August 2017
Measures to Compensate Angel Investors for their Investment Losses As Promulgated by the Science and Technology Commission of Shanghai Municipality and Other Agencies(Mainland China)
Zoe Qiao
The Shanghai Science and Technology Commission of Shanghai Municipality, the Shanghai Municipal Finance Bureau and the Shanghai Municipal Development and Reform Commission promulgated the Interim Measures for Compensating Angel Investment Risks in the Shanghai Municipality (Fu Ke He [2015] No. 27; hereinafter, the "Interim Measures") to encourage expanded investment of social capital in seed stage and start-up stage science and technology enterprises by providing a certain percentage of risk compensation to cover losses from an investment institution's seed and start-up investment in science and technology enterprises in a two-year period beginning from February 1, 2016.
Under the Interim Measures, a venture capital institution that has completed its recordation with the venture capital recordation and administration agency of Shanghai Municipality and invested in a seed stage or start-up stage science and technology enterprise after January 1, 2015 is eligible for risk compensation. With respect to the qualifications, a seed stage enterprise refers to an enterprise which has been established for less than three years with less than 50 employees and a total asset and annual turnover of less than RMB 5 million. A start-up enterprise refers to an enterprise with less than 200 employees and a total asset and annual turnover of less than RMB 20 million. In addition, an enterprise so invested is also required to meet the definition of a science and technology enterprise in Shanghai Municipality.
As for the risk compensation criteria, the Interim Measures provide that risk compensation will cover up to 60% of the actual losses incurred by an investment institution's investment in a seed stage science and technology enterprise, with the coverage provided from a dedicated fund; and up to 30% of an investment institution's investment in a start-up stage science and technology enterprise (Article 9). The investment loss compensation for each investment project shall not exceed RMB 3 million, while the total investment loss compensation for a single investment institution each year shall not exceed RMB 6 million (Article 10).
The Interim Measures also stipulate the administrative agency, application and handling procedure, and supervision and administration of risk compensation.
The Shanghai Science and Technology Commission of Shanghai Municipality, the Shanghai Municipal Finance Bureau and the Shanghai Municipal Development and Reform Commission promulgated the Interim Measures for Compensating Angel Investment Risks in the Shanghai Municipality (Fu Ke He [2015] No. 27; hereinafter, the "Interim Measures") to encourage expanded investment of social capital in seed stage and start-up stage science and technology enterprises by providing a certain percentage of risk compensation to cover losses from an investment institution's seed and start-up investment in science and technology enterprises in a two-year period beginning from February 1, 2016.
Under the Interim Measures, a venture capital institution that has completed its recordation with the venture capital recordation and administration agency of Shanghai Municipality and invested in a seed stage or start-up stage science and technology enterprise after January 1, 2015 is eligible for risk compensation. With respect to the qualifications, a seed stage enterprise refers to an enterprise which has been established for less than three years with less than 50 employees and a total asset and annual turnover of less than RMB 5 million. A start-up enterprise refers to an enterprise with less than 200 employees and a total asset and annual turnover of less than RMB 20 million. In addition, an enterprise so invested is also required to meet the definition of a science and technology enterprise in Shanghai Municipality.
As for the risk compensation criteria, the Interim Measures provide that risk compensation will cover up to 60% of the actual losses incurred by an investment institution's investment in a seed stage science and technology enterprise, with the coverage provided from a dedicated fund; and up to 30% of an investment institution's investment in a start-up stage science and technology enterprise (Article 9). The investment loss compensation for each investment project shall not exceed RMB 3 million, while the total investment loss compensation for a single investment institution each year shall not exceed RMB 6 million (Article 10).
The Interim Measures also stipulate the administrative agency, application and handling procedure, and supervision and administration of risk compensation.
