Research On Inconsistency In Innofund's Implementation

In recent years, as SMEs becomes increasingly important in promote regional innovation and economy, angel investment begins draw the world's attention. Angel investment is the main resource for SMEs financing at their seed and stare-up stages, and bring for the companies more than what they invest, which decides its importance in innovation and economic development in one country. However, angel capital market in China is still in its early stage. Although there are angels gradually emerging, it's far from sufficient to meet SMEs needs. So there comes Innofund (Innovation fund for technological firms). Innofund is one of governmental fund, and is the most influencing among its peers. Nevertheless, there is little study on it from angel investment perspective. The article is a new try from angel investment angle, and finds that there is an inconsistency in its implementing results. It supports many SMEs to succeed in one hand and even exceeds angel investment in its policy goal, but totally fails in its leading role and introduces almost no venture capital in. So, the article is to dig out the causes behind this inconsistency, and finds ways to improve it. Innofund is the direct intervention of our government. Through the study, we can conclude that Innofund has had features of angel investment in its implementation, and plays the role of angels. This form has been proved to be effective in many capital markets, so we cannot due the inconsistency problem to it consequently.The article adopts principal-agent model to analyze Innofund's system. Innofund supports the companies with money as need, and by designing fund scale properly, namely, through calculation of the incentive function correctly, the model could get maximum results, which means Innofund system could take maximum benefits for both sides. From this perspective, the system is reasonable and necessary.The article also analyzes the mechanisms of Innofund, found that it lacks knowledge and expertise of the angels badly, and is not consistent with the venture capital concepts. These finally cause the inconsistency above-mentioned. To amend this problem, the Innofund must introduce in the professional angel investors and the investing concepts, let the private investors develop the venture capital market themselves,and exits the market finally. The article proposes a four-step rotating development procedure, along which Innofund guides the development of the angel capital market and gradually exits the market at the same time.