Shanghai to compensate VCs for financial losses
The Shanghai government has proposed new measures to compensate early-stage investors’ for financial losses incurred by investing in local start-ups.
This is intended to encourage venture investment and strengthen the city's position as a global innovation hub. The initiative - which only applies to onshore, renminbi-denominated investments - is slated to come into effect on February 1 and run for two years.
According to a draft policy, a local government-backed fund will cover up to 60% of any losses suffered from investing in seed-stage start-ups. For an early-stage investment, the government will make payments equal to 30% of actual losses.
To be eligible for compensation, investee companies should have been in operation for less than three years and employ no more than 50 people, with total assets and annual sales below RMB5 million ($760,000). Early-stage companeis must have fewer than 200 employees, and total assets and annual income below RMB20 million.
The draft also lists some conditions. Compensation for individual investments is capped at RMB3 million, and a single investor is entitled to no more than RMB6 million in total.
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