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21st Century Business Herald reporter Shen Junhan reports from Beijing

Recently, the "Guangdong Provincial Science and Technology Innovation Regulations" (hereinafter referred to as the "Regulations") were officially announced. The "Regulations" consists of 11 chapters and 94 articles, and are planned around the full-process innovation chain of "basic research + technological breakthroughs + achievement transformation + science and technology finance + talent support".

It is worth noting that in the science and technology finance section, the relevant statements about the assessment mechanism of state-owned funds have caused heated discussions in the market. The "Regulations" propose that the science and technology, finance, state-owned assets supervision and management departments of the Guangdong Provincial People's Government set different assessment indicators for the investment period and exit period of state-owned angel investment funds and venture capital funds, comprehensively evaluate the overall operation effect of the funds, and do not use the preservation and appreciation of state-owned capital as the main assessment indicator.

"This is the first time in the country that a place has proposed 'not taking the preservation and appreciation of state-owned capital as the main assessment indicator'. The regulations are somewhat pioneering, and also mean that the assessment mechanism of state-owned funds is gradually being improved and relaxed," a partner from a state-owned venture capital institution analyzed to 21st Century Business Herald.

In recent years, state-owned assets have become the main force of investment in the venture capital market. According to data from the Zero2IPO Research Center, in the first half of 2024, the total disclosed investment amount of state-controlled and state-owned LPs accounted for 81.2%. However, at the same time, the lack of market-oriented incentive mechanisms and fault-tolerant mechanisms has become one of the main institutional obstacles to the sustainable and healthy development of state-owned venture capital.

On June 19, the General Office of the State Council issued the "Several Policy Measures to Promote the High-quality Development of Venture Capital", which once again emphasized the fault tolerance and exemption mechanism of state-owned investment. For example, "optimize the management of venture capital funds funded by the government, reform and improve the fund assessment, fault tolerance and exemption mechanism, and improve the performance evaluation system", "improve the state-owned venture capital management system and due diligence and compliance responsibility exemption mechanism that conforms to the characteristics and development laws of the venture capital industry, and explore the assessment of state-owned venture capital institutions according to the entire fund life cycle".

The "Regulations" issued by Guangdong this time have actively responded to the above policies. At the same time, the 21st Century Business Herald reporter noticed that since this year, Shanghai, Anhui and other places have also issued relevant policies to improve the fault tolerance mechanism and assessment mechanism of state-owned venture capital.

The local government first proposed "not taking the preservation and appreciation of state-owned capital as the main assessment indicator"

It is understood that with a view to building a science and technology financial service guarantee system covering the entire chain of scientific and technological innovation and the entire life cycle of technology-based enterprises, this "Regulation" has made institutional arrangements in terms of building a science and technology innovation investment fund system, management of state-owned venture capital institutions, broadening fund exit channels, science and technology credit support, intellectual property financing, science and technology insurance services, multi-level capital market support, and cross-border science and technology investment and financing.

For example, Article 40 clarifies the science and technology innovation investment fund system, requires guiding social capital to focus on strategic pillar industries, strategic emerging industries, and future industries, and increase investment in seed-stage and start-up technology companies; encourages the establishment of long-term angel investment funds and venture capital funds, and requires setting different assessment indicators according to the different stages of state-owned venture capital funds, etc., and not using the preservation and appreciation of state-owned capital as the main assessment indicator.

It is worth noting that this is the first time that a place has proposed "not taking the preservation and appreciation of state-owned capital as the main assessment indicator", which has also attracted widespread attention from VC/PE institutions.

Guo Libo, founder of LP Investment Consulting, analyzed to 21st Century Business Herald that, first, the Regulations do not propose to use the preservation and appreciation of state-owned capital as the main assessment indicator, but it may still be one of the assessment indicators. Second, from the perspective of the Regulations themselves, it is only a principled statement, and how to make it operational is still very uncertain, and it requires the implementation of detailed rules from subsequent authoritative departments.

After all, many state-owned investment institutions are within the system of state-owned groups, and are assessed, incentivized and constrained according to the unified standards of the state-owned assets system. If the assessment of state-owned assets is differentiated from that at the group level, and special arrangements are made for state-owned investment institutions engaged in angel investment funds and venture capital funds, and the preservation and appreciation of state-owned capital is not used as the main assessment indicator, there is still a lot of follow-up work to be done and breakthroughs to be made at the implementation level. Not only do we need to form specific institutional details, but we also need relevant departments to reach a consensus at the operational level. However, this regulation in Guangdong pays attention to one of the biggest pain points of state-owned investment institutions engaged in venture capital, which is to invest early and invest in small companies. It deserves recognition and praise, but the industry should not have too high expectations.

