Ask Fintactica

An FCPR (or Fonds Commun de Placement a Risques) is a French venture capital entity whose purpose is to invest in, promote and develop other corporations (provided those corporations are not involved in the provision of financial services). This is usually achieved through the venture capital company taking a participating shareholding in the target company. The law is set out in article 34 of the General Tax Code. The French FCPR legislation was first passed in 1983 at a time when the venture capital industry in France was in its infancy. Since then, given the considerable changes in the French venture capital environment, the legislation has been significantly modified to encourage private equity financing. The FCPR can now be used as a master feeder fund, can be a fund divided into different series, and can also be a fund of funds. Recent regulations now confirm an FCPR to be an easy and tax efficient structure. Not only is the FCPR itself not subject to any taxation in France, but also, French investors pay tax when the gains are distributed and not when the FCPR realizes capital gains.

Red Chips are firms incorporated in Hong Kong and listed on the Hong Kong Stock Exchange. Red Chips are substantially owned, either directly or indirectly, by the Chinese government, and have the majority of their business interests located in mainland China.

H-shares are companies actually incorporated in China and traded on the Hong Kong Stock Exchange. They are quoted in Hong Kong dollars.

You may also hear about A-shares and B-shares when researching Chinese equity investments. A-shares are restricted to local investors, or certain qualified institutional investors, and are denominated in renminbi. B-shares are listed on either the Shanghai Stock Exchange (where they are quoted in US dollars) or the Shenzhen Stock Exchange (where they are quoted in Hong Kong dollars). B-shares represent the smallest class of Chinese shares, but can be traded by foreigners and those local investors qualified to hold substantial foreign currency assets.

Small Business Investment Companies and Specialised Small Business Investment Companies (SSBICs) are financial institutions created to make equity capital and long-term credit (maturity of at least five years) available to small, independent businesses.

According to the National Association of SBICs in the US, no institutional source of finance for venture capital existed until the passage of the Small Business Investment Act in 1958. They are licensed by the Small Business Administration, but they are privately organised and privately managed firms which set their own policies and make their own investment decisions.

In pledging to finance only small businesses, SBICs may qualify for US government-backed long-term loans. Although all SBICs will consider applications for funds from socially and economically disadvantaged entrepreneurs, it is only SSBICs which make all their investments in this area.

The SBIC program was created to provide financing in the critical $250,000 to $5 million range in the form of either loans of the type not generally made by banks, or equity investments not generally available from non-SBIC venture capital firms. SBICs only invest in small US businesses, companies that create almost all of the net new jobs in the country.

The program is a private-sector-led partnership with the US federal government. SBICs tend to be managed by experienced private-sector professionals. At least $5-10 million is required to start an SBIC, and must come from private investors. Additional capital is then potentially available to each SBIC through the US Small business Administration via the sale of SBA-guaranteed securities, but only upon approval of the SBIC via a rigorous evaluation. The private capital is at risk in its entirety before any taxpayer money is at risk. The SBA also regularly examines SBICs to ensure financial soundness and regulatory compliance.