China's Venture Capital Operation Mechanism

The venture capital prospered in western countries after the World War â…¡ and soon boomed all over the world. Now it has become a novel financial industry. Today, companied with the development of high-tech industries, the venture capital also becomes a kind of important motivation to high-tech and economic development in developed country, which mostly owes to its fresh operating mode and effective innovating achievement. In Asia, some countries and districts are also taking great effort to establish and improve their own venture development in order to help their economy to progress. China also had begun to explore the way to utilize the venture capital to develop its high-tech industries in the 1980's, however, owing to some reasons, the process is s very slow. With the arrival of the era of knowledge economy and technology has become the main booster of economy, more and more people have realized that it is very urgent to complete our own venture capital. Its key question is, planning to establish venture capital so as to fully bring its effectiveness into play, and such question is the aim of this paper.This paper consist of three parts as follow:The first part is about the general statement of the mechanism of venture capital. In this part, the author gives a brief explanation of its basic meanings. Then, the author specifies the uniqueness of the operation system of venture capital that is totally different, from the traditional investment. Based on this, the author demonstrates that the operation mechanism of venture capital is mainly consist of the mechanism of financing, the mechanism of organizing pattern, the mechanism of risk controlling and its withdrawal system and points out that the four aspects is the key for the success of the venture capital.The second part analyses the development process, the status quo and the problem of Chinese venture capital. From the review of its history and with some comparison, the author finds that the main reasons that leading to the slowness of Chinese venture capital are the faultiness of operation mechanism.The third part offers the proposals for how to develop Chinese venture capital, which is the core of this paper. Under the principles of innovation and according to Chinese practices, the author gives the proposals as follow: First, establishing a financing mechanism in which nongovernmental investors play a principal role. The government's function orientation is to help the nongovernmental investor and show them to take part in the venture capital investment.Secondly, establishing the right organizing pattern for our venture capital institutions. Limited partnership is the best pattern but it is not the realistic choice to our venture capital institutions.Thirdly, establishing a effective mechanism to control the risk during the investment.Fourthly, establishing the multi- level capital system including second-tier market, over-the-counter market on the basis of main-tier market for venture capital as soon as possible and encouraging the merging among enterprise so as to provide a way for systematic withdrawal, such is the key to the operation mechanism of venture capital.Because of the limitation of my research ability, inevitably, I am far from being perfect in the process of the demonstration. Therefore, I sincerely welcome any criticism of any paper. In this way, I can improve future research by taking a more mature and comprehensive approach.