Risks and annoyances Venture capital investment has flowed into China despite the fact that Chinese law does not allow for preferential or convertible shares of stock. Obtaining information from the Chinese government for the purpose of due diligence is difficult, Chinese law does not allow for easy exit from ventures. Still, the money keeps flowing in. Plus, intangibles such as intellectual property may not exceed 20 percent of the initial total equity in a company. Another hindrance is that there is no legal framework for the formation or operation of a stock option plan, and access to debt financing is highly regulated.
Risks associated with venture investment in China remain high.
Both the absence of appropriate legislation and the amount of government interference testify to how far venture investments need to go to become more institutionalized. The limited management experience of Chinese professionals managing high-growth companies and the small number of businesses that support the growth of venture capital show the business areas that still need development in order to make venture investments pay out in the long term. Over the past 20 years, it has become apparent that the best way to identify good investment opportunities is to understand what will be supported by government policy and to work ahead of those policy changes. In the case of venture capital, two developments are noteworthy. First, many Chinese officials have indicated an interest in developing an infrastructure to support venture investing.