Notice of the Shanghai Municipal People's Government on Approving and Transmitting the Measures for the Administration of the Venture Capital Guiding Fund of Shanghai Developed by Shanghai Municipal Development and Reform Commission and Shanghai Municipal Finance Bureau

· Document Number：No. 81 [2017] of the Shanghai Municipal People's Government

· Area of Law： Treasury

· Level of Authority： Local Regulatory Documents

· Date issued：10-26-2017

· Effective Date：12-01-2017

· Status： Effective

· Issuing Authority： People's Government of Shanghai Municipality

Notice of the Shanghai Municipal People's Government on Approving and Transmitting the Measures for the Administration of the Venture Capital Guiding Fund of Shanghai Developed by Shanghai Municipal Development and Reform Commission and Shanghai Municipal Finance Bureau
(No. 81 [2017] of the Shanghai Municipal People's Government)
The people's governments of all districts of Shanghai Municipality; and all commissions, offices and bureaus of the Shanghai Municipal People's Government:
The Shanghai Municipal People's Government has approved the Measures for the Administration of the Venture Capital Guiding Fund of Shanghai developed by Shanghai Municipal Development and Reform Commission and Shanghai Municipal Finance Bureau, which are hereby forwarded to you for your conscientious compliance and implementation.
Shanghai Municipal People's Government
October 26, 2017
Measures for the Administration of the Venture Capital Guiding Fund of Shanghai
Chapter I General Provisions
Article 1 To accelerate the promotion of the building of scientific and technical innovation centers with global influence in Shanghai, maximize the active role of venture capital investment mechanisms in promoting innovation and entrepreneurship activities, and further regulate the establishment and operation of the Venture Capital Guiding Fund of Shanghai (hereinafter referred to as the “VCGFSH”), these Measures are developed in accordance with the Notice of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission and Other Departments on the Standardized Establishment and Operation of Venture Capital Guiding Funds (No. 116 [2008], General Office of the State Council), the Interim Measures for the Administration of Venture Capital Enterprises (Order No. 39 [2005], NDRC), and the Notice of the Ministry of Finance on Issuing the Interim Measures for the Administration of Government Investment Funds (No. 210 [2015], Ministry of Finance).
Article 2 For the purpose of these Measures, Venture Capital Guiding Fund of Shanghai (hereinafter referred to as the “VCGFSH”) means the policy fund established by the Municipal Government and operated in a market-oriented manner. The VCGFSH primarily exerts the leverage amplification effect of fiscal funds, guides the flow of private funds to industrial fields the development of which is given priority in Shanghai, especially strategic emerging industries, primarily invests in start-up enterprises at the early and middle stages of entrepreneurship, such as those at seed and growth stages, and promotes the congregation of quality venture capital, projects, technologies and talents in Shanghai.
Article 3 These Measures shall apply to the VCGFSH, and various venture capital enterprises, angel investment enterprises and venture capital funds of funds (“FOFs”) filed with the venture capital recordation administrative departments in accordance with the provisions of the Interim Measures for the Administration of Venture Capital Enterprises and apply for support from the VCGFSH.
Article 4 The VCGFSH shall be subject to the administration system featuring separation of decision-making and review from routine administration and operation. The Leading Group for the Work of the Venture Capital Guiding Fund of Shanghai (hereinafter referred to as the “Leading Group”) shall be the decision-making mechanism of the VCGFSH, and exercise the functions of decision-making administration.Under the Leading Group, an office shall be set up within the Shanghai Municipal Development and Reform Commission to take charge of routine affairs.
The Leading Group shall authorize a professional industry administrative institution to set up an independent VCGFSH expert review committee which takes charge of conducting the independent review of the proposed investment schemes of the VCGFSH.
The eligible management institution (hereinafter referred to as the “entrusted management institution”) shall take charge of the routine administration and operation affairs of the VCGFSH. According to the review opinions of the Leading Group, the Office of the Leading Group and the entrusted management institution shall conclude an administration agreement, stipulating that the entrusted management institution shall assume the functions of routine investment operation, such as the fund raising, investment, post-investment management, liquidation, and exit of the VCGFSH, and establish the administration expense payment standards and methods, and incentive and restraint mechanisms.
Chapter II Sources of Funds
Article 5 The funds of the VCGFSH are mainly sourced from:
(1) financial funds arranged from the general public budgets, government fund budgets, and state-owned capital management budgets at the municipal level;
