CSRC eases rules for VC firms to exit start-ups

The new rules, announced by the China Securities Regulatory Commission (CSRC), apply to VC firms that have been invested in a start-up for at least three years prior to submission for an IPO.

Investors who have held shares for 36-48 months can reduce their stakes by up to 1% within two months of a company listing. Those that have invested for more than four years can complete a sell-down of the same size within one month. VC firms with holding periods of below 36 months are subject to the standard three-month lock-up that applies to all investors.

Most VC investors own at most 5% of a portfolio company and they make a full exit within a year of IPO, according to the CSRC. Start-ups are defined as companies that have less than five years of operation and the new rules are distinct to VC firms.

There are separate regulations for private equity. Investors with stakes of more than 5%, cannot sell any shares in the first 12 months after the IPO. When the ownership stake is above 50%, this rises to three years.

Once the lock-up expires, no more than 1% of the company can be sold on the public market and 2% via a block trade in a three-month period. PE investors are also prohibited from selling more than half of their total shares in a portfolio company over the course of a year. 

The new rules, which will come into effect from June of this year, are intended to promote long-term venture capital investment and value creation in start-ups, the regulator said in a statement.

“Venture capital firms have become an important accelerator and incubator for small-and-medium enterprises (SMEs) and advanced technology firms, providing direct funding to them,” it added. "Under this context, it’s important for the regulator to offer VC firms policy supports, facilitating a quicker exit in portfolio companies so that they can re-invest the capital back to the ecosystem."  

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• Topics
• Greater China
• Regulation
• IPO
• China
• Venture
• Exit
• TMT