(Yicai) Nov. 27 -- The Three Gorges Innovation Valley Industrial Park has become the first industrial park in central China to have invested in a small company through the subscription right financing mechanism.

Three Gorges Innovation Valley, controlled by the Xiling district government of Yichang in Hubei province, granted Hubei Suogan Technology, which is based in the industrial park, a three-year rent and service fee waiver in exchange for the right to subscribe to 8 percent of the company’s shares, Yicai learned during a recent on-site visit.

Suogan develops and applies breeding technologies. It has the exclusive right to ZKJ 1 in Hubei. ZKJ 1 is a new variety of sesbania that can be used as high-quality forage and to improve saline-alkali land. Sesbania is an annual herb or shrub-like crop that can be applied in soil improvement, forage, and ecological restoration.

Receiving financing by industrial parks through the subscription rights mechanism can reduce the cost pressure faced by enterprises in the startup stage and allow them to invest their limited cash resources in core new product research and development, market expansion, and talent attraction, Shen Xiangling, chief financial officer og Suogan, told Yicai.

This type of financing is equivalent to a government-backed industrial park providing credit endorsement for enterprises benefited by the process, enabling them to understand and apply for subsidies more directly and earlier, a manager at the Three Gorges Innovation Valley told Yicai. It also gives companies credibility when they seek more financing, attract customers, and recruit high-end talent.

“The investment objective of the industrial park is not only financial returns but also industrial cultivation and long-term social benefits,” the manager noted. “Moreover, compared with ordinary financial investors, industrial parks can be more patient and do not pursue short-term withdrawal.” 

Most small- and medium-sized innovative and technological enterprises feature light assets, high investment, and long development cycle, Liu Aihong, finance chief at the Xiling district government, told Yicai. Moreover, as their core assets are mostly intangible, such as patents, they lack the collateral required to apply for traditional loans, she added.

Such companies have no stable cash flow in the startup stage, so it is difficult for them to raise money via traditional financing channels, Liu explained.

Entities investing through the subscription rights financing mechanism usually obtain 3 percent to 8 percent of the company’s stock rights, Liu noted. However, as the firms do not need to immediately transfer the shares, they can bridge the capital gap in technology R&D and market expansion, avoid the too rapid dilution of their equity, and ensure the founders’ controlling rights.

The Xiling district government will take the work achievements of the Three Gorges Innovation Valley as a model and is targeting to help more than 50 tech firms in science and technology innovation parks under its jurisdiction raise money in this way within the next five years, Liu said.

Editors: Tang Shihua, Futura Costaglione