The Equity Gap Amongst Technology-Based Small Firms: Practices and Challenges for Government-Backed Venture Capital in China

This chapter examines the equity gap faced by technology-based small firms (TBSFs) in China by focusing on government-backed equity initiatives that aim to foster their new technology adoption, innovation, and growth. By evaluating the literature, the chapter attempts to address the dearth of prior studies and thus examine the journey and experience of Chinese TBSFs. Furthermore, the chapter contributes to our understanding of the critical role of government-backed venture capital in attracting private local and international venture capital funds in enabling new Chinese TBSF start-ups to engage in the high-risk, high-reward entrepreneurial process. Overall, our review suggests that private venture capital providers are the predominant formal finance sources for TSBFs, despite the fact that government-backed venture capital funds have increased in size and value as the State aims to support innovative and high-technology firms gain competitive advantage in driving China's continued economic development.