In February 2010 and April 2011, two companies, Beijing Vestone Capital Co., Ltd. (Vestone Capital) and Beijing Fuhigh Financial Investment Consultant Co., Ltd. (Fuhigh Financial) showedin both two phases of innovative trust fund plans raised by COFCO Trust Co., Ltd. and several other institutions. Especially in the Zhongguancun Innovative IP Trust Plans of Assembled Funds (Phase I), Vestone Capital has dual identity as both investor and financial adviser and its affiliate Fuhigh Financial acts as an underwriter for the trust plan.

Special Role of Vestone Capital

Talking about the original intension of the trust plan, Zhou Jingjin, partner of Vestone Capital, said, "IP trust, as a new business, is still in the exploration stage. We actively participate in this plan based on two considerations: First, with this trust plan, we are developing channels for social capital to invest in SMEs; second, we can provide SMEs with new financing products, especially debt financing products based on intellectual property mortgage."

Zhou Jingjin, partner of Vestone Capital

It is learnt that the trust plan, jointly established by China Technology Exchange (CTEX), COFCO, Vestone Capital and Fuhigh Financial, provides one-stop integrated services of guarantee and loan for enterprises. Enterprises don't have to pledge fixed assets, since intellectual property, equity and even personal securities can also be pledged. This will undoubtedly bring risks to investors of the trust plan.

"In the current trust plan, Vestone Capital acts as both investor and financial adviser with the responsibilities of pre-loan guarantee survey and examination, IP pledge registration and post-loan supervision, and it also participates in the product design." Zhou Jingjin told the correspondent, "After companies submit loan application, CTEX will select the companies with market prospects from the technological prospect. Vestone Capital and Fuhigh Financial then assess the intellectual property rights and issue credit guarantee. At the same time, COFCO will handle the procedures of trust loans. Credit guarantee and loan review will also be carried out simultaneously."

Is there any conflict of interest to act as both initiator and investor of the trust plan? Zhou Jingjin explained: "The basic elements of trust plan are the components in the chain of intellectual property financing. All the parties have their own interests and aspirations. Via market-oriented behavior, they cooperate under the principle of benefit sharing and risk sharing', so that there is no conflict of interest."

According to Zhou Jingjin, the difficulties of IP assessment and liquidity constrain the development of IP pledge financing. "Trust plans for assembled funds" adopts the mechanism that investors evaluate the market (i.e., buyer price) and assume guaranty responsibility, which avoids the difficulty in intellectual property assessment. Meanwhile, venture capital organs, also as asset management institutions, have capacity of asset management and disposal. With the CTEX as a trading platform, this combination is an effective solution to the problem of intellectual property liquidity. To be specific, Vestone Capital and Fuhigh Financial participate in the financing as institutional investors, and also make assessment on corporate assets as experienced asset evaluator. Cooperating with professional technology trade organization, they jointly resolve IP valuation and liquidity problems in IPR pledge financing process. Vestone Capital also designs a complete set of assessment models, but it still needs time to get recognition from all parties concerned.

"Vestone Capital has always focused on the equity and debt market of high-tech enterprises in China, provided financing and investments to non-listed high-tech companies with good prospects for development and helped enterprises address the problems in management and distribution. It assists companies in growing stronger and bigger, and jointly creates and realizes their capital value. The investment team of Vestone Capital has distinct experiences in business management. The core team members have more than 20 years of successful business management experiences, and they have managed or operated IT high-tech enterprises with annual sales of more than 2 billion yuan or leaded enterprise developing from a small local company to corporation group with sales network all over the country. The investment team is not only familiar with Chinese business environment and patterns, but also has profound experience and understanding in different development stages of enterprises." Zhou Jingjin said.

Zhou also mentioned that Japan's Softbank is currently doing the best in the field of investment in technological innovation. Comparatively, there is still a long way for China to go in this respect. "From our point of view, the examination on IP value lays more emphasis on its value that can be realized in the future. Therefore, we are more likely to examine the enterprise' business operation ability rather than the intellectual property value." Zhou said.

Fuhigh Financial as the Underwriter

Vice President of Fuhigh Financial Duan Zhihua said in an interview: "The trust plan is a structured product. All the social trust funds raised by COFCO will be fully secured by Fuhigh Financial. It should be emphasized that we are not an underwriter company in the ordinary sense, but a thirdparty security."

"As the first company involved in intellectual property trust plan, we have a professional financial and legal consultant team, which has many years of management experiences, including venture experiences. Coupled with close cooperation with high-tech enterprises, financial institutions, experts in related fields, we achieve success in joining the trust plan." Duan Zhihua said.

Duan Zhihua introduced, "In the whole trust plan, Fuhigh Financial takes charge of the communication and coordination with CTEX and COFCO and is also responsible for due diligence investigation from financial and legal aspects. It is an evolving process to get recognition for the intangible value of intellectual property, so that it is important to raise awareness. At the beginning, many companies did not know much about the new product and were lack of confidence. Thus, we spent a lot of time and energy to convince them. In the next step, we need to work hard on post-loan supervision and tracking ser vices for the project."

"The current phase of the plan focuses on investment and trust services for high-tech SMEs, which creates a new modal with equity and intellectual property as mortgage. This is a useful exploration for the industrialization and capitalization of intellectual property. Although there is no similar competitive product in domestic market, we still seek to introduce new innovative products to solve financing problems for more enterprise with the thinking of ‘risk minimization and benefit maximization.' " Duan Zhihua said.

(Translated by Li Yu)