Article from WeChat public account:Investment (ID: pedaily2012), original title: “Confessions of a CFO: venture capital fund holdings, me too hard,” author: Ren Qian, from the title figure: Oriental IC
“I have walked the longest road, which is the routine of reducing the holdings.” How do you feel about VC/PE after two and a half years of implementation of the new regulations?
Quyan served as a CFO in a VC agency in the South, and she was quite a headache after she was reduced to the IPO. “The new rules for the major shareholder (controlling shareholders and shareholders holding more than 5% of the shares) reduction policy ‘one size fits all’, this gives us time to withdraw Has a big impact.”
She revealed that the fund managed by her company invested in a company in 2011, began to invest from Angel Wheel, increased investment by round, and supported the company to grow and develop from a small age. Due to the large shareholding ratio, the company was listed in 2017. After the stocks held by the fund are lifted in 2018, they will be reduced in the secondary market according to the new rules of reduction, at least 2.5 years, from the first investment to the complete withdrawal for nearly 10 years.
“Even if we can wait, can LP wait?” Qu Yan said, “VC has raised and raised entrepreneurial projects since childhood, and it has also taken huge risks in investing in funds. As a result, it is still difficult to reduce the holdings. A venture capital fund that is strongly supported by enterprises.”
In recent days, the investment community has been informed that there are reports that the Securities and Futures Commission intends to amend the rules for reduction and has formed relevant programs. In this regard, the relevant personage of the CSRC said that it is indeed in the process of revision.
A paper instrument “locks” the major shareholder
About the A share reduction system, we must start from 2015. In July 2015, under the background of a sharp shock in the stock market, the CSRC revised the reduction regulations.It is clear that “reduction of holdings within 6 months” and encouragement of increase in holdings; in January 2016, the provisions on the shareholding reduction of shareholders of listed companies were revised twice, and the restrictions on the shareholding reduction of important shareholders began to increase.
In May 2017, in order to curb the speculative trend of market clearance-type reduction, the CSRC issued the “Several Provisions on the Shareholders and Directors of the Listed Companies to Reduce Shareholdings”, and the Shanghai and Shenzhen exchanges introduced the first time. The rules of the reduction system have been plagued by a major regulatory shareholder who has been criticized by the market.
Combing out that the current reduction policy not only imposes a “tightening spell” on major shareholders, but even has strict regulations on the takeover of large shareholder shares – bulk or pledge, which is called “the strictest in history” Holding new rules. The key points are as follows:
1. The scope of application of the new regulations has been extended from major shareholders and directors to the old shareholders of the listing, the new shareholders of the company, and even the shareholders of the major shareholders. However, the portion of the major shareholder’s own increase in the secondary market is not covered by the reduction.
2. If the major shareholder reduces or holds a specific shareholder and adopts a centralized bidding transaction method, the total number of shares reduced may not exceed 1% of the total number of shares of the company for any consecutive 90 days, and the maximum annual reduction of 4%.
3. Shareholders who participate in the increase of listed companies shall, in addition to complying with the provisions of the preceding paragraph, reduce their holdings within 12 months from the date of the release of the restricted shares, in addition to complying with the provisions of the preceding paragraph. Hold 50% of the number of shares issued in this non-public offering. This means that it can only be sold in December + 24 months and three years later.
4. In the case of a block trade, the total number of shares reduced may not exceed 2% of the total number of shares of the company for any consecutive 90 days, and the transferee may not transfer the transferred shares within 6 months after the transfer. Shares.
5. In the case of the transfer method of the agreement, the transfer rate of the individual transferee shall not be less than 5% of the total number of shares of the company, and the lower limit of the transfer price shall be implemented in accordance with the provisions of the block trade.
Not only that, under the existing rules system, the disclosure requirements for information disclosure are also extremely strict, requiring prior, in-process, and post-information disclosure.
As for VC/PE’s eagerly awaited Kechuang Board, its shareholders’ shareholding reductions apply to most of the relevant rules of the shareholding reduction of listed companies on the Shanghai Stock Exchange. For example, the lock-up period for the shares held by the controlling shareholder and the actual controller is 36 months, and the lock-up period for the general shareholders is 12 months. In other words, the fastest time to reduce the shareholding of VC shares is also one year later.
Of course, after the lockout period,Sell it all at once. According to the new regulations for reduction of shares, after the lock-up period expires, the relevant shareholders may not reduce their holdings by more than 1% through quarterly bidding transactions, and the proportion of reductions through bulk transactions shall not exceed 2%; directors, supervisors and senior management personnel shall hold positions. During the period, the annual reduction ratio cannot exceed 25%.
In fact, the Securities and Futures Commission issued Document No. 4 in March 2018, which provided preferential policies for VCs investing in early projects. Eligible venture capital funds, after investing in the early stage of SMEs or high-tech enterprises, will reduce their shareholding in the pre-IPO companies through the stock exchanges. If the investment period is longer, the pace of reduction can be faster.
Specifically, as of the IPO application materials, if the investment period is less than 36 months, the total number of shares reduced within 3 months shall not exceed 1% of the total number of shares of the company, and the new shareholder of the listed company will be reduced. The requirements are the same; if the investment period is from 36 months to 48 months, the reduction will be less than 1% within 2 months; for more than 48 months, the reduction will be less than 1% within 1 month.
