdrawing mechanism in China. Then it expatiate the practical significance of establish an effective venture capital withdrawing mechanism from three aspects.Through the analyzing of this thesis, it proposes two suggestions to establish and consummate the withdrawing mechanism in China. Firstly, relax the qualification requirements of listed companies in Shenzhen stock exchange and establish the second market in China to serve venture enterprises. Secondly, establish the OTC and clear the property right of venture enterprises, so the M&A avenue can be adopted.