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Venture Capital in APEC Economies:Venture Capital in APEC Economies: CommentsComments

Professor Stephen Yan-leung CheungProfessor Stephen Yan-leung Cheung

Faculty of BusinessFaculty of Business

City University of Hong KongCity University of Hong Kong

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ContentsContents

• Funding problems of SMEsFunding problems of SMEs

• Role of governmentRole of government

• Impacts of globalization on SMEsImpacts of globalization on SMEs

• Policy implicationsPolicy implications

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Funding ProblemsFunding Problems

Despite efforts byDespite efforts by• financial institutionsfinancial institutions• public Sectorpublic Sectorto close financing gapsto close financing gaps

SMEs continue to experience difficulty SMEs continue to experience difficulty in obtaining risk capitalin obtaining risk capital

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Funding ProblemsFunding Problems

These funding gap related toThese funding gap related to

• Firm sizeFirm size

• RiskRisk

• KnowledgeKnowledge

• FlexibilityFlexibility

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Funding ProblemsFunding Problems

DifficultiesDifficulties• SME borrowing requirements are small and SME borrowing requirements are small and

frequently do not appeal to financial institutionsfrequently do not appeal to financial institutions• More collateral may be required than SMEs can More collateral may be required than SMEs can

pledgepledge• Financial institutions may lack expertise in Financial institutions may lack expertise in

understanding knowledge-based businessunderstanding knowledge-based business• The flexibility in terms and conditions that many The flexibility in terms and conditions that many

SMEs require may not be availableSMEs require may not be available

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Funding ProblemsFunding Problems

DifficultiesDifficulties• Information AsymmetryInformation Asymmetry

– On-line information to small businessOn-line information to small business– Dutch SMEs account aims to reduces information Dutch SMEs account aims to reduces information

asymmetry problem between SMEs and financiersasymmetry problem between SMEs and financiers

• Start-up stageStart-up stage– Credit loans, leasing companies, personal and family Credit loans, leasing companies, personal and family

relationsrelations– Seed capital funds to fund high risk projectsSeed capital funds to fund high risk projects

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Funding ProblemsFunding Problems

The funding needs ofThe funding needs of

• high risk high risk

• knowledge-basedknowledge-based

• technology-basedtechnology-based

byby

• venture capitalventure capital

• business angel networksbusiness angel networks

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Government can affect the Government can affect the supply of venture capital supply of venture capital

• rules and regulationsrules and regulations

• pension funds participationpension funds participation

• tax incentivestax incentives

• directing venture capital to seed firms directing venture capital to seed firms in growth sectorsin growth sectors

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Globalization, SMEs and Venture Globalization, SMEs and Venture CapitalCapital

• Global competitionGlobal competition

• Rapid changes in technologiesRapid changes in technologies

• Evolving market conditionsEvolving market conditions

• Rising R&D costsRising R&D costs

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Globalization, SMEs and Venture Globalization, SMEs and Venture CapitalCapital

• Technology factorsTechnology factors

• Strategic alliancesStrategic alliances– cross border alliancescross border alliances

• Mergers and acquisitionsMergers and acquisitions

• Information networksInformation networks– clustersclusters

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Policy implicationsPolicy implications

• Sizes of venture capital declined in 2001Sizes of venture capital declined in 2001– Venture capital (US) rose from USD 20 billion in 1998 to Venture capital (US) rose from USD 20 billion in 1998 to

USD 100 billion in 2000 and dropped to USD 38 billion in USD 100 billion in 2000 and dropped to USD 38 billion in 20012001

• Secondary stock markets – poor performanceSecondary stock markets – poor performance– GEMGEM

• Pension fundsPension funds– Venture capital (US) rose from USD 20 billion in 1998 to Venture capital (US) rose from USD 20 billion in 1998 to

USD 100 billion in 2000 and dropped to USD 38 billion in USD 100 billion in 2000 and dropped to USD 38 billion in 20012001

– participation in venture capitalparticipation in venture capital

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THE ENDTHE END