But at the practical level, the procedure for identifying VC qualifications is cumbersome and difficult to perform.
VC/PE voice: “LP can’t afford it, GP fundraising is hard to add”
It is undeniable that the new regulations for reducing holdings have played a role in maintaining market stability in the past two years. The total size of major shareholders in the secondary market, including major shareholders and directors, has decreased significantly. “The “bridge-type reduction” and other chaos have been effectively curbed, and the rights of small and medium-sized investors have been effectively protected.
But Reduce the new rules for the major shareholders, like the “Dalmos sword” hanging over the head, but for the VC / PE in it, it is even more difficult.
VC investment includes four core links: fundraising, investment, management and retreat. Most of the funds in the market currently use the “5+2” duration, that is, the 5-year investment period and the 2-year exit period. The agreement of the General Assembly may also be extended as appropriate. However, a large number of VCs will face tremendous exit pressure after 7 years. Reflected in the IPO project, it is possible to reduce the holdings as soon as possible and realize the withdrawal of funds.
“It’s said that the LP behind VC can’t afford it.” Qu Yan is quite helpless: “The state encourages private equity investment, but now the result is more investment than good. More than 5%. The project’s holding time is much longer, which has a very negative impact on the revenue of LP.”
A hidden consequence is that the reduction cannot beTake the initiative to “time”. In other words, if you want to sell, you can’t sell it. When you can sell it, the stock price may fall again.
Qu Yan believes that, in general, VC is only a financial investor, and the reduction of holding after the IPO of the company is the main way to recover cash. The term of the fund’s duration has a great impact on the VC’s shareholding strategy. In most cases, VC cannot hold a company in the secondary market for a long time. Therefore, the withdrawal of VC after the company’s listing does not mean that it is not optimistic about the company’s short-term and long-term development. This is essentially different from the reduction of the company’s actual controller or management.
“The new regulations will actually extend the lock-up period of the equity and push the fund’s overall exit time, which will affect the withdrawal period and capital return rate of the fund. It is difficult to withdraw funds, and it is difficult to withdraw funds. The reduction and recovery period is lengthened, and now it is difficult to raise funds,” she added.
In addition, the major shareholder (controlling shareholders and shareholders holding more than 5% of shares) plans to reduce shares through the stock exchange’s centralized bidding transaction. Before the 15 trading days of the first sale, report to the stock exchange and disclose the reduction plan in advance, including the number of shares to be reduced, the source, the time interval for the reduction, the method, the price range, and the reasons for the reduction.
More than half of the reduction time will be disclosed. “Layer-level disclosure also made us very hurt. We announced that stocks fell. Now investors feel that the announcement of reduction of holdings is bad, and regardless of the actual operating conditions of the company. The reduction of our venture capital funds is not treated correctly, as long as it is reduced Just don’t be optimistic about the company. In fact, we just quit according to industry practice.”
The problem to be solved by the new regulations is that the major shareholders will “successfully flee” after the listing. Now, it seems that they are more “one size fits all” in reducing the target, so that the venture capital fund that supports the development of the enterprise is very hurt. .
Reduce over 300 billion, is the “flooding beast”?
Investor: Not so exaggerated, not too
Unblocking, has always been a “sword” hanging on the stock price. Because of the selling pressure after the lifting of the ban, investors often see the ban as a beast, and the stocks caused by the lifting of the ban are too numerous to enumerate.
But in fact, the current market environment is much different than it was two years ago.
According to ShanghaiAccording to the statistics of the two cities, as of the end of September 2019, a total of 1,311 listed companies in the two cities disclosed their plans to reduce their holdings, and planned to reduce their holdings by 380 billion yuan, while the actual reduction of 136 billion yuan was only 35.8% of the plan; The two stock indexes did not fall but rose by 20% and 30% respectively.
“There is not such a big impact on everyone’s imagination. A lot of data prove that the reduction is a neutral behavior, and the high market tends to reduce the scale.” Ding Yong, a well-known VC agency in Shanghai, said frankly.
In Ding Yong’s view, market liquidity has shrunk, VC/PE has been difficult to withdraw, which has made it difficult to raise funds and invest, creating a vicious circle.
A set of data can be corroborated. According to the report of the Zero2IPO Research Center, the amount of fundraising, investment and exit of China’s equity investment market showed a significant decline in the first three quarters of 2019.
In terms of fundraising, China’s equity investment market continued to be low in the first three quarters of 2019, raising a total of approximately 831 billion, down 20.4% year-on-year. In terms of investment, the total investment in the first three quarters of 2019 was about 430 billion, down 53.7% year-on-year.
In terms of exit, the number of exit cases in the first three quarters of 2019 was approximately 1,532, down 20.6% year-on-year. With the help of the science and technology board, the number of IPO cases of the invested companies has increased significantly, but the multiples of returns are not optimistic.
“The market is in such a situation, and it may be directly related to the anachronistic reduction of new regulations.” Ding Yong pointed out sharply that “Compared with US stocks and Hong Kong stocks, our new regulations for reduction of holdings are more stringent.”
(in the text, Qu Yan, Ding Yong is a pseudonym)
Articles fromWeChat public number: investment community (ID: pedaily2012) , author: Qian any