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Security does not come from value preservation and appreciation

It is about "reform and innovation, tolerance of failure"

In the first half of this year, the investment promotion team of Shenzhen Guangming District came to Shanghai and visited the biopharmaceutical company where Wang Xin worked twice.

In important fields such as biomedicine, integrated circuits, and artificial intelligence, there is fierce competition between Shenzhen and cities in the Yangtze River Delta.

"We are looking for a landing point for long-term industrial development." Wang Xin, chief technology officer of Shanghai Longyao Biotechnology, told China News Weekly that the company's research and development drug CD20 target CAR-T is about to enter the second phase of clinical trials and needs policy and financial support. Shenzhen established a new 5 billion yuan biomedical industry fund last year and is looking for projects widely. "This is a good opportunity."

As equity investment has become the key to local investment attraction, Shenzhen has explored a new path to develop the local "20+8" industrial plan: setting up industrial direct investment fund groups in batches, vertical investment directions, and selecting professional GPs (fund managers) for management.

When it comes to venture capital, Shenzhen has a first-mover advantage. It is the home base of RMB funds and the birthplace of venture capital in China: in 1999, the largest venture capital (VC) company in China, Shenzhen Capital Group, was born; in 2003, the country's first local venture capital regulation was promulgated; in 2015, city and district government guidance funds began to be implemented.

The security requirements of maintaining and increasing the value of state-owned assets have always put risky equity investment operations in a difficult position. "Shenzhen state-owned assets have always followed the rules of market-oriented investment institutions, and we have also tried to use market-oriented means to solve non-market-oriented problems." Li Ying, chairman of Longhua Capital, told China News Weekly that the term "patient capital" has put forward higher requirements for state-owned venture capital.

At a time when land finance is shifting to equity finance, how can this city of “venture capital marketization” that gave birth to the “Shenzhen model” solve the problem of “patient capital”?

The transformation of scientific and technological achievements is a challenge for domestic guidance funds to "invest early and invest in small companies". Photo/IC

Industrial funds "play big tricks"

At the end of June, Wang Xin came to Guangming District to participate in the first roadshow promoted by this biopharmaceutical industry fund.

He was the first to speak on stage, with more than a hundred investors, corporate executives, experts and scholars, and representatives of industrial parks sitting in the audience. "We have been adding WeChat. Compared with sending business plans, on-site communication can help us get to know us more deeply." More than a month after the meeting, the company and the GP of the fund, Fujian Capital, started communication with teams at all levels; other investment institutions, Nanshan, Luohu and other districts also extended "olive branches".

"Shenzhen's funding support model is very flexible. We hope to join a group of companies that are valued and cultivated by the local government and play a leading role in the industry." Wang Xin said that in comparison, the industrial chains in Shanghai and Suzhou are relatively mature and the company density is higher.

"The Yangtze River Delta region often comes to Shenzhen to recruit projects. We are all catching up with each other, and the overall pressure is quite high." Speaking of competition, an investment manager of a venture capital firm with state-owned assets commented to China Newsweek. It is understood that the state-owned enterprise reform in Shenzhen in the early years caused a large number of state-owned enterprises to withdraw from competitive fields, and the investment in infrastructure was limited, such as semiconductor and biopharmaceutical production lines. State-owned assets began to assume more financing functions.

Fujian Capital also started in Shanghai and is controlled by Fosun Pharma, focusing on investments in the medical and health sector. Liu Xiaohe, head of investor relations, told China News Weekly that the investment team often explores projects in Shenzhen, Guangzhou and Hong Kong, but the selection behind the scenes "is still a challenging story."

In January last year, when Fu Jian's team noticed the news of the public selection of the first batch of "20+8" funds in Shenzhen, it was less than a week away from the deadline. The team worked "overtime" to demonstrate its advantages. After obtaining the public notice, it built a project library and industrial map of more than 3,000 local biopharmaceutical companies in Shenzhen, and pointed out the weak links in the industrial chain. In June this year, the Pengfu Fund managed by the team was officially registered, with a target scale of 5 billion yuan, requiring all investments to be made in the fields of biopharmaceuticals, funds and cells, and all investments to be made in companies registered in Shenzhen.

