The National Development And Reform Commission Started To Standardize The "Classification" Of Venture Capital Entities, Expecting The Industry Chaos To Be Contained And The Regulatory Standards Unified

In the face of the confusion caused by the unclear definition standard of venture capital, the relevant departments are brewing a new policy to regulate it.

Recently, the national development and Reform Commission (NDRC) has solicited public opinions on the measures for the classification of venture capital entities (hereinafter referred to as the measures).

It is reported that, on the one hand, the measures clarify the definition, nature and classification of "venture capital" and "venture capital subject", and intend to correct some misunderstanding of the market on venture capital. On the other hand, it makes a new definition on the investment object, leverage limit and duration of venture capital subject.

"This will undoubtedly lead venture capital back to its roots." A number of people from venture capital institutions told reporters that before, the standard of venture capital was not clear, many local departments did not have a unified understanding of the nature and strategic positioning of venture capital. In addition, the boundaries between venture capital and other private equity funds, such as private equity investment and private securities investment, were blurred, and even there were cognitive misunderstandings such as regarding venture capital as Internet finance, As a result, venture capital focuses on early investment and small investment, while long-term investment in science and technology is not fully played. Many supporting venture capital development and regulatory policies are not targeted and effective, which affects the sustainable and healthy development of domestic venture capital.

A partner of a venture capital agency told reporters that before that, some government departments had also adopted extremely strict criteria for the registration of venture capital funds due to the P2P retirement policy, resulting in the registration and operation of their funds subject to no small restrictions. In addition, they also found that some private investment institutions, in the name of "venture capital", launched some real debt of famous stocks and financial products suspected of self financing to the public.

"With the" measures "to make a more clear definition of the main body of venture capital, these industrial chaos and operational problems will be easily solved." He thinks.

In the view of the partner of the venture capital institution, another important significance of the promulgation of the measures is to promote the "standardized operation" of the support policies for venture capital in various regions. At present, many equity investment institutions package a large number of mid and late stage equity investment projects into "venture capital projects" and apply to local relevant departments for financial incentives and tax incentives. However, with the promulgation of the measures, there will be rules to follow for tax preference and financial support measures for venture capital funds by local governments, and these policy arbitrage behaviors will become increasingly difficult.

It is worth noting that with the advent of the measures, the venture capital market once speculated that the NDRC and the CSRC would launch a new "competition" around VC supervision.

"In fact, this kind of speculation is a bit groundless." A large domestic venture capital investment director said. In the United States, venture capital funds are also regulated by many departments. For example, the Dodd Frank Act issued in 2010 defines the legal framework for the operation of venture capital funds; The revised version of the Volcker rules in 2017 allows banks to increase investment in venture capital funds, broadening the source of funds for venture capital in the United States; In addition, in the past few decades, the U.S. tax authorities have continuously optimized and reduced the tax burden of venture capital, guided a large number of social funds into the field of venture capital to support scientific and technological innovation.

"As a matter of fact, the long supervision of venture capital market is not terrible. The key is that the regulatory policies and measures of various departments can complement each other and jointly promote the vigorous development of domestic venture capital industry." He pointed out.

Eliminate regulatory arbitrage and curb industry chaos

Although the length of the method is small, its content is extremely rich.

Specifically, on the one hand, the measures clearly define the definition, nature and classification of venture capital and venture capital entities. Venture capital is divided into venture capital enterprises and angel investors, while venture capital enterprises are divided into fund venture capital enterprises and non fund venture capital enterprises, and the venture capital master fund is included in the category of fund venture capital enterprises; On the other hand, we should make clear the division conditions of various venture capital entities, including the name of various venture capital enterprises, business scope, investment object, capital scale, leverage limit, professional management team, qualified investors, duration and so on.

In the view of many venture capital insiders, the specific impact of the measures on the operation of venture capital funds is mainly manifested in three aspects: first, venture capital enterprises invest in small and medium-sized enterprises in seed stage, start-up stage and growth stage, and the scale with investment period of more than 5 years (including) is no less than 70% of the total paid in capital; Second, the paid in capital of venture capital enterprises shall not be less than 30 million yuan, and the initial paid in capital shall not be less than 10 million yuan. All investors promise to supplement the paid in capital of no less than 30 million yuan within five years after registration; Third, in principle, the total duration of venture capital enterprises shall not be less than 7 years.

"In fact, many standardized venture capital funds can easily meet the above regulatory requirements." The above venture capital institutional partners pointed out to reporters. The main purpose of these Provisions is to crack down on "fake venture capital" -- for example, some private investment institutions launch venture capital fund products with a duration of only 3-5 years, which are mainly invested in the so-called mid late pre IPO projects (which may be suspected of project packaging to achieve self financing purposes), leading to the abuse of the concept of "venture capital".