(2) various earnings from the operation of the VCGFSH;
(3) funds donated free of charge by individuals, enterprises and social institutions; and
(4) other fund sources.
Chapter III Operation Principles and Methods
Article 6 The VCGFSH shall invest and operate under the principles of “government guidance, market operation, scientific policy-making and risk precaution,” and actively attract and gather outstanding venture capital enterprises at home and abroad and their management teams to develop in Shanghai, and vigorously cultivate local venture capital administration groups. All districts shall be encouraged to, according to actual circumstances, establish the venture capital guiding funds of their respective districts.
Article 7 The investment operation of the VCGFSH may be conducted by means of investment by purchase of non-controlling shares, follow-up investment, and financing guarantee, among others. The specific requirements are as follows:
(1) Investment by purchase of non-controlling shares. The VCGFSH may purchase non-controlling shares of or initiate the establishment of angel investment guiding funds, market-oriented FOFs, merger andacquisition investment funds in key industrial fields, and venture capital enterprises, but cannot become the largest shareholder. The market-oriented FOFs invested in by the VCGFSH by purchase of shares shall primarily invest in angel investment enterprises and venture capital enterprises.
(2) Follow-up investment. The VCGFSH may follow venture capital investment enterprises to invest in start-up enterprises, but cannot directly engage in the venture capital investment operation in the name of “follow-up investment,” and the management of the equities formed shall be entrusted to the venture capital enterprises jointly making the investment. The enterprises applying for the follow-up investment by the VCGFSH are only limited to the start-up enterprises at the early and middle stages of development that make industrial and commercial registration and tax registration in this Municipality in the key industrial fields supported and encouraged in this Municipality (the Office of the Leading Group shall issue to the public the annual follow-up investment declaration guidelines).
(3) Financing guarantee. The VCGFSH shall, in accordance with the relevant provisions of the state on the debt financing of venture capital enterprises, provide financing guarantee support for eligible venture capital investment enterprises and invested enterprises in appropriate manners at appropriate time.
(4) Other ways. The VCGFSH may makevalue maintaining investment with idle funds (only limited to purchases of national debts and bank deposit as well as the financial products in compliance with the relevant provisions of the state), or other business approved by the Leading Group.
Chapter IV Administration System
Article 8 The entrusted management institution of the VCGFSH shall, in accordance with the provisions of laws and regulations and according to the different organizational forms of funds used to purchase non-controlling shares, develop the fund charter to specify the policy objectives for fund establishment, fund size, duration, capital contribution plans, investment areas, decision-making mechanism, fund management agencies, risk prevention, investment exit, management expenses and income distribution, among others.
Article 9 The entrusted management institution of the VCGFSH shall report on a regular basis to the Leading Group and its Office the investment operation of the VCGFSH, investment and profit and loss, and other major information, and establish an information technology management platform to submit on a regular basis the statistical analysis reports on investment projects.
Chapter V Exit System
Article 10 The VCGFSH may invest in venture capital enterprises in manner of preferred stock or convertible preferred stock, among others. The equities formed by investment may, in accordance with the relevant provisions on the operation of the VCGFSH, exit by being listed, equity transfer, repurchase by shareholders, and bankruptcy liquidation, among others.
Article 11 A venture capital enterprise in which the VCGFSH has purchased non-controlling shares shall dissolve upon expiry of the duration thereof. If the duration needs to be extended, it shall, upon approval by the Leading Group, be handled under the procedures as stipulated in the bylaws of the venture capital enterprise, the partnership agreement or contract, or any other document (hereinafter referred to as the “contract documents”) along with other investors.
Article 12 The equities formed by VCGFSH investment shall generally exit upon expiry of the duration of the venture capital enterprise; and if the expected objective is reached ahead of schedule before expiry, the equities may exit at appropriate time through the preset equity repurchase mechanism or other methods.
Article 13 When the VCGFSH purchases the non-controlling shares of a venture capital enterprise, the entrusted management institution of the VCGFSH shall agree with other investors in the contract document that the VCGFSH may, in case of any of the following circumstances, select to exit in advance without the consent of other investors:
