Looking back on the rise and development of venture capital in China, the withdrawal of venture capital has always been the focus of attention and debate among investment institutions, high-tech enterprises, governments and scholars in different ebb and flow periods. Exit is the most important link of venture capital. Venture capital projects that can not be successfully withdrawn can not bring effective returns to investors, entrepreneurial teams and management can not get corresponding benefits, and venture capital can not be effectively circulated.

Therefore, domestic and foreign venture capital funds have been eagerly looking forward to the scheduled launch of China Growth Enterprise Market. However, after a long wait of more than three years, the launch of China Growth Enterprise Market is still far away, and the exit mechanism of venture capital has not been effectively solved. The lack of exit mechanism of venture capital has become one of the biggest risk factors in China's venture capital industry. There is nothing mysterious about China's venture capital withdrawal, but a feasible withdrawal plan should be designed according to China's national conditions. Many famous international venture capital institutions have invested in dozens of projects in China, but only a few have successfully withdrawn. The reason is that they don't know enough about China's policies, regulatory environment and entrepreneurial culture. According to China's national conditions, combined with many years' experience in corporate financing and investment banks at home and abroad, and more than ten investments in China, this paper discusses several exit schemes, some of which have strong China characteristics, and hopes to communicate with many venture capitalists.

I. Setting up an overseas holding company for overseas direct listing Due to the limitations of China's current policies and regulatory environment, most overseas venture capital companies generally suggest that the best way to withdraw from China's venture capital is to list overseas in the form of offshore companies. This kind of investment listing cases abound, and the more successful ones are Sina, Sohu, Netease, AsiaInfo, UT Starcom, Kingdee and so on. Overseas alternative capital markets include: Hong Kong Main Board, Hong Kong Growth Enterprise Market, Singapore Main Board, Singapore Growth Enterprise Market and Nasdaq. Whether international venture capital institutions can successfully go public overseas in the form of offshore companies and realize their investment withdrawal has become the most important decision-making factor for international venture capital institutions to invest in China startups.

Second, it is of course the first choice for domestic joint-stock companies to withdraw from overseas direct listing, but investment institutions and enterprises need to invest considerable energy and manpower, facing the unpredictability of supervision in the process of withdrawal. Due to policy restrictions, many enterprises adopt the form of domestic joint-stock companies issuing H shares overseas, which greatly reduces the potential risks in the approval process. According to the nature of equity, joint-stock companies can be set up into two types: enterprises that accept domestic venture capital can be set up as pure domestic joint-stock companies; Enterprises that accept foreign venture capital can be established as joint-stock companies. Of course, the advantages and disadvantages of this listing method are similar to those of the first method except that the sponsors' shares are restricted by the company law and cannot be fully circulated for the time being. The defect corresponding to the failure to achieve full circulation is that although the enterprise has been listed overseas, venture capital cannot be realized or withdrawn in a short time. Thankfully, with the continuous integration of China's capital market with the international market after China's entry into WTO, especially the gradual relaxation of the supervision of overseas listing of enterprises that have accepted international venture capital, the circulation of overseas sponsors' shares in H shares is just around the corner, which can be seen from the policy changes of B shares after last September.

Third, domestic companies indirectly go public overseas through backdoor. There are many cases of domestic companies going public by backdoor overseas, mainly focusing on the US OTCBB market and the main board in Hong Kong. Venture capital institutions generally do not choose the enterprises they invest in, mainly because (1) shell companies generally have poor operating conditions or market image due to different historical reasons, especially overseas listed companies, which have great economic and cultural differences in different regions, and their internal potential problems may bring many legal, financial and operational risks; (2) The acquisition of part of the equity of shell companies requires a high cost and a lot of cash, which is difficult for ordinary high-tech enterprises to bear, unless it is a powerful real estate company or trading company, and there is a great financial risk in the way of providing bridge loan through financial companies; (3) The strict supervision and disclosure requirements of overseas capital markets pose a great challenge to the experience and ability of enterprises operating backdoor or their financial advisory institutions; (4) Even if the backdoor is completed, a series of links, such as asset replacement, business restructuring, reshaping the image of the capital market and maintaining the stock price of the secondary market, will consume great manpower, material resources and financial resources of shareholders and management.

