Jing Li of the Tilburg University Faculty of Law has published the following paper to SSRN..
Financing New Ventures in China – Regulatory Changes and Implications for Foreign Investors
December 15, 2008
Here’s the abstract:
Following the economic theory of venture capital financing, a corporate governance framework would be economically efficient for VC investments if it can help to reduce the agency costs resulted from information and incentive problems. As a highly successful model in global VC industry, the standard VC investment contracts in the Silicon Valley practice largely embody such framework.
By analyzing the currently effective laws and regulations of China that are relevant to the investments by foreign venture capitalists, this paper paints a practical picture of how can foreign VC investors do business in China. It is shown that, the recent (starting from 2005) outflow of a set of new legal norms can be seen as a dividing point for the VC investing practice in China – the previously prevalent mode "offshore structuring, offshore listing" is challenged, and both the investment and exit are gradually pulled onshore.
This being said, the current Chinese laws and institutions still cannot fully entertain the contracting and governance model prevalent in the Silicon Valley VC investment practices, and in this light, this paper goes on to discuss, in particular, various strategies that may be availed by foreign VC firms to tap and/or subvert the Chinese laws and regulations when financing Chinese new ventures. Finally, under the theme of globalization and cross-border corporate governance convergence, this paper provides a general comment on the currently applicable Chinese legal framework, and stresses the importance of converging towards efficient legal rules through contracts in the global competitive village.
Keywords: venture capital, foreign investments regulation, corporate governance, China
