Regulators with a fear of paperwork need not apply. On the day the China Securities Regulatory Commission issued its call for applications for the long-awaited new Growth Enterprise Market (GEM) board in Shenzhen, more than 100 responses came in.
The second board, which is expected to open for business no sooner than October, has been billed as China’s NASDAQ, and the bulk of applications received were suitably high-tech focused.
While it may provide another exit for foreign venture capital (VC) investors, they’re hardly holding their breath.
"If one of your companies isn’t already in the pipeline to be listed on the GEM board, it’s probably 18-24 months to get into that queue," said Gary Reischel, founder of Qi-ming Ventures in Shanghai.
The full rules governing the GEM board have yet to be published, but it will have lower thresholds for entry than the main board. Applicants must have annual net profits of US$1.5 million for the previous two years or US$730,000 for one year accompanied by sales of at least US$7.3 million. For the main board, the minimum net profit and sales figures are US$4.4 million and US$43.9 million respectively.
The main beneficiaries of the GEM board will be those investors with a Chinese zip code, according to Young Zhang, head of research at China Venture, a consultancy. Smaller VC funds may be able to recoup their investments from GEM listings, but larger foreign players will still prefer the higher multiples found on the main board.
"I think it will be a good thing for both founders and investors who want liquidity. In terms of funding, I don’t know if companies will be going there to raise a huge amount of money," said William Bao Bean, a partner with Softbank China and India holdings, an early stage venture capital firm.