Four. Established a joint-stock company in China and listed on the main board of China. Because most domestic venture capital institutions have the background of government, state-owned companies or listed companies, compared with international venture capital institutions, their motivation and pressure to realize value-added and realization through venture capital are not so urgent. At the same time, due to the restrictions of foreign exchange control and foreign investment, their funds cannot be invested in overseas offshore companies in the short term. Therefore, for such venture capital institutions, the invested enterprises will be cultivated to a certain stage and listed on domestic A shares. After listing, you can also consider using the equity of listed companies as collateral to obtain commercial loans and other forms to realize capital flow in disguise. For the exit mode of domestic A-share listing, the shortcomings are also obvious. Domestic A-share companies have a long waiting period for listing (such as share reform, counseling, restricted access of brokers, and approval by CSRC). ), and it is difficult for many enterprises to decide and control their own destiny independently, which is very unfavorable to high-growth technology enterprises. According to incomplete estimates, there are hundreds of enterprises in China waiting in line to be listed on the Shanghai Stock Exchange. During this waiting period, there is a great possibility of black-box operation, and its opacity is very unfair to companies without special background or super-large scale, especially to private enterprises and high-growth enterprises.

Verb (abbreviation of verb) indirect listing of domestic A shares through backdoor Another indirect listing method is backdoor listing of domestic A shares. Compared with overseas backdoor listing, the maneuverability and controllability of domestic backdoor listing will be relatively higher. However, just like listing on the domestic main board, due to the illiquidity of state-owned shares and legal person shares, venture capital funds can only withdraw their funds by means of agreement transfer or mortgage of the shares of listed companies. However, if the operation method is proper, the main business of shell company can be positioned as high-tech investment holding. As a major shareholder of A-share companies, venture capital funds can allow listed companies to acquire the equity of the enterprises invested by the funds by using book funds or issuing additional shares. As long as these enterprises have excellent performance and reasonable purchase price, this kind of acquisition behavior can not only provide opportunities for venture capital to withdraw from liquidation, but also increase the performance of listed companies. However, the operation of A-share backdoor needs sufficient funds and the operation ability of A-share companies in the market outlook.

Due to the special legal and policy environment in China, it should be of practical significance for venture capital companies to withdraw through equity transfer. This kind of property right transaction mode is more suitable for the invested enterprises with relatively sunrise industry, good enterprise growth and certain profit scale, but for various reasons, it is not enough for listing requirements and conditions, or it cannot be listed as soon as possible within two years. Equity transfer can be done through investment institutions' own channels, such as facilitating equity transfer between different investment institutions, or by professional institutions such as investment banks and merger and acquisition departments of securities companies. At present, more and more international strategic investors and listed companies are willing to buy enterprises in China, and their equity, whether domestic or foreign, can be realized in this way. If it is acquired by A-share company, it is better to be in cash. If it is acquired by an overseas listed company, it can be a combination of cash and stocks. For example, Sina's recent acquisition of Xunlong Company and AsiaInfo's acquisition of Bangxun are very successful exit cases. It is particularly worth mentioning that China has established and improved property rights trading institutions and systems in major cities such as Beijing, Shenzhen and Shanghai, which are responsible for promoting the development of high-tech industries, building a bridge between technology and capital, and improving the exit mechanism of venture capital. Using this effective property rights trading platform, start-ups and small and medium-sized enterprises have the opportunity to

Seven, management buyback to accept venture capital enterprises grow to a certain scale, management buyback will be an option for early venture capital withdrawal. At the same time, due to the broadening of financing channels for domestic management through trust and other means, management repurchase will become more and more popular without involving state-owned assets. Eight. Liquidation For the invested enterprise, if it encounters poor management, major changes in the management team, or major adverse effects from the market and environment, venture capital institutions can only choose liquidation to reduce and stop investment losses in time. To sum up, when considering the exit plan, venture capital institutions must be clear about their own goals, design and implement the corresponding exit plan with the help of professional institutions in combination with the actual legal and regulatory environment in China.