Business Investment In Non-ipo Exit Mechanism

One of the important factors impeding the development of the venture capital business in China is the lack of effective exit channels. This thesis will focus on the research for the non-IPO exit means of venture capital investment so as to explore the exit mechanism for such investment most appropriate to the development stage of China.Among the exit means of venture capital investment, only the companies that have relatively mature business may launch an initial public offering of its stock even though the return on investment via an IPO is far greater than the return on investment via non-IPO means (merger and acquisition; share repurchase; trade sale; liquidation). The non-IPO means, on the other hand, may have far wider applications in China,China should establish an exit mechanism mainly based on merger and acquisition under her current economic circumstances. Given the fact that China already has a group of sophisticated companies with the resources and motives for such mergers and acquisitions, effecting exit via the vehicle of merger and acquisition by venture capital investment is the route most appropriate to the current development stage of China. Moreover, the relevant legal provisions should be amended as soon as possible to allow for share repurchase by enterprises under the premises that venture capital would support such repurchase. In addition, the development of different levels of technology and property rights exchanges throughout China has provided a vital platform for the venture capital institutions.Among the exit methods via merger and acquisition by venture capital investment in China, the most important one is through the sale of the invested companies to listed companies. The listed companies in China are qualified to become the major undertakers or acquirers of the companies invested by venture capital. Through such restructuring in partnership with listed companies and the import of its investment projects or invested companies indirectly into the capital market, venture capital may employ and participate in the main board stock market indirectly. There are four major forms of such exit method: (i) merger or acquisition of the invested company with or by the listed company; (ii) employment of the listed company as a "shell company" for listing purposes of the invested company; (iii) merger of the invested company with a company which is a candidate for application for stock listing; and (iv) co-investment with a listed company.