1. Venture Capital Guiding Fund for Technology-based SMEs
Li Wenlei
Administration Center of Innovation Fund for Technology-based SMEs
Ministry of Science and Technology, P.R. China
July 3, 2008

2. Outline Background of VC Guiding Fund Objectives of VC Guiding Fund
Strategy of VC Guiding Fund
Operation of VC Guiding Fund
Current Achievement & Next Plan

3. Background of VC Guiding Fund
1. No. of VC investment organizations in China increased significantly in 21 century

4. Background of VC Guiding Fund
2. The amount of VC investment in China also increased significantly in 2007
RMB

5. Background of VC Guiding Fund
3. No. & amount of VC investment in technology based companies occupy about 60% among the total no. & amount of VC investment in China

6. Background of VC Guiding Fund
4. Lack of VC investment in early stage of tech-based SMEs due to high risk and high uncertainty
Million RMB
IPO
35-45
Lack of VC
investment
In early stage
3rd Round
Profit>RMB30m
25-35
2nd Round
Breakeven,Profitable
10-15
Most VC funds invest in mature stage
1st Round
Revenue
3-5
Seed
Prototype
Establishment 2 3 4 5 6 7 8
Yrs

7. Background of VC Guiding Fund
5. Government and state-owned VC investment is still the largest source of VC, the portion of private VC is insufficient compared with mature foreign VC market
Foreign VC 6%
Government
Others
16%
13%
SOE
Individual
17% 5%
Bank 8%
Listed
company
LLC 4%
31%

8. Background of VC Guiding Fund
6. The development of tech-based SMEs in China
Over the past 20 years, tech-based SMEs in China contributed 65% of patents, 75% of technology innovations and 80% of new products.
Lack of capital is the biggest bottleneck for the growth of tech-based SMEs.
Most founders of tech-based SMEs are strong in R&D but weak in management, sales & marketing, fundraising etc.

9. Objectives of VC Guiding Fund
To ease up the bottleneck of fundraising of tech-based SMEs by encouraging earlier-stage VC investment.
To attract private capital flowing into VC by profit sharing policy
To develop tech-based founders on entrepreneurship by post-investment management
To foster professional early-stage investment and management team

10. Strategy of VC Guiding Fund
Innovation of Government Financing
Indirect investment: leverage the methodology of VC and guide the investment of multiple private capital sources
Equity investment vs grants
VC experts appraisal vs technology experts appraisal

11. Strategy of VC Guiding Fund
Target on Demand of tech-based SMEs
Focus on earlier-stage tech-based SMEs
Leverage more equity investment
Bring more added value through VC experts to foster professional early-stage investment and management team

12. Strategy of VC Guiding Fund
Candidate category of VC Guiding Fund
VC firms
VC management firms
Incubators with investment skills
Potential deal flow

13. Strategy of VC Guiding Fund
Four ways of VC Guiding Fund
Fund of funds: <=25%, with condition, sharing profit principle
Parallel investment: max. of 3M RMB, 50% profit as reward to VC
Subsidy to VC: 5% of investment amount with max. of 5M RMB
Pre & Post-investment subsidy: max. of 3M RMB

14. Operation of VC Guiding Fund
Interim Measures on Administration of Venture Capital Guiding Fund for Tech-based SMEs (Caiqi #) was promulgated by Ministry of Finance and Ministry of Science and Technology (MOST), effective as of July, 2007
Fund source comes from central financial budget annually

15. Operation of VC Guiding Fund
Ministry of Finance and MOST are co-in charge of decision making
Investment Advisory Committee provides expertise in VC investment
Administration Center of Innovation Fund is responsible for daily operation
Local governments recommend qualified VC firms

16. Current Achievements and next plan
95 qualified VC firms applied for VC guiding fund in 2007
50 VC firms got guiding fund subsidy，with amount of 71M
52 early-stage tech-based SMEs got Pre-investment subsidy with amount of 29M
On-going allocation of subsidy to VC and Pre & Post investment subsidy
Pilot the fund of funds and parallel investment

17. Thank You!