On December 8, the China Securities Regulatory Commission (CSRC) solicited public comments on the Measures for the Supervision and Administration of Private Investment** (Consultation Paper) (hereinafter referred to as the "Private Placement Measures"). The Times reporter combed through the relevant regulatory provisions on private equity investment in the "Private Placement Measures" and found that the "Private Placement Measures" raised the investment threshold for private equity investment, especially the entry threshold for individual LPs, and also hit the "lifeline" of the special ** that is currently prevalent in the industry. A number of industry insiders told reporters that the implementation of the "Private Placement Measures" will greatly accelerate the industry reshuffle, and a large part of small private equity investment institutions may be shuffled out. In addition, the new policy may not be conducive to angel investment and early-stage investment, and the number of qualified individual investors will decrease sharply in the future.
The investment threshold is raised to 3 million yuan, and the special ** starts at 10 million yuan
The Private Placement Measures further improve the criteria for qualified investors. Among them, the amount paid by investors to invest in a single private equity investment** has been increased from no less than 1 million yuan to no less than 3 million yuan. This means that for both individual LPs and institutional LPs, 3 million yuan is already the minimum threshold for participating in private equity investment.
This has had a great impact on the fundraising of many venture capital institutions. "After the new regulations were officially implemented, many of our original individual LPs could not participate. The person in charge of a small VC institution in South China with a management scale of about 1 billion yuan told reporters that at present, there are many individual LPs in the institution who contribute between 1 million and 2 million yuan, "They are a little interested in equity investment, but they are not willing to invest too much, so they are all invested in accordance with the original investor qualification line." The person in charge said that the new rules may have a certain impact on their future fundraising.
However, according to the reporter's understanding, compared with the blind pool, many individual LPs are more inclined to invest in a single project of the "special", the "private placement measures" also put forward relevant provisions on the "special **": first, the "private placement measures" on the "special **" definition as: private equity ** manager will be a single private ** more than 80% of the ** property to a single target**;Secondly, the paid-in scale of the special project shall not be less than 20 million yuan;In addition, on the investor threshold, the paid-in scale of a single natural person investor shall not be less than 10 million yuan.
According to the reporter's understanding, due to the small number of special ** projects and the small amount of funds required, the fundraising cycle and investment cycle can be greatly shortened, so it is favored by many individual LPs, and this strategy is also more popular in the venture capital circle in 2023. However, most individual LPs will diversify their investments across multiple projects**, and the amount of capital contributed to each special project is only a few million yuan. Therefore, it is foreseeable that the new regulations will be a huge blow to those GPs whose main strategy is special **. Some industry insiders predict that at least 1,000 GPs based on special projects will die out next year.
The Private Placement Measures also make arrangements for a transitional period, "the private placement manager, in addition to the name, business scope, paid-in capital and shareholding ratio of senior executives, shall complete the rectification within one year;The nested level of private placement** shall be rectified within two years, and if the existing private placement** does not meet other requirements, no new fundraising scale or new investors are allowed to be added before the rectification is completed, and the term shall not be extended, and it shall be liquidated upon expiration. ”
** Expiration to "compulsory liquidation" GP exit pressure increases
According to the data, as of October 2023, the number of registered private equity managers has reached 220,000, with more than 150,000 ** under management, and the scale of assets under management is about 21 trillion yuan. The huge scale is now facing the problem of exiting. According to AMAC data, as of the end of 2022, the number of liquidations accounted for less than 20% of the cumulative total. The industry is racking its brains on the issue of exit.
The "Private Placement Measures" also put forward requirements for the withdrawal of **, clarifying that "if the ** contract is terminated, the private placement manager shall organize the liquidation of the private ** property within 5 working days from the date of termination, unless otherwise agreed in the ** contract." The person in charge of the above-mentioned VC institution said that there was no strict requirement for liquidation after the expiration of the first **, and now this requirement means that the liquidation will be compulsory, which will bring more pressure to the post-investment and exit of GP.
In addition, the reporter communicated with industry insiders and learned that the increase in the special investment threshold in the "Private Placement Measures" may affect the exit of the first class. "Now many of the ** that are about to expire will take out a single project to set up a special continuation** to raise funds from individual LPs. A person from a VC agency in Beijing told reporters that as long as a ** project that has not yet been withdrawn is split, and one or more projects are packaged into a special **, then the original ** will be considered to be withdrawn. The source revealed that in an environment where it is difficult to exit, this kind of operation is increasing.
However, if according to the new regulations, a single **80% of the funds invested in a single project is counted as a special project**, and the threshold for individual LP will be raised to 10 million yuan, then this exit method of setting up a special continuation ** will face challenges. However, the above-mentioned industry insiders said that it is not difficult to adjust, "as long as the amount of investment in a single project does not exceed 80% of the first, or the first is matched with some shares of other projects." ”
The number of individual LPs will decrease dramatically or be detrimental to early investment
It is worth mentioning that the "Private Placement Measures" have strengthened the supervision of custody, which requires that special projects investing in a single target must also be managed, and before that, special projects can not be managed, which protects LPs to a large extent.
Zhang Yinghao, chairman of Rock Capital, who was blown away before, took away some of the funds that were not managed. It is reported that 12 ** of Locke Capital do not show custodian banks, that is, the investment funds of these individual LPs have not been effectively supervised, increasing the risk of misappropriation or swept away funds.
Overall, the original intention of the new policy is to purify the equity investment market environment, clear out the "pseudo private placement", and protect the rights and interests of investors. However, the investors surveyed all believe that the new policy may not be conducive to early-stage investment. "The amount of a single investment in the early stage of investment is very small, and the scale does not need to be too large, many individual LPs are willing to participate, and after raising the threshold, many investors with feelings and ideas will be turned away. The person in charge of a VC agency in Guangzhou told reporters that after the new regulations are implemented, the number of eligible individual LPs will decrease sharply, and the survival of small VC institutions will become more and more difficult.
Zhang Jun, Chairman of CEIBS Capital, said in his circle of friends that venture capital is an important productive force, and the new regulations will have a huge impact on venture capital, "stifling productivity" to a certain extent, especially in the current economic downturn, micro, small and medium-sized enterprises are still struggling, and after the new regulations, start-ups will be even more unable to get financing.
Editor-in-charge: Yue Yanan.
Proofreading: Wang Jincheng.