In addition, these Provisions also help to eliminate policy arbitrage. For example, some local government departments have introduced supportive policies for venture capital, which attract some equity investment institutions to seek policy arbitrage. They invest 60% of their funds in pre IPO projects in the middle and later stages, and 40% of their funds in early projects, but they apply to local government departments for financial incentives and tax incentives in the name of venture capital.

"If the" measures "can be published as soon as possible, it will certainly effectively curb these policy arbitrage and industrial chaos." He thinks. In particular, local government departments can really use tax incentives and financial incentives on the "blade", which will greatly promote the development of venture capital behavior. At the same time, the phenomenon of "fake venture capital" is severely cracked down, which also helps to standardize the development of the industry and achieve the effect of good money driving out bad money.

The reporter learned from many sources that during the consultation stage of the measures, venture capital institutions also put forward suggestions on optimizing the contents of many clauses. For example, some venture capital institutions suggest that the reduction time of venture capital shareholders after listing should be shortened, which should be applicable to all venture capital entities (including venture capital funds, non fund venture capital enterprises and angel investors), but they need to require these investors to invest in enterprises for a certain period of time.

Some venture capital institutions suggest that the relevant departments provide preferential tax policies for venture capital, treat all venture capital entities equally, but require investors to prove that their venture capital behavior meets the regulatory requirements of small investment, early investment, technology investment and long-term investment.

"According to the provisions of the measures, the scale of venture capital with investment period of more than 5 years (including) shall not be less than 70% of the total paid in capital. We suggest that the time limit of more than 5 years (including) be removed, because many early projects may die in less than 5 years, and relevant venture capital investment can not be included in the assessment criteria, But in fact, we did invest in a lot of early, small technology projects. " The investment director of the aforementioned large domestic venture capital institutions told reporters.

In the opinion of Wang Shu, legal director of Bauhinia capital, although there is room for optimization in some provisions of the measures, its publication will lay the foundation for the differentiated supervision of "venture capital funds" by the Interim Regulations on the management of private investment funds and the Interim Measures for the supervision and administration of private investment funds, and lay a foundation for the standardization of regulatory objects.

Regulatory standards need to be further unified

It is worth noting that, with the publication of the measures, the industry began to speculate that the NDRC and the CSRC began a new "competition" around the regulatory power of VC.

When the fund law was revised in 2012, the CSRC and the national development and Reform Commission (NDRC) had some differences on whether to include VC / PE in the supervision scope of the fund law.

One year later, the central editorial office issued the notice on the division of responsibilities for the management of private equity funds. The CSRC was responsible for the supervision and management of private equity funds, implementing appropriate supervision and protecting the rights and interests of investors; The national development and Reform Commission is responsible for organizing the formulation of policies and measures to promote the development of private equity funds, and jointly with relevant departments to study and formulate the standards and norms for the government's contribution to private equity funds; The two departments should establish a coordination mechanism to realize information sharing.

At the beginning of 2014, in the letter of opinions on the management responsibilities of venture capital funds, the central editorial office further clarified that the CSRC should be responsible for formulating regulatory policies, standards and norms for venture capital funds, and organize supervision and inspection.

According to the data of China Securities Investment Fund Association, by the end of March 2021, there were 14984 registered private equity and venture capital fund managers, accounting for 61% of 24533 private equity and venture capital fund managers of all types; In terms of fund scale, the asset management scale of venture capital funds reached 1736.756 billion yuan, accounting for about 10.08% of the total amount of 17223.376 billion yuan of all types of private funds.

In the view of many venture capital insiders, although the NDRC and the CSRC have regulatory responsibilities for venture capital funds, they are not in conflict as a whole. First, the NDRC mainly proposes regulatory policies for the development of VC / PE industry, while the CSRC focuses on the investment objects, fund raising methods, investment philosophy, investment operation methods, fund governance structure, etc We will implement specific regulatory measures in terms of risk constraint mechanism.

"In fact, if the" measures "can clearly define the criteria for the main body of venture capital, it will help the relevant departments to issue more targeted support policies, including new tax incentives, encouraging banks and bank financing subsidiaries to participate in venture capital, forming differentiated supervision, and helping the healthy development of the industry." The partners of the aforementioned venture capital institutions said. In the past, due to the low level of relevant laws and regulations to support the development of venture capital, it may not play an effective role in supervision and industrial support, but increase the operating cost of venture capital.

"We also look forward to the publication of the measures, which can promote the interconnection and mutual recognition of the information sharing between the CSRC and the NDRC. At present, we need to record the venture capital institutions in the NDRC and do a good job in the product issuance and filing work in the China Association for basic science and technology, which will increase the operating costs of the institutions to a certain extent." He said. At present, the industry has high expectations for the release of the measures. It is hoped that many departments can jointly sign and issue the final provisions of the measures. Therefore, all departments will refer to the relevant requirements of the measures when formulating relevant venture capital policies, so as to realize the unification of regulatory standards in the field of venture capital.