During the set-up and expansion stages, capital is badly needed but difficult to obtain. Due to lack of security assets and high risk, banks are usually unwilling to lend. Under such circumstances, venture capital, as a type of investment fund managed by professionals and targeted for new companies, plays a critical role in nurturing the innovative technology industry. Venture capital provides equity financing to growth enterprises with perception that ideas of the entrepreneurs may succeed in the future. The objective of equity financing is to obtain capital gain, which is being cashed in when the companies go for listing, and proceeds will subsequently invest in new projects.
Listing is the best exit.
Venture capital is fast developing in Hong Kong. The reasons are that Hong Kong lacks the opportunities before high technology was promoted, and there is no convenient exit for assets to cash out. With the GEM starting to operate, market mechanism and environment needed by venture capital is improved. As a result, it is anticipated that more venture capital will develop in Hong Kong and invest in companies based in Hong Kong. On the other hand, the GEM facilitates growth enterprises to raise capital for further expansion.