The "temptation" that makes GPs rush to Shenzhen is that in 2022, Shenzhen issued a series of documents, proposing the concept of "one industrial cluster, one special fund" to focus on the "20+8" industrial development policy, namely 20 strategic emerging industries and eight future industries.

In the two lists that have been made public, a total of 9 funds have found managers. Fujian Capital is not the only one that has been invited to Shenzhen. In December last year, China Merchants Zhiyuan Capital, which was selected as the GP of the high-end equipment industry fund, moved to its headquarters in Futian and also cooperated with Guangming District to raise its first 700 million yuan fund to invest in industries in the district. The GPs involved also include Skyworth Investment, Songhe Capital, private equity under Shenzhen Capital Group, the joint venture private equity of Shenzhen Investment Holdings and Cornerstone Capital, and Beijing-based Jinshi Investment and CICC Capital.

These are the winners after "overcoming all difficulties". Shenzhen Capital Group, which has obtained the management rights of the 3 billion yuan new material industry fund and the 1.5 billion yuan synthetic biology industry fund, told China News Weekly that more than a dozen institutions applied for the synthetic biology industry fund at that time. After the initial screening of due diligence, 8 entered the re-examination and final defense stage. The new material industry fund sets high requirements for the historical investment performance of the institution. "Based on the challenges in the industrial space and resource elements in Shenzhen's new materials field, it is planned to give priority to the screening of enterprises with high technological content and insensitive resource elements." The municipal guidance fund managed by Shenzhen Capital Group has more than 2,900 investment projects around the "20+8" with an amount of more than 230 billion yuan, accounting for more than 80% of the total.

In addition, the fund also covers the fields of smart sensors, new energy vehicles, cells and genes, digital creative equipment, brain science and brain-like intelligence, with a scale of 1 billion to 5 billion yuan. The scale of each fund is not "amazing". In fact, starting from 2023, hundreds of billions of industrial funds will appear in succession across the country, and Shenzhen's setting around "20+8" is relatively more vertical.

As of last year, Shenzhen registered national, municipal and district-level industrial funds subscribed approximately 156.4 billion, 158.5 billion and 42.2 billion yuan respectively, far higher than venture capital funds. How to avoid involution and homogeneous competition? Shenzhen Capital Group said that various types of guidance funds should improve their differentiated positioning. "Localities should determine their industry positioning based on resource endowments and comparative advantages, be wary of the labels and follow-up excess of emerging industries, and prevent the occurrence of chain owners in various places."

The Shenzhen model requires joint investment from the city and district. In the first round of fundraising for Pengfu Fund, state-owned assets from the city's guidance fund and five districts including Pingshan accounted for 70%.

This is quite common in Shenzhen's fund ecosystem. For example, among the 82 sub-funds of Shenzhen Angel Fund, more than 30% have district guidance funds participating in the investment. "The linkage between the city and the district can improve the efficiency of fund use and avoid disorderly competition and blind internal circulation." The Bao'an District Guidance Fund, which has focused on participating in four funds of the "20+8" industrial cluster funds, told China News Weekly that the city-level organization has more professional research forces to lead the research and judgment of investment projects, while the district-level can focus on regional industries to make investment promotion more precise.

In May 2021, the head of a start-up company was giving a speech at a special investment and financing roadshow organized by Futian Guidance Fund. Photo courtesy of Futian Guidance Fund

How can government LPs fulfill their “duties”?

Whether GP can manage flexibly also depends on the government's "decentralization". Li Fan, CEO of Fujian Capital, said that the characteristic of Shenzhen Fund is that the government has a veto power over projects only in terms of compliance.

