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Chinese Equity Industry Responds to Government Call to Help Commercialize Sci&Tech Discoveries

FOF Weekly Updated June 13, 2021


By Shenshen

 

President Xi Jinping recently issued a call to arms to support sci&tech self-sufficiency and independence. And Chinese venture capital and private equity industries are answering, taking great leaps to commercialize sci&tech advances. Nonetheless, extra efforts to tackle policy, market, technology and finance challenges are still needed.

 

Shedding Light on Future Progress

 

While chairing the 19th meeting of the Central Committee for Deepening Overall Reform on the afternoon of May 21st, President Xi Jinping reiterated the importance of stepping up efforts to realize sci&tech self-sufficiency and independence.

 

That has directed the charge. But to really spur sci&tech development, fiscal policy – or more exactly, government spending – has an essential role to play. Liu Kun, Finance Minister of the PRC, stressed the duties and responsibilities of fiscal policy when promoting innovation and industrial upgrading in his article, “Striving to Achieve High-Quality Development of Fiscal Policy”. This requires government investment funds to play its role and then leverage private capital to accelerate industrial development. The highlights of the article are as follows:

 

  • Fiscal policy: Take sci&tech as the key area of financial expenditure; arrange investment funds in the central budget to support sci&tech innovation and structural adjustment; implement policies around tax, asset management, government procurement and finance to support sci&tech innovation; and promote the commercialization of sci&tech findings and discoveries.

 

  • Industry development: Coordinate relevant fund sources to support the high-quality development of manufacturing; reengineer the industrial base in depth; and accelerate the formation of an independent, controllable, safe and stable industrial chain and supply chain.

 

  • Government investment fund: Let government investment funds play a guiding role; promote private capital to increase investment; and accelerate the development of integrated circuits, new materials, next-generation information technology and other industries.

 

  • Incentives: Increase incentives and security to spur innovation; build a profit distribution mechanism that fully reflects the value of knowledge, technology and other innovation elements; and stimulate sci&tech experts to take the initiative to innovate and create.

 

The Chinese Academy of Sciences Takes the Lead

 

The Chinese Academy of Sciences Venture Capital (CASVC), taking advantage of the academy’s research and development backgrounds, is proving a good example.

 

In Wuhan in 2018, it established CASFOF I, a fund of funds (FoF) for transforming CAS sci&tech achievements. The fund focuses on early- and middle-stage projects in various frontier sci&tech fields, including advanced manufacturing, TMT, medical health, new energy, new materials and other key areas.

 

CASFOF II was located in Guangzhou with a scale of CNY6 billion, mainly covering artificial intelligence, chips, biomedicine, new materials, new energy, intelligent manufacturing, next-gen information technology, etc.

 

Wu Lebin, chairman of CASVC, has coded his experience into a numerical sequence:

 

1. One channel, which can link knowledge achievements to the capital market and build an ecological system for commercializing sci&tech achievements.

2. Two entities, namely, funds and industrial bases.

3. Three-chain linkage, which is the linkage of innovation, industrial and capital chains.

4. Four-part (4P) collaboration. The collaboration of IP (intellectual property), GP (fund manager), LP (investor), and SP (strategic partner).

5. Five life cycle stages that all sci&tech companies must go through.

 

Wu Lebin believes that marketable sci&tech achievements all have four features: clear market positioning, conformity to the existing scientific principles, repeatable sci&tech achievements and market entry qualification.

 

Aside from CASFOF, more sci&tech innovation FoFs are blossoming across China. On May 22, TEDA Holdings, CAS Holdings and Tianjin Binhai Industrial Development Fund jointly established a sci&tech innovation FoF with a total size of no less than CNY10 billion, considering sub-funds.

 

Taking a lesson from foreign government-guided funds, Wu Lebin believes that “for the early-stage investment of sci&tech companies, government funding often needs to give up profits and tolerate write-offs. When making contributions to the FoFs or sub-funds, government funding rarely demands high returns”.

 

Facing the Four-Pronged Challenge

 

Policy support plus the capital market – especially private equity funds – have catalyzed sci&tech development. Nevertheless, the agenda still faces policy, market, technology and finance hurdles.

 

Policy: Mutually contradicting policies and an underdeveloped incentive mechanism.

 

Cheng Xiaojian, Division Director of Shanghai Science and Technology Exchange Center says that “There are more than 60 policies related to the transformation of sci&tech achievements, in forms of laws, departmental rules and local government policies. However, some policies can overlap with each other, governmental red tape can be more effective than the law, and some policies can clash with the legal provisions.”

