Venture Capital Exit Mechanism Analysis

Venture capital originated in U.S. in 1950's. Because of the tremendous effect on the development of the American economy, many countries have introduced this mechanism and it attracts the whole world's attention rapidly. Venture capital industry has started in China not until 1980's, and it is still at the initial stage of development. Venture capital mainly focused on high-risk, fast-growing, high-tech enterprises, and this mechanism could greatly shorten the cycle of converting technology into commodities to get high return on investment capital. The operation of venture capital is divided into three stages:raising funds, operation and management of venture capital, withdrawal of venture capital, and then the capital funds will go to the next cycle. The core of the whole venture capital procedure is withdrawal mechanism. Since venture capital is a combination of high venture and high profit and its high yields can only be realized through appropriate channels. In order to reach the goals of investors, it requires a sound withdrawal mechanism to make sure that investors can withdraw their capital smoothly. Therefore the success of venture capital must rely on a good withdrawal mechanism.This paper starts with the operating mechanism of venture capital industry, analyzes the principles and objectives of venture capital investment. And then the author obtains the conclusion that withdrawal mechanism is the key factor of the whole process. In the next chapters, the author introduces the withdrawal mechanism methods, and the practices and experiences of U.S. and Germany. Through the comparison of performances of different withdrawing avenues, we get the target mode of venture capital withdrawing mechanism in China. After that, the author introduces and analyzes our own situation of using withdrawal mechanism channels. Finally the author puts forwards some advices about how to improve our existing withdrawal mechanism. The main contents are as follows:Chapter One introduces the research background, research significance, innovation, and also some domestic and overseas findings about exit mechanism of venture capital.Chapter Two describes the operation process of venture capital, and emphasizes the importance of exit mechanism for venture capital's success. This article illustrates the importance of withdrawal mechanism mainly from the angle of investment circulation. Only through a smooth exit can the venture capital investment keep a virtuous circle.Chapter Three introduces the major venture capital exit mechanisms:IPO, sale and repurchase, liquidation, and do analysis for the popular withdrawal mechanisms (IPO and M&A) from five different perspectives. Innovation of this paper is to compare the two withdrawal mechanisms through the potential incentive effects. Our withdrawal mechanism should major in IPO and also take into account the M&A,other exit channels.Chapter Four describes and compares the withdrawal mechanism of U.S. and Germany. We can come to the conclusion that different structures of capital market will lead to different choices of withdrawal mechanism. Based on the experience of these mature markets, the author puts forward the suggestions and recommendations in the Chapter Six.Chapter Five introduces and analyzes the development state of venture capital and its withdrawal mechanism of China. And it points out the existing problems of the withdrawal mechanism of venture capital markets:A sound and reasonable exit channels has not been established; Laws and regulations are inadequate.Chapter Six based on the experience of U.S. and Germany and combining our own situation, the author offers some recommendations to solve the problems of our withdrawal mechanism, such as, the Government to strengthen the support of venture capital industry, improve the property rights trading market and counter market; consummate the mechanism to use "Shell" to be listed; focus on establishing multi-level exit channels; stress the training of professional talent; improve the relevant laws and regulations.