Venture Capital Guiding

Fund for Technology-based

SMEs

Li WenleiAdministration Center of Innovation Fund for

Technology-based SMEsMinistry of Science and Technology, P.R. China

July 3, 2008

Outline

Background of VC Guiding Fund Objectives of VC Guiding Fund Strategy of VC Guiding Fund Operation of VC Guiding Fund Current Achievement & Next Plan

Background of VC Guiding Fund

No. of VC I nvestment Organi zati ons i n Chi na

050

100150200250300350400450

Y1994 Y1995Y1996 Y1997 Y1998Y1999 Y2000 Y2001 Y2002Y2003 Y2004 Y2005Y2006 Y2007

1. No. of VC investment organizations in China increased significantly in 21 century

Background of VC Guiding Fund

2. The amount of VC investment in China also increased significantly in 2007

VC I nvestment Amount i n Chi na

0

20

40

60

80

100

120

Bi l l i on

RMB

Background of VC Guiding Fund

3. No. & amount of VC investment in technology based companies occupy about 60% among the total no. & amount of VC investment in China

No. ofTechnol ogy

BasedProgram

60%

Others40%

No. of Technol ogy Based Program Others

Amount i nTechnol ogy

BasedPrograms

59%

Others41%

Amount i n Technol ogy Based Programs Others

Background of VC Guiding Fund

4. Lack of VC investment in early stage of tech-based SMEs due to high risk and high uncertainty

Establishment 2 3 4 5 6 Yrs

1st Round

2nd Round

3rd Round

IPO

Seed

7

Million RMB

3-5

10-15

25-35

35-45

Prototype

Revenue

Breakeven,Profitable

Profit>RMB30m

8

Most VC funds invest in mature stage

Lack of VC investment

In early stage

Background of VC Guiding Fund

5. Government and state-owned VC investment is still the largest source of VC, the portion of private VC is insufficient compared with mature foreign VC market

LLC31%

Bank8%

Individual5%

Others13% SOE

17%

Listedcompany

4%

Government16%

Foreign VC6%

Background of VC Guiding Fund

6. The development of tech-based SMEs in China

Over the past 20 years, tech-based SMEs in China contributed 65% of patents, 75% of technology innovations and 80% of new products.

Lack of capital is the biggest bottleneck for the growth of tech-based SMEs.

Most founders of tech-based SMEs are strong in R&D but weak in management, sales & marketing, fundraising etc.

Objectives of VC Guiding Fund

To ease up the bottleneck of fundraising of tech-based SMEs by encouraging earlier-stage VC investment.

To attract private capital flowing into VC by profit sharing policy

To develop tech-based founders on entrepreneurship by post-investment management

To foster professional early-stage investment and management team

Strategy of VC Guiding Fund

Innovation of Government Financing Indirect investment: leverage the

methodology of VC and guide the investment of multiple private capital sources

Equity investment vs grants VC experts appraisal vs technology

experts appraisal

Strategy of VC Guiding Fund

Target on Demand of tech-based SMEs Focus on earlier-stage tech-based SMEs Leverage more equity investment Bring more added value through VC experts

to foster professional early-stage investment and management team

Strategy of VC Guiding Fund

Candidate category of VC Guiding Fund VC firms VC management firms Incubators with investment skills Potential deal flow

Strategy of VC Guiding Fund

Four ways of VC Guiding Fund Fund of funds: <=25%, with condition,

sharing profit principle Parallel investment: max. of 3M RMB,

50% profit as reward to VC Subsidy to VC: 5% of investment

amount with max. of 5M RMB Pre & Post-investment subsidy: max. of

3M RMB

Operation of VC Guiding Fund

Interim Measures on Administration of Venture Capital Guiding Fund for Tech-based SMEs (Caiqi 2007 128#) was promulgated by Ministry of Finance and Ministry of Science and Technology (MOST), effective as of July, 2007

Fund source comes from central financial budget annually

Operation of VC Guiding Fund

Ministry of Finance and MOST are co-in charge of decision making

Investment Advisory Committee provides expertise in VC investment

Administration Center of Innovation Fund is responsible for daily operation

Local governments recommend qualified VC firms

Current Achievements and next plan

95 qualified VC firms applied for VC guiding fund in 2007

50 VC firms got guiding fund subsidy ， with amount of 71M

52 early-stage tech-based SMEs got Pre-investment subsidy with amount of 29M

On-going allocation of subsidy to VC and Pre & Post investment subsidy

Pilot the fund of funds and parallel investment

Thank You!