Accessible Requires Authentication Published by De Gruyter June 24, 2015

OTC Stock Market in China – The New Venture Capital Exit?

Jing Li


Venture capital is certainly important to a country in that it finances entrepreneurship and innovation. In recent years, secondary markets for private shares have emerged as an important node in the VC cycle by both facilitating interim liquidity for non-listed firms and providing external investors with the access to good pre-IPO shares. Ready and able to play an active role on both the exit and entry sides, are VCs more engaged in reducing or increasing their ownership in these markets? Based on a sample consisting of a total of 102 firms that have been quoted on China’s New Third Board from 2006 to 2011 year end, this paper finds that VCs were much more likely to increase than decrease their ownership – there have been 128 times of increases in contrast to 45 times of decreases. In particular, VCs actively took the opportunities of subscribing new shares issued in capital increases to increase their ownership. Out of the total 85 VCs that invested in the 102 firms, 33 were already there as of first quotation, 39 VCs subscribed new shares in capital increases, 33 VCs bought shares from existing shareholders, while only 11 exited. For the purposes of enhancing the attractiveness of the New Third Board as an exit venue, this paper argues that the market should work on increasing its liquidity from both the supply and the demand sides. As the successor of the New Third Board, the National Equities Exchange and Quotations largely manages to realize this by considerably broadening the pool of potential eligible firms and investors, and also by making available various additional mechanisms such as market making and call auctions to boost share transfers. As such, it is generally reasonable to argue that for those SMEs that are not yet able to directly list on public stock exchanges but are already in need for interim liquidity, the NEEQ does serve as a useful platform to achieve the purpose, and thus fills a gap in China’s VC cycle.

Corresponding author: Jing Li, Business Law Department, Tilburg University, P.O. Box 90153, Tilburg 5000 LE, The Netherlands, e-mail:

Article note:

This article was presented at the 6th Annual Conference for the Academy of Innovation and Entrepreneurship (AIE 2013 Conference) held in the University of Oxford on August 29 and 30, 2013. For helpful comments I am grateful to Xiaolan Fu, Joseph McCahery, Hiram Samel, Yao Tang, Erik Vermeulen, Zhijian Xu, and all participants of the “Entrepreneurship Finance and Training” session at the AIE 2013 Conference. All errors remain my own.

Published Online: 2015-6-24
Published in Print: 2015-10-1

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