After 2018, government-guided funds became the largest fund provider in the primary market, with Shenzhen accounting for a higher proportion. According to Zero2IPO research data, as of last year, Shenzhen had established 9 municipal-level and 13 district- and county-level guidance funds, with a total target size of 222.03 billion yuan and a subscription ratio of 98.6%, significantly higher than the national average.

In August 2015, Shenzhen Municipal Government Guidance Fund and Futian District Guidance Fund were established successively. The municipal scale is 100 billion yuan and is managed by Shenzhen Capital Group. The funds invested in 5,013 investment events. About 31.2% of the companies are located in Shenzhen, such as Everwin Precision, BYD, BGI, Mindray Medical, and China Science and Technology Testing.

Wang Yunzhan, general manager of the Futian District Guidance Fund, stressed to China Newsweek that "the government should do its best to fulfill its LP (fund investor) duties." "The professional threshold for investment is very high, and we are deeply aware of this." He said, "There may be state-owned LPs in the market who make 'unreasonable' requests, and even want to participate in GP. Institutions should be allowed to play their professional expertise, which requires us to reduce abnormal interference or intervention. Apart from returning the investment, there are basically not many requirements."

The Futian District Guidance Fund, which needs to assume the position of a financial center, focuses on exploring GPs to form clusters and leverage social capital. This guidance fund has paid-in capital of 9.4 billion yuan. According to Hurun's "2024 Global Unicorn List", as of last year, the cumulative size of the sub-funds managed exceeded 166.1 billion yuan, which was nearly 13 times larger. Together with the sub-fund cluster, it has invested in 122 global unicorns with a total valuation of 2.29 trillion yuan. "It is actually a strategy to diversify risks, and behind it is our investment in more than 3,500 projects," said Wang Yunzhan.

Talking about his experience, he believes that the first thing is to establish a complete and market-oriented sub-fund selection system and implement it. The key lies in "selecting people": choosing the right GP can not only help control risks, but also bring good investment returns.

Therefore, the Futian Guidance Fund initially selected a group of local leading venture capital institutions, such as Shenzhen Capital Group, Morningside Venture Capital, and Songhe Capital, "to reduce communication costs while becoming familiar with the business before daring to expand further"; then selected cutting-edge investment institutions to support industry innovation while pursuing excess returns, "founders often have worked in the industry for many years and are more motivated to achieve good results"; the third step was to select CVC (industrial capital), leveraging listed companies and well-known companies with industrial and real economy backgrounds, "which have advantages in attracting investment and mergers and acquisitions exit"; the fourth step was to invest in large national, provincial and municipal funds, and require them to be located in Futian to form a magnifying effect.

The post-investment management department where Li Ao works is usually in close contact with the industrial department of the district government, and is responsible for connecting with the company's demands in terms of venues, talents, business scenarios, business expansion, etc. He told China News Weekly that the agreement with the sub-fund mainly emphasized the industry direction and the need to complete a 1.5-fold return on investment within the investment period, "but as long as there are no major problems with the project itself, the decision will be left to the GP." The agreement also clearly stipulates that LPs only review the compliance of the project and do not conduct research and judgment or interfere with the project itself. Nationwide, government-guided funds basically have seats on the investment committee. In practice, the main difference lies in the frequency and scope of the use of the veto power.

Yilanke, a new energy company located in Longgang District, mainly deals in modular photovoltaic storage systems. The company received Pre-A round of financing last year. Co-founder Xin Hailong told China News Weekly that the team had received invitations from East China, Central China and Southwest China, and finally chose to settle in Shenzhen. One of the reasons was that "the constraints and gambling conditions of investment institutions are relatively loose, and we can develop at our own pace."

However, marketization sometimes creates bottlenecks for the government’s demand for attracting enterprises. An investment manager at Longhua Capital said that many of the government’s industrial cultivation projects are not attractive enough to social capital due to their long cycles and limited financial returns.

