Chinese venture capital wilts amid IPO drought

Mainland freeze on stock listings needs to end to help the sector, investment fund says

PUBLISHED : Monday, 18 November, 2013, 5:25am
UPDATED : Monday, 18 November, 2013, 6:00am

An investment fund backed by the Shanghai government says lifting the 13-month-long ban on share listings is vital to reinvigorate the troubled venture capital industry and provide the capital needed to lift mainland firms up the value chain to help them compete globally.

Yuan Zhide, a senior executive at Shanghai Venture Capital, which oversees the Venture Capital Guiding Fund of Shanghai, said efforts to nurture technology start-ups had been hamstrung by the central government's ban on initial public offerings.

"The one year suspension of IPOs caused some limited partners [of the funds we invested in] to quit," Yuan said. "The government has to let market forces play a major role in attracting funds and professional managers to the venture capital sector."

Yuan, speaking at a forum, said many investors in domestic venture capital funds - particularly in the private sector - were reluctant to invest given the uncertain prospects for change, constraining capital available to promising firms.

The Shanghai guidance fund was among the first government-backed "funds of funds" in the country to spur technology innovations. It has invested in about 40 venture capital funds.

The China Securities Regulatory Commission called a "temporary" halt to initial share sales in October last year and has yet to announce a timetable for their resumption. The suspension has made it difficult for venture capital funds to exit and take profits from their portfolio firms.

Disenchanted venture capitalists have described this year as a "nuclear winter" for the industry, and Yuan said bold measures were required to support venture capital funds and restore the faith of market players.

"Pension and insurance funds should be encouraged to allocate more capital to venture capital funds to reinforce the country's drive to upgrade its industrial mix," he said.

Beijing has emphasised the need to shift the nation's economic focus from labour-intensive manufacturing to technology firms as it seeks to wield greater influence worldwide.

But financing difficulties have prevented thousands of promising domestic technology start-ups from evolving into bigger players on the technology stage.