(1) The enterprise formation formalities fail to be completed under the prescribed procedures or within the specified time limit more than one year after the venture capital enterprise scheme is confirmed.
(2) The venture capital enterprise has not yet made any investment more than one year after the capital contribution of the VCGFSH is appropriated to the account of the venture capital enterprise.
(3)The investment area and orientation of the venture capital enterprise do not comply with the policy objectives.
(4) The venture capital enterprise fails to make investment as agreed on in the contract document.
(5)Any other circumstance not in compliance with the contract document.
Article 14 Where the shares or equities of the VCGFSH in a venture capital enterprise, which are formed by the VCGFSH's purchase of non-controlling shares of the venture capital enterprise and assigned to the management team of the venture capital enterprise or its designated party under the premise that venture capital institution performs the commitments as agreed on in the relevant agreement, are transferred within four years after the investment of the VCGFSH, the transfer price may be the sum of the amount of original investment of the VCGFSH and the income calculated at the benchmark deposit rateover the same period set by the People's Bank of China at the time of equity transfer; if the transfer occurs more than four years after the investment of the VCGFSH, the entrusted management institution of the VCGFSH shall hire a qualified assets evaluation or any other professional institution to evaluate the equities held, and take the evaluation result as the basis for determining the exit price of the VCGFSH.
A venture capital enterprise that applies for follow-up investment shall not withdraw its equities in the invested enterprise earlier than the VCGFSH.
Chapter VI Risk Control
Article 15 The VCGFSH shall be under the custody of a commercial bank with relevant experience formed within the territory of China. The custodian bank shall, according to the custody agreement, take charge of the account management, fund appropriation and liquidation, asset custody and other routine affairs, and conduct dynamic regulation of investment activities, andfulfill the periodic reporting obligation.
Article 16 The VCGFSH shall not engage in the following business:
(1) Engaging in guarantee other than financing guarantee, mortgage, entrusted loan or any other business.
(2) Investing in stocks on the secondary market, securities investment funds, corporate bonds rated below AAA, trust products, wealth management products, asset management plan products of securities companies or fund companies or insurance companies and their subsidiaries, futures and other financial derivatives, real estate industry and industries restricted by national policy.
(3)Sponsoring or donating to any other third party (except for the approved public welfare donations).
(4) Taking deposits directly or indirectly, or providing loans or lending funds to third parties.
(5) Making foreign investments with unlimited joint and several liability.
(6) Issuing trust or collective wealth management products to raise funds.
(7) Engaging in any other business prohibited by laws or regulations.
Article 17 When the VCGFSH makes capital contribution to form a venture capital enterprise, it shall not act as an ordinary partner to undertake unlimited liability, nor intervene with the routine operation of the supported venture capital enterprise, but may, as agreed on in the contract, exercise one-vote veto power if the supported enterprise violates laws or regulations or deviates policy orientation.
Article 18 The entrusted management institution of the VCGFSH shall establish and improve the internal management and risk prevention mechanism, so as to effectively safeguard the safe operation of the VCGFSH.
Article 19 The Leading Group and the Office of the Leading Group shall strengthen the building of the credit system of the VCGFSH, establish the credit records of the entrusted management institution of the VCGFSH and its senior executives, and include such records in the national uniform social credit information sharing and exchange platform.
Chapter VII Supervision and Performance Appraisal
Article 20 The VCGFSH shall establish and improve the external regulation and supervision mechanisms, and the Leading Group and the Office of the Leading Group shall supervise and guide the VCGFSH.
Article 21 TheVCGFSH shall be incorporated into the appraisal and evaluation system of public finance, and the Leading Group shall conduct supervision and performance appraisal of the performance of functions by the management institution of theVCGFSH and the assets formed by VCGFSH investment, which shall be subject to the auditing and supervision by theauditing organs of the state according to the law.
Chapter VIII Supplemental Provisions
Article 22 The Leading Group and the Office of the Leading Group shall, in accordance with the relevant provisions of these Measures, develop the supporting detailed implementation rules and the specific exit measures according to the operation of the VCGFSH.
Article 23 These Measures shall come into force on December 1, 2017, and expire on November 30, 2022.
Shanghai Municipal Development and Reform Commission
Shanghai Municipal Finance Bureau
October 20, 2017