"For this reason, we want to distinguish between market-oriented and investment-oriented." Li Ying, chairman of Longhua Capital, said that the team launched a new fund with a scale of 100 million yuan last year, which is oriented to attracting and stabilizing businesses. In the state-owned assets performance evaluation system, six new indicators are set. "If we only consider profits, return on investment and exit, the implementation will be like a 'tightening curse'."

Since early stage projects have lower valuations and are more likely to be brought into the district, the current investment of the guidance fund is also biased towards early stage projects. Wang Yunzhan commented on this, "The immediate effect of investing in early and small projects is not obvious, resulting in more small and medium-sized enterprises and fewer "four-up" enterprises, but this is our business model. The model of "spending money on big projects" has obvious driving effects on industries and scales, but the risks are also not small, and the risks and benefits are equal."

In September 2023, Futian Capital Operation Group was officially unveiled. Photo courtesy of Futian Guidance Fund

Pioneering "Investing Early and Investing Small"

Due to its natural risk-averse nature, many people believe that the state-owned capital’s “early investment and small investment” is a “false proposition”.

An investor in the hard technology sector admitted that many nominally early-stage government funds are more inclined to the concept of capital allocation, with only a portion of funds invested in the early stages and more funds still invested later.

How important is early investment? DJI Innovations, which created the "drone miracle" in Shenzhen, would not have achieved its current success without founder Wang Tao's mentor Li Zexiang: the global market share of consumer drones exceeds 80%, and it ranks 40th in the Hurun 2024 global rankings, with a valuation of 80 billion yuan. In 2007, the year after DJI was founded, employees left one after another due to equity and management reasons, and only one cashier was left. Professor Li Zexiang of Hong Kong University of Science and Technology and Zhu Xiaorui, a doctoral supervisor at Harbin Institute of Technology, invested 1 million yuan and mobilized a group of graduates to join. In 2013, Sequoia Capital invested tens of millions of dollars in the A round.

"Investing early and investing in small companies" is about seizing the miracle of picking one out of a million. According to Zero2IPO research data, in 2014, the amount of investment received by seed, start-up and expansion stage companies accounted for 45% of the total investment that year. In the first half of this year, this proportion has increased to 74.5%.

If the government wants to incubate more Tencents and DJIs, it needs to "find ways" to provide guidance.

In 2017, a motion by Shenzhen Municipal People's Congress representatives pointed out that "underdeveloped angel investment" was a prominent shortcoming of local innovation and entrepreneurship. Subsequently, Shenzhen Angel Mother Fund was established in 2018 with a scale of 10 billion yuan. Its typicality lies in: 100% of the city's finances are invested, 100% of the investment is limited to the angel stage, and government departments do not participate in investment decisions. The angel stage refers to "the first two rounds of financing or within 5 years of establishment." "What is more important is to cultivate a business environment, including the transformation of scientific and technological achievements and the cultivation and growth of start-ups." Li Xinjian, general manager of Shenzhen Angel Mother Fund, told China News Weekly.

Angel investment "spends money" very quickly. He said that the first phase of 5 billion yuan was invested within a year and a half, and another 5 billion yuan was invested in 2020. At present, the Angel Fund has invested nearly 9 billion yuan in sub-funds. What makes him happy is that the plan of "rolling development" of funds has been approved, and the money returned in the future does not need to be returned to the finance, but can continue to be recycled. According to Li Xinjian, about 1/3 of the cooperating GPs originally focused on early-stage investment, and for institutions that prefer mid- and late-stage investment, due to the limited investment direction, they must be equipped with professional teams to invest in early-stage investment, such as Shenzhen Capital Group, Tongwei Venture Capital, and Cornerstone Capital.

