The Difficulty of Fundraising Suffered by Chinese Domestic VCs

Lin Zhang
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Lin Zhang: Shandong University of Technology

Chapter Chapter 3 in Venture Capital and the Corporate Governance of Chinese Listed Companies, 2024, pp 37-56 from Springer

Abstract: Abstract The second chapter has systematically analyzed the corporate governance framework of state-controlled listed companies which have constituted the overwhelming majority of all listed companies in China, either from the aspect of their total number and capitalization or their substantial influences on the formation and change of law and other institutions. These efforts have provided the necessary institutional background for the following exploration on how the corporate governance of state-controlled listed companies which is termed the control-based model by company law academics has hampered the healthy development and prosperity of Chinese domestic VCs. As it was mentioned in the first chapter, the examination of the negative impacts caused by the control-based model on Chinese domestic VCs would be conducted with the mirror of the successful template of American VCs which has been proved to be duplicable by other countries. On the basis of the abundant intellectual products about the institutional environment to guarantee an active VC market in the USA made by Western legal and financial scholars, four indispensable elements have been isolated: the availability of large and independent funding, the application of organizational and contractual incentive mechanisms, the existence of efficient exit channels, and the high-risk tolerance level of venture capitalists. This chapter will aim to discuss how the control-based model has restrained the presence or the full functioning of the first institutional element in China. In other words, it is an attempt to establish the linkage between the control-based model and the difficulty of raising large and independent funds suffered by Chinese domestic VCs. This chapter comprises three sections. The first section will briefly describe the successful operation of American VCs in the aspect of raising large and independent funds. With the American practice as the mirror, the second section will analyze how the control-based model has hindered the availability of large and independent funds for Chinese domestic VCs. The final section will be a concluding remark.

Date: 2024
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DOI: 10.1007/978-3-030-67572-1_3

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