The state is reshaping one of the world’s biggest startup scenes—not necessarily for the better
development zone in the city of Wuhan has been abuzz since March, when the local government announced the creation of a 10bn-yuan investment vehicle. The Optics Valley Hi-Tech Venture Capital Guidance Fund aims to combine the animal spirits of private capital with the industrial objectives of the state. Its general manager, Li Yang, told state media in late May that more than 80 private investors had submitted formal proposals. Ten of these are already in the process of being approved.
In some cases these rules appear to work well enough. Shanghai Angel Guide Venture Capital, a 10bn-yuan vehicle originally launched in 2014, has created more than 65 sub-funds that invest small amounts in minority stakes at early-stage companies in partnership with non-state investors. A review byof a sample of 20 of these sub-funds shows that their general partners and most of their remaining limited partners are indeed private-sector funds.
The structure of the sub-funds, meanwhile, reduces their appeal to private investors. Many lock up capital for up to ten years, in line with Mr Xi’s exhortation to think long-term, but twice too long for the typical private limited partner. State guidelines for recognising investment losses are often stricter than venture capitalists or private-equity managers would like, and less patient towards struggling firms that could be tided over.
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