Along these lines, in order to move towards “earlier and smaller”, Shenzhen launched a seed mother fund of RMB 2 billion in November last year, with a duration of 15 years. It requires that projects with an investment amount of RMB 5 million or less account for no less than 60% of the sub-funds, and that the projects must be first-round investments by external institutions and have a pre-investment valuation of no more than RMB 100 million. As of April this year, more than 40 GPs have applied.

"It is difficult for us to learn from the angel investment model of developed countries. Take the United States as an example. Angel investment is mainly individual. Angel investors are co-founders of a mature team and help companies build teams. In China, it is mainly institutional and mostly financial investment. There is a contradiction between the purpose of 'investing early and investing in small companies'," he said.

Li Zexiang, Gao Bingqiang and Gan Jie, known as the "golden iron triangle" in the venture capital circle, all come from the Guangdong-Hong Kong-Macao Greater Bay Area. Googol Technology, co-founded by the three, was listed on the Shenzhen Stock Exchange in August last year; the XbotPark Fund co-founded in 2016 focuses on the fields of robots and smart hardware, and has completed 55 investment events so far. However, this ideal state of professors and scientists starting businesses and investing is rare in the industry.

What really convinces and impresses GPs is that the cooperative sub-funds can bring higher dynamic valuations and exit returns. He said that this requires capital to "reduce its profit-seeking nature."

In 2022, Moxin Artificial Intelligence, an AI chip company located in Nanshan District, just completed tape-out. The first funding it received after returning to China came from the Shenzhen Angel Fund. "In order to further test and verify the technology, chip companies often need the first batch of customers, but breakthroughs are difficult." An investment manager who participated in the project told China News Weekly that the team helped it reach a strategic cooperation with a leading domestic gene sequencing company, and also assisted in government subsidies and recommendations for subsequent rounds of financing. "Technology start-ups cannot only look at the current stage. As long as the team has R&D capabilities, there are multiple possibilities for product directions." Li Xinjian said.

Another challenge for domestic guidance funds to "invest early and invest in small companies" is the transformation of scientific and technological achievements. "In Silicon Valley, the advantages of the scientific and technological innovation and industrial transformation system are that there are many scientific research results and institutions and investors with a systematic transformation system to dig deep and incubate projects." Li Xinjian said that the domestic ecosystem has just started, and it is necessary to continue to build a platform for this.

Shenzhen Angel Fund held a three-month smart manufacturing industry acceleration camp in October last year, helping about 55 startups connect with five leading groups, Lenovo, Sany, Foxconn, Amazon, and Hyundai Mobis, and eventually reached 34 cooperation deals. Li Xinjian explained: "This requires the fund to assist their R&D, procurement, strategy, and investment departments in in-depth contact."

Li Xinjian, general manager of Shenzhen Angel Fund, speaks at a roadshow. Photo courtesy of Shenzhen Angel Fund

Exit dilemma to be solved

As the venture capital environment cools, fundraising and exit difficulties have put pressure on all parties, and Shenzhen is no exception.

Recently, Shenzhen Capital Group has launched a series of buyback lawsuits, which have attracted market attention. Shenzhen Capital Group has initiated 38 litigation-related tenders from January 2023 to July 2024, 97% of which were caused by disputes over the withdrawal of investment projects. Among the cases where the reasons were disclosed, the most common situation was that the invested party "failed to go public as scheduled."

Shenzhen Capital Group responded to China Newsweek that only a very small number of projects have sought repurchases through legal channels. This is usually because the fund's operating period has expired, the LP requested to withdraw, and the GP had to fulfill its responsibility to claim repurchase. There are also individual companies that have violated regulations that seriously damaged the interests of shareholders.

"The project has been invested and the agreement has been signed. Even if it is criticized, we have to take action because the responsibility will be traced back to the individual." A state-owned asset person explained. Disciplinary inspection, inspection, audit and risk control are the normal systems of state-owned enterprises.

