Registered capital of 500 million yuan may become a watershed for VC/PE, separating supervision and legislation

　　Liu Jianjun, director of the Financial Department of the National Development and Reform Commission's Department of Finance, recently revealed at a forum in Shanghai that the next management approach will be to "separate regulation and legislation" for VC and PE. This statement has caused quite a stir. If the long-standing confusion between VC and PE is to be resolved, the next question is how to separate them and how to regulate them? Some industry insiders predict that if separate regulation is implemented, it may be based on the size of the fund, with a registered capital of 500 million yuan possibly becoming the dividing line between PE and VC.
　　As imported terms, VC is translated as "venture capital" or "entrepreneurial investment" in Chinese, while PE is translated as "private equity investment." However, the names reveal the "overlap" between the two: VC, known as venture capital, mostly invests in equity, while PE, known as private equity investment, also involves risk.
　　In China, the conventional distinction is that VC tends to invest in early-stage projects, while PE tends to invest in expansion-stage and mature-stage projects. However, in the discourse of research institutions and media, VC and PE are always inseparable. Both VC and PE favor investments in unlisted companies, although the differences between the two can sometimes be vast—in the eyes of some observers, the PE firms that use special means to make surprise investments are like "devils" compared to the VCs that quench the thirst for funds of innovative SMEs, who are like "angels".
　　According to professionals, on the surface, VC and PE differ significantly in investment stage, investment scale, investment philosophy, and investment characteristics, but the seemingly clear distinction between the two has become entangled and ambiguous in recent years. More and more VCs are entering the PE field, and more and more PEs are getting involved in VC projects, blurring the lines between the two in actual business. Moreover, PE in the broad sense actually includes VC.
　　From a regulatory perspective, there is already a policy distinction between VC and PE. Taking filing management as an example, the National Development and Reform Commission has a clear positioning and distinction in the regulation of venture capital and equity investment. The filing management of VC follows the principle of voluntariness, while the filing of PE is mandatory. Qingke Research Center believes that the distinction between the two still remains at the level of registered name or description of business scope during registration, lacking a more comprehensive, in-depth, and systematic definition, resulting in funds registered as venture capital but actually engaged in equity investment becoming a gray area for regulation.
　　Although some believe that VC and PE are two different forms of emerging investment and financing tools and that separate regulation is necessary, how to distinguish them and how to regulate them will be a challenge for regulators.
　　“If separate regulation is to be implemented, what standards should be used to classify VC and PE? By name, scale, profit, investment projects, or fund managers?” A senior industry insider told the Securities Times reporter that under the current situation where the boundaries between VC and PE are becoming increasingly blurred, separating the regulation of VC and PE is not feasible. Even if a distinction standard is set, PE can easily "disguise" itself as VC to obtain preferential policies.
　　Liao Zijun, chairman of Junshen Investment, told reporters that separating PE and VC based on investment projects would be more practical. In order to control risk and maintain liquidity, it is common for funds to combine multiple projects. “For a fund that invests in both early-stage and mid-to-late-stage projects, which category should it be classified into?”
　　Feng Po, senior analyst at Zhong Group, predicts that if separate regulation is implemented, it may be based on the size of the fund, with a registered capital of 500 million yuan possibly becoming the dividing line between PE and VC. Feng Po also believes that if a divide-and-conquer approach is adopted, it is expected that the tightening policy on PE since last year will continue, while the policy on VC will remain relaxed.