Yang Jie, director of the fund operations department of Cornerstone Capital, told 21st Century Business Herald that the investment assessment dimensions of state-owned capital (including guidance funds) generally include industrial development and value preservation and appreciation. For state-owned angel investment funds and venture capital funds, under the premise of "not taking the value preservation and appreciation of state-owned capital as the main assessment indicator", their demands for industrial development will be strengthened. These demands include return of investment, technological innovation, talent introduction, industrial upgrading, strategic empowerment (strengthening and supplementing the supply chain, etc.), etc.

Therefore, on the one hand, from the perspective of industrial development, the establishment of this article can, first of all, encourage state-owned capital to liberate its thinking and strengthen capital investment in early-stage investments; secondly, venture capital institutions will further strengthen their industrial empowerment capabilities, and those outstanding venture capital institutions that can better promote industrial development will stand out.

On the other hand, the sustainability of venture capital still requires the continuous circulation of capital and the realization of market commercial value. Although the state-owned part can "not use the preservation and appreciation of state-owned capital as the main assessment indicator", the socialized capital in the investment industry still requires continuous financial returns on investment, otherwise the investment cycle will not be realized.

Therefore, under the condition that "the preservation and appreciation of state-owned capital is not used as the main assessment indicator", the venture capital industry will continue to attach importance to the preservation and appreciation of the fund. Only in this way can the state-owned capital and the expanded part of the venture capital driven by it continue to develop and early-stage investment can continue to circulate.

The assessment and fault tolerance mechanism of state-owned venture capital is gradually improving

Previously, Wang Zhongmin, chairman of the Shenzhen Financial Stability and Development Research Institute and former vice chairman of the National Social Security Fund Council, shared at an internal event hosted by the 21st Century Venture Capital Research Institute that for state-owned asset management institutions, if they directly invest in 100 projects, 99 of which are successful, but one project fails, someone needs to take responsibility for it. This makes state-owned asset management institutions prone to risk aversion when making equity investments.

21st Century Business Herald reporters noted that since this year, more and more places have introduced policies to improve the assessment and fault tolerance mechanism of state-owned venture capital institutions. For example, Article 41 of the Guangdong Regulations stipulates the management of state-owned venture capital institutions, and explicitly requires the establishment of a sound performance assessment, incentive constraint and fault tolerance mechanism for state-owned venture capital institutions, and promotes state-owned venture capital institutions to increase their support for start-up technology companies.

In July this year, the General Office of the Shanghai Municipal People's Government also issued the "Several Opinions on Further Promoting the High-Quality Development of Venture Capital in Shanghai". It proposed to optimize the assessment and evaluation mechanism of state-owned capital, establish and improve a long-term assessment and evaluation mechanism that adapts to the characteristics of the venture capital industry, and strengthen the management of the entire process of "raising funds, investing, managing and exiting". Deepen the pilot of market-oriented operation of state-owned venture capital enterprises, encourage the implementation of effective management personnel constraints and incentive mechanisms within state-owned venture capital enterprises, and combine them with investment benefits, and continue to explore innovations such as follow-up investment, evaluation, and pre-agreed equity exit.

In May, Anhui Province issued the "Implementation Opinions (Trial) on Establishing a Tolerance Mechanism in the Audit of State-owned Capital Investment in Science and Technology Enterprises". The implementation opinions focus on the life cycle of state-owned capital investment, clarify the three basic conditions for the application of the tolerance mechanism, stipulate nine applicable circumstances in four specific links and two other applicable circumstances, and at the same time refine and standardize the audit tolerance identification procedures and related work requirements.

With the improvement of the assessment mechanism and the establishment of a fault-tolerant mechanism for state-owned venture capital institutions, it will also have a positive impact on the development of the venture capital ecosystem.

Yang Jie, director of the fund operations department of Cornerstone Capital, told 21st Century Business Herald that, first of all, it will help avoid distortion of investment actions in the venture capital industry, and can encourage the venture capital industry to find the most investment-worthy companies with a long-term investment philosophy, and achieve mutual promotion and common development of patient capital and technological innovation.

Secondly, it is conducive to expanding the capital source of early-stage investment, encouraging state-owned enterprises to pay more attention to and invest in early-stage investment business, and bringing more fresh water to the venture capital market. Thirdly, it is conducive to reducing the operating and management costs of fund management institutions, improving the concentration of fund management institutions, and better focusing on long-term investment business.