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Law360 (March 6, 2020, 5:59 PM EST ) China's securities regulator said Friday it has loosened its policies for private investors looking to exit their investments in startup companies, saying the changes should help promote reinvestment and stimulate the economy in the face of the new coronavirus.
The changes are geared toward improving exit options for venture capital funds and private equity investors that make long-term investments in technology startups, the China Securities Regulatory Commission said. Freeing up investor funds could also help boost China's economy as the country battles the COVID-19 outbreak, the announcement said.
Venture capital and private equity funds can "provid[e] assistance in the prevention and control of the epidemic situation," and "increas[e] the support for the real economy," the regulator said.
The revisions target a 2016 policy that limited lockup periods for venture capitalist backers that had made long-term investments in technology-focused startups. While that policy has had some effect, further changes should "smooth the virtuous cycle of 'investment-exit-reinvestment,'" the CSRC said.
The revisions specify that if a venture capital fund has been a backer for more than five years when the company goes public, it won't face further restrictions on share sales following the lockup period.
And if a pre-IPO investor whittles down its stake through a block trade, in which a large number of shares are sold, the buyer won't be subject to a lockup period, the announcement said.
The policy covers startups that meet certain thresholds for size or for how long they have been established, or those certified as being high-tech. But an earlier requirement specifying the size of the venture capitalist's investment has been deleted, according to CSRC's announcement.
The changes also expand the types of investors covered by the policy to include private equity funds.
Since private equity and venture capital funds hold a relatively small portion of a company's public market value and still need to whittle down their holdings in batches, the changes shouldn't trigger significant pressure for public market investors to reduce their holdings, the statement said.
The changes will take effect March 31.
The CSRC's announcement is the latest adjustment to regulatory policy as countries around the world scramble to keep investment flowing. The virus' spread has impacted dealmaking and global trade, and securities regulators in Hong Kong and the U.S. have eased certain filing deadlines.
--Additional reporting by Keith Goldberg and Tom Zanki. Editing by Stephen Berg.
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