 

The Director of the Shanghai Municipal Education Commission’s Science and Technology Development Center, Lu Zhen, agrees. “Sci&tech innovation and achievement transformation is not only a matter of sci&tech and industry but also a matter closely related to China’s policy system and development. Looking at the actual situation of achievement transformation, we can conclude that underdeveloped incentive mechanisms within institutions has inhibited breakthroughs.”

 

An incentive mechanism is a crucial factor for policy to become a driving force in the transformation of sci&tech achievements. However, the underdeveloped incentive mechanism, the mutually contradictory policies and regulations, and the evaluation capacity gap has led to a serious dilution of relevant policies.

 

Market: Information asymmetry and inexistent talent benchmarking criteria.

 

Technology commercialization needs a market. Currently, local Chinese governments and relevant units are touting their funding, policies, land and so on to motivate the commercialization of achievements and the landing of industries. This can help local governments to harbor sci&tech resources. But it can also foment information segmentation and regional protectionism, stymieing a nation-level market and precluding supply-demand matching.

 

That being said, a national market is being formed and so is the bourse. Talents turn out to be another element that needs extra effort. Luckily, some cities are now taking early steps to explore the evaluation and ranking system of commercialization managers.

 

Technology: Creativity and maturity weaknesses.

 

Studies show that sci&tech achievements in colleges and universities are not mature enough for the demand side. Compared to the other two challenges as mentioned above, the technology challenge is the most urgent – like Liebig’s barrel, or the law of the minimum.

 

Finance: Direct financing and capitalization lagging behind.

 

Property rights and the matchmaking of follow-up resources and the market have been two tough issues that discourage direct financing. Venture capital and private equity investment need to play a greater role to leverage the capital market to speed up the commercialization of sci&tech achievements.

 

Some Final Words

 

Tech is ubiquitous. It’s releasing economic vigor, revolutionizing daily life, and taking human beings to the future as well as promising a future. The call to capitalize on tech findings and discoveries is a great opportunity for China’s private equity and venture capital players, and challenges are not unconquerable.  


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Name
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CHINA-BASED
GLOBAL PLATFORM
FOR GPs & LPs
FOF WEEKLY Account terms of service
1. Members registered in this website must abide by the provisions on the administration of Internet electronic announcement service, and shall not publish information such as defamation of others, invasion of others' privacy, infringement of others' intellectual property rights, spread of viruses, political speech, commercial information, etc.
2, in all the articles published in the site, the site has the final right to edit, and reserve the right to print or publish to a third party, if your information is not complete, we will have the right to use your work published in the site without any notice.
3. During the registration process, you will choose the registration name and password. The choice of registration name shall comply with laws, regulations and social ethics. You must keep your password confidential and you will be responsible for all activities that take place under your registered name and password.
Already have an account? Sign in!
E-mail adress

Chinese Equity Industry Responds to Government Call to Help Commercialize Sci&Tech Discoveries

FOF Weekly Updated June 13, 2021


By Shenshen

 

President Xi Jinping recently issued a call to arms to support sci&tech self-sufficiency and independence. And Chinese venture capital and private equity industries are answering, taking great leaps to commercialize sci&tech advances. Nonetheless, extra efforts to tackle policy, market, technology and finance challenges are still needed.

 

Shedding Light on Future Progress

 

While chairing the 19th meeting of the Central Committee for Deepening Overall Reform on the afternoon of May 21st, President Xi Jinping reiterated the importance of stepping up efforts to realize sci&tech self-sufficiency and independence.

 

That has directed the charge. But to really spur sci&tech development, fiscal policy – or more exactly, government spending – has an essential role to play. Liu Kun, Finance Minister of the PRC, stressed the duties and responsibilities of fiscal policy when promoting innovation and industrial upgrading in his article, “Striving to Achieve High-Quality Development of Fiscal Policy”. This requires government investment funds to play its role and then leverage private capital to accelerate industrial development. The highlights of the article are as follows:

 

  • Fiscal policy: Take sci&tech as the key area of financial expenditure; arrange investment funds in the central budget to support sci&tech innovation and structural adjustment; implement policies around tax, asset management, government procurement and finance to support sci&tech innovation; and promote the commercialization of sci&tech findings and discoveries.

 

  • Industry development: Coordinate relevant fund sources to support the high-quality development of manufacturing; reengineer the industrial base in depth; and accelerate the formation of an independent, controllable, safe and stable industrial chain and supply chain.

 

  • Government investment fund: Let government investment funds play a guiding role; promote private capital to increase investment; and accelerate the development of integrated circuits, new materials, next-generation information technology and other industries.

 

  • Incentives: Increase incentives and security to spur innovation; build a profit distribution mechanism that fully reflects the value of knowledge, technology and other innovation elements; and stimulate sci&tech experts to take the initiative to innovate and create.