"Listing bet" is a common agreement between state-owned institutions and invested enterprises. The terms are finalized. If successful, it will be mutually beneficial, and if failed, both sides will suffer. Taking the largest financing in Shenzhen this year as an example, on July 23, Luye Pharmaceutical, a Hong Kong-listed company, said that its subsidiary Shenzhen Luye received a strategic investment of up to 1.6 billion yuan, and the investment fund is 91% owned by Shenzhen state-owned assets. In this way, Shenzhen introduced the core R&D assets of this pharmaceutical company to Yuehai Street, Nanshan District, and the bet is aimed at "the company's independent listing by the end of 2029."

"If lawsuits are filed in batches simply for DPI (return on investment), it is definitely not a good thing for the industry. Liquidation must be done when the debt matures. Once such a mechanism and motivation are formed, the actions of all parties will be 'distorted'." A GP commented that on the one hand, there are a bunch of projects that need to be nurtured and waited for, and on the other hand, there is the pressure of repurchase and litigation.

Since last year, Futian Guidance Fund has begun to face the problem of the expiration of sub-funds, and there are currently two of them. "It is expected that more sub-funds will expire at the end of this year." Li Ao said that the reason for the concentrated expiration is that the investment rhythm and environment from 2016 to 2018 were optimistic, and the duration of the Guidance Fund was mainly "3+4". Around 2019, a new "5+3+2" model was set up, that is, a 5-year investment period, a 3-year exit period and a 2-year extension period.

What troubles Wang Yunzhan is that "the practices in the market are all 'piecemeal', and there is no sustainable and replicable institutional solution." After research, the team found that in Shenzhen's history, only one fund has completed the entire cycle "from birth to death", which can be traced back to the 1990s. It took a total of 15 years from industrial and commercial registration, completion of liquidation to cancellation. Wang Yunzhan found the person in charge of a government-guided fund established earlier in China, trying to learn from experience. The other party also faced the dilemma of 30 sub-funds expiring and told him: "There is no way to postpone it. We can only enter the liquidation period first and give an explanation."

Li Ao explained that early private equity funds were mostly participated by private capital, and their extension was not subject to institutional constraints, but the crux of government-guided funds was that they "had no basis for extension." If liquidation is to be completed at the industrial and commercial level, it will face substantial obstacles such as the withdrawal and repayment of the companies involved, account disposal, property distribution, and bank account cancellation, making it difficult to implement in the short term.

The team finally adopted a "compromise" plan: set up a liquidation team, formulate a liquidation plan, change the status to liquidation in the China Securities Association system, but ensure the continuation of existence at the industrial and commercial level. There are other practices in the market, but their operability is limited. For example, by setting up a new fund, the expired assets are digested internally and continue to operate, but the new fund also has problems such as the duration of existence and the transfer price that are difficult to clarify; or force the GP to withdraw from the transfer, but it depends on the enthusiasm and ability of the GP during the liquidation period; or transfer shares in the S market, but the counterparty is "unprecedented" and the discount is difficult to apply to state-owned assets.

The normal liquidation period of a fund is 2-3 years. After a short "life extension", it is faced with an unsolvable problem: what should be done when the liquidation period ends in 3 years? The interviewees generally called for measures to extend the fund's duration. Shenzhen Capital Group suggested that venture capital sub-funds in which state-owned institutions hold shares should extend their duration to more than 10 years to adapt to the long R&D cycle of hard technology companies. This also prompted the Futian Guidance Fund to begin to consider "preparing for a rainy day" when setting up funds in the future and consider liquidation situations in advance.

"At present, the exit system of state-owned capital is not yet sound." Shenzhen Capital Group said that the government-guided funds have not formed specific and operational guidelines in terms of transfer procedures, pricing mechanisms, approval processes, trading venues, etc. In addition, the industry lacks accurate and objective asset evaluation standards, and there is a general problem of pricing difficulties in the external transfer of sub-fund shares, which easily leads to concerns about the "loss of state-owned assets".

