Core Viewpoint - The S Fund is seen as a potential solution for revitalizing existing assets, with multiple provinces in China establishing S Funds in recent months. However, there are significant challenges in the market, particularly regarding the pricing and valuation of early-stage investments [4][5][6]. Group 1: S Fund Development - Several provinces, including Zhejiang, Fujian, Jiangxi, and Anhui, have established S Funds, reflecting a growing interest in revitalizing existing assets through these funds [4]. - The central bank and seven ministries issued guidelines to support new industrialization, emphasizing the development of secondary market funds and optimizing the transfer and pricing mechanisms for venture capital funds [4]. Group 2: Challenges in S Fund Transactions - The S Fund market faces contradictions, such as the requirement to prevent the loss of state assets while S Funds typically demand a 20-30% discount, leading to difficulties in finding market-oriented S Funds [4][5]. - A significant challenge in S transactions is the difficulty in pricing early-stage fund shares, as buyers must evaluate the underlying assets individually, which is labor-intensive [10][20]. Group 3: Market Dynamics - Approximately 70% of S Funds are state-owned, 20% are insurance funds, and less than 10% are private institutions, indicating a predominance of state capital in the market [9]. - The market favors "extreme certainty" and quick exits, making it challenging for funds with early-stage projects to find buyers [14][15]. Group 4: Successful Transaction Case Study - A notable S transaction involved Atom Venture Capital and BoXuan Capital, where Atom successfully navigated the complexities of selling early-stage fund shares to a market-oriented S Fund [16][27]. - The transaction process included extensive due diligence, negotiations on pricing, and compliance with regulatory requirements, ultimately taking ten months to complete [25][24]. Group 5: Future Outlook - The experience gained from this transaction positions Atom to better handle future S Fund transactions, as the market for S Funds is expected to grow due to the increasing number of funds needing to exit [30].

Core Viewpoint - The S Fund is seen as a potential solution for revitalizing existing assets, with multiple provinces in China establishing S Funds in recent months. However, challenges exist in the market, particularly regarding the pricing and exit strategies for these funds [2][3]. Summary by Sections S Fund Development - Various provinces, including Zhejiang, Fujian, Jiangxi, and Anhui, have established S Funds, reflecting a growing interest in this investment vehicle. The central bank and seven ministries issued guidelines to support new industrialization through venture capital [2]. Challenges in S Fund Transactions - The S Fund market faces significant challenges, including the contradiction between the need to protect state assets and the common requirement for S Funds to purchase at a 20-30% discount. This creates difficulties for market-oriented S Funds to find opportunities [2][3]. Case Study of a Successful S Transaction - A notable transaction involved Atom Venture Capital, which completed its first S transaction in April, where a state-owned LP sold its shares to a market-oriented S Fund, Bohao Capital. The assets involved were early-stage investments considered risky and uncertain [5][14]. Pricing and Valuation Issues - Pricing S Fund shares is complex, as it requires evaluating the underlying assets individually. Many state-owned buyers prefer to buy at the original investment price, limiting the potential for premium pricing [9][10]. The market favors certainty, making early-stage investments less attractive [12][13]. Negotiation and Due Diligence - The negotiation process with Bohao Capital involved extensive due diligence, including site visits and discussions about the potential of the underlying projects. This process took several months and was crucial for building trust between the parties [16][17]. Establishing a Pricing Mechanism - A three-tiered approach was developed to ensure a fair pricing mechanism: a third-party evaluation agency was engaged to provide an initial valuation, followed by negotiations between the buyer and seller, and finally, a public auction process to validate the price [20][21][22]. Successful Completion of the Transaction - The transaction took ten months from conception to completion, with Bohao Capital becoming the new LP for Atom's fourth fund. This success was attributed to mutual trust and collaboration among all parties involved [24][27]. Future Outlook for S Funds - The experience gained from this transaction is expected to facilitate future S Fund transactions, as many government-backed funds will face similar exit challenges in the coming years. The market for S Funds is anticipated to grow significantly [28].