China Fund News reporter Maureen

The comprehensive registration system that VC/PE institutions have been calling for for many years is finally here!

On February 1, the comprehensive implementation of the stock issuance registration system reform was officially launched. The entire capital market was excited. Not only the brokerage stocks that directly benefited were restless in advance, but also the listed venture capital companies represented by Sichuan Shuangma and Luxin Venture Capital had also continued to strengthen before this.

Most industry insiders interviewed believe that with the introduction of the comprehensive registration system, venture capital companies will usher in historic opportunities and make first-level exits smoother. The registration system clears up the last and most difficult link of "raising, investing, managing and exiting". The investment turnover rate of venture capital companies has increased, and the certainty of performance has increased. Venture capital that focuses on specialized and new industries has benefited significantly. In the long run, an improvement in the primary investment market environment will help venture capital bring more high-quality companies to the capital market and better serve the real economy.

The comprehensive registration system will improve the capital efficiency of the VC/PE industry

Statistics show that among the more than 40,000 existing RMB funds, more than half of the funds have entered the exit period. The withdrawal of the Science and Technology Innovation Board has greatly eased the pressure on the exit of RMB fund projects. The implementation of the comprehensive registration system will accelerate the exit efficiency of RMB funds in the capital market.

Zhang Yuhan, managing director of CITIC Capital, told reporters that we believe that after four years of piloting, the registration system’s role in promoting the real economy, especially technological innovation entities, has been significantly improved. The rules are also gradually familiar and mastered. With the implementation of the comprehensive registration system, my country's capital market will further improve market-oriented reforms, so as to strengthen market constraints and truly leave the choice to the market.

At the same time, the comprehensive registration system will also help expand direct financing channels for small and medium-sized enterprises and effectively solve the problem of single financing channels for small and medium-sized enterprises. For the venture capital industry, the comprehensive registration system will shorten the cycle from investment to exit, accelerate the efficiency of the use of venture capital funds, and help the venture capital industry serve more and better services for the development of my country's real economy and technological innovation.

Hu Xubo, managing partner of Qiming Venture Partners, also expressed similar views. He believes that the most attractive thing about the draft business rules for the comprehensive implementation of the stock issuance registration system published by the Shanghai and Shenzhen Stock Exchanges is that it further strengthens "leaving the choice to the market" and strengthens market constraints and legal constraints. At the same time, the process and details will be clearer. It is believed that the comprehensive registration system reform can further improve the predictability of listing and support technological innovation and economic development.

The venture capital industry accelerates the survival of the fittest

Although the comprehensive registration system clears up the important link of exit in "raising, investing, managing and exiting", the registration system also means that for venture capital institutions facing many challenges.

In the opinion of Shenzhen Venture Capital, the return on exit of a venture capital fund may not be as good as the return under the previous approval system. Excessive valuation in the primary market may cause valuation inversion, and even listing may bring about the "bubble popping effect" of overvaluation in the primary market. It is difficult for venture capital institutions to make profits from the "Pre-IPO" investment model.

Guo Libo, founder of LP think tank, even bluntly stated that China’s VC/PE industry has entered a development stage in which value creation is the main focus and capital arbitrage is the supplement. If the transformation and upgrading of VC/PE institutions cannot keep up with policy changes and industry efficiency improvements, they will be eliminated at an accelerated pace.

According to data from LP think tank, the IPO exit of RMB funds has shown three 70% phenomena. Specifically, among the more than 700 listed companies that VC/PE funds have reduced their holdings and exited in 2021, the exit amount of the top 100 listed companies reached 70% of the exit amount of all listed companies; the VCs of more than 500 VC/PE institutions /PE funds have reduced their holdings and exited in 2021, and the exit amount of the top 100 VC/PE institutions has exceeded 70% of the overall exit amount; the exit amount of VC/PE funds holding 5% of the shares of listed companies accounted for 70% of the total withdrawal amount.

The three 70% data phenomena show that the exit of RMB funds is also showing a trend of differentiation and head-turning. IPO listing may not necessarily bring deterministic returns to VC/PE funds. Only by discovering and investing in truly good companies can VC/PE obtain substantial returns. The number of IPOs invested is no longer the key to reflecting the performance of VC/PE, but the quality of the IPO companies is the key.

Venture capital bosses call for improving the delisting system

According to Zhang Wei, chairman of Cornerstone Capital, the relaxation of listing review in the United States is also consistent with the rise of high-tech industries.