“Everyone is unsure”

According to Zero2IPO research data, in the first half of 2024, both investment cases and total investment in China's equity investment market fell by more than 30% year-on-year. Among them, Shenzhen had 348 investment cases and an investment amount of 14.718 billion yuan, down 30.7% and 37.2% year-on-year respectively. It ranked third in terms of both numbers, second only to Beijing and Shanghai.

As the number decreases, the valuation of projects will also be reduced. Li Ying said that when discussing the commercial terms of project investment, the issue of reducing valuations will be involved. "Sometimes the discount is more than half, and it may be reduced from several billion to more than one billion. Most founders can accept this, but investment institutions have signed anti-dilution clauses in the early stage to protect their own equity value, resulting in valuation gouging. It is difficult for them to accept a reduction unless they are optimistic about the long-term." What worries her even more is that "many teams and projects are good, but due to the shortage of capital chain, a number of excellent companies will die."

"Now we emphasize that state-owned assets should take the lead in investment and market-oriented institutions should follow up. This requires encouraging state-owned institutions to be bolder. If state-owned assets do not invest, market-oriented institutions that need to see benefits in the short term may be even less willing to invest," she said.

Under the call of "patient capital, long-term capital", the interviewees generally believe that the essence of venture capital needs to be reaffirmed. Wang Zhongmin, chairman of the Shenzhen Financial Stability and Development Research Institute, once pointed out that for state-owned asset management institutions, "if 99 of 100 projects are successfully invested in, but one project fails, they need to be held responsible for it. Even if it is not a failure of investment, but a slight flaw in the project's financial records."

"The core of venture capital is to encourage innovation and long-termism, and it should incentivize and support the participation of patient capital with a certain risk tolerance. Simply requiring fixed returns or zero risk is contrary to the essence of venture capital." Zeng Cheng, general manager of the equity management department of Dachen Capital, commented to China Newsweek.

In October 2020, Wang Weizhong, then secretary of the Shenzhen Municipal Party Committee and current deputy secretary of the Guangdong Provincial Party Committee and governor, was a guest on CCTV Finance's "Dialogue" column and left a statement about "due diligence exemption": "After the rules and regulations are set, all government officials will no longer participate, and it will be left to the market to operate, and the parent fund and sub-funds to operate. As long as our practitioners do not have moral risks, no malpractice, no corruption, etc., they are exempt from liability."

The Shenzhen Municipal Government Investment Guidance Fund Management Measures also mentioned that "the investment of the guidance fund shall follow the market rules, reasonably tolerate normal investment risks, and establish a due diligence exemption mechanism to exempt relevant responsibilities for investment behaviors implemented in accordance with laws and regulations that cause losses or fail to achieve expected goals."

At present, the industry is generally concerned about the unclear definition of responsibility. "Is it administrative responsibility or economic responsibility? Is it the operating responsibility of the state-owned enterprise, or is it the responsibility for the loss of fiscal funds?" A state-owned enterprise person admitted that the accounts he is concerned about have not yet shown signs of losses, but there is a lack of clear systems and clauses, "No one is sure."

In this regard, some people proposed to "solve the problem from a higher level" and define the due diligence exemption requirements at the financial, auditing and disciplinary inspection levels. It is understood that in the internal practice of Shenzhen Angel Fund, the responsibility boundaries are divided through detailed work processes and collective decision-making. Li Xinjian mentioned that for angel investment, as long as one of the 100 companies gets a return, the cost of the entire fund may be covered.

"Further refine the due diligence exemption list during investment due diligence and post-investment management of project exits." Shenzhen Capital Group recommends strengthening the overall evaluation mechanism of the investment portfolio and weakening the evaluation of individual failed projects. If there are no moral risks, violations of regulations and laws, the losses of individual projects will not be included in the scope of accountability.

"We should promote the formation of an atmosphere of 'reform and innovation, and tolerance for failure'," Shenzhen Capital Group told China Newsweek.