 

The Chinese Academy of Sciences Takes the Lead

 

The Chinese Academy of Sciences Venture Capital (CASVC), taking advantage of the academy’s research and development backgrounds, is proving a good example.

 

In Wuhan in 2018, it established CASFOF I, a fund of funds (FoF) for transforming CAS sci&tech achievements. The fund focuses on early- and middle-stage projects in various frontier sci&tech fields, including advanced manufacturing, TMT, medical health, new energy, new materials and other key areas.

 

CASFOF II was located in Guangzhou with a scale of CNY6 billion, mainly covering artificial intelligence, chips, biomedicine, new materials, new energy, intelligent manufacturing, next-gen information technology, etc.

 

Wu Lebin, chairman of CASVC, has coded his experience into a numerical sequence:

 

1. One channel, which can link knowledge achievements to the capital market and build an ecological system for commercializing sci&tech achievements.

2. Two entities, namely, funds and industrial bases.

3. Three-chain linkage, which is the linkage of innovation, industrial and capital chains.

4. Four-part (4P) collaboration. The collaboration of IP (intellectual property), GP (fund manager), LP (investor), and SP (strategic partner).

5. Five life cycle stages that all sci&tech companies must go through.

 

Wu Lebin believes that marketable sci&tech achievements all have four features: clear market positioning, conformity to the existing scientific principles, repeatable sci&tech achievements and market entry qualification.

 

Aside from CASFOF, more sci&tech innovation FoFs are blossoming across China. On May 22, TEDA Holdings, CAS Holdings and Tianjin Binhai Industrial Development Fund jointly established a sci&tech innovation FoF with a total size of no less than CNY10 billion, considering sub-funds.

 

Taking a lesson from foreign government-guided funds, Wu Lebin believes that “for the early-stage investment of sci&tech companies, government funding often needs to give up profits and tolerate write-offs. When making contributions to the FoFs or sub-funds, government funding rarely demands high returns”.

 

Facing the Four-Pronged Challenge

 

Policy support plus the capital market – especially private equity funds – have catalyzed sci&tech development. Nevertheless, the agenda still faces policy, market, technology and finance hurdles.

 

Policy: Mutually contradicting policies and an underdeveloped incentive mechanism.

 

Cheng Xiaojian, Division Director of Shanghai Science and Technology Exchange Center says that “There are more than 60 policies related to the transformation of sci&tech achievements, in forms of laws, departmental rules and local government policies. However, some policies can overlap with each other, governmental red tape can be more effective than the law, and some policies can clash with the legal provisions.”

 

The Director of the Shanghai Municipal Education Commission’s Science and Technology Development Center, Lu Zhen, agrees. “Sci&tech innovation and achievement transformation is not only a matter of sci&tech and industry but also a matter closely related to China’s policy system and development. Looking at the actual situation of achievement transformation, we can conclude that underdeveloped incentive mechanisms within institutions has inhibited breakthroughs.”

 

An incentive mechanism is a crucial factor for policy to become a driving force in the transformation of sci&tech achievements. However, the underdeveloped incentive mechanism, the mutually contradictory policies and regulations, and the evaluation capacity gap has led to a serious dilution of relevant policies.

 

Market: Information asymmetry and inexistent talent benchmarking criteria.

 

Technology commercialization needs a market. Currently, local Chinese governments and relevant units are touting their funding, policies, land and so on to motivate the commercialization of achievements and the landing of industries. This can help local governments to harbor sci&tech resources. But it can also foment information segmentation and regional protectionism, stymieing a nation-level market and precluding supply-demand matching.

 

That being said, a national market is being formed and so is the bourse. Talents turn out to be another element that needs extra effort. Luckily, some cities are now taking early steps to explore the evaluation and ranking system of commercialization managers.

 

Technology: Creativity and maturity weaknesses.

 

Studies show that sci&tech achievements in colleges and universities are not mature enough for the demand side. Compared to the other two challenges as mentioned above, the technology challenge is the most urgent – like Liebig’s barrel, or the law of the minimum.

 

Finance: Direct financing and capitalization lagging behind.

 

Property rights and the matchmaking of follow-up resources and the market have been two tough issues that discourage direct financing. Venture capital and private equity investment need to play a greater role to leverage the capital market to speed up the commercialization of sci&tech achievements.

 

Some Final Words

 

Tech is ubiquitous. It’s releasing economic vigor, revolutionizing daily life, and taking human beings to the future as well as promising a future. The call to capitalize on tech findings and discoveries is a great opportunity for China’s private equity and venture capital players, and challenges are not unconquerable.