Recently, Xi'an Yicai's application for an IPO on the Science and Technology Innovation Board was accepted by the Shanghai Stock ExchangeThis marks a significant event as it is the first unprofitable company to be admitted since the "Eight Scientific Policies" were introduced in June of this yearThe acceptance reflects a changing landscape where the emphasis is placed not only on financial metrics but also on the potential for growth and innovation within companies.

The inception of the Science and Technology Innovation Board was motivated by the need to provide a supportive framework for hard technology companies seeking financing for their innovationsThe board's establishment was a pivotal step in diversifying the listing criteria, thereby allowing companies that have not yet turned a profit but showcase promising growth potential to take their place in the capital marketsThis adjustment enables “promising seedlings” in the tech domain to flourish, ultimately fostering a climate of inclusivity for new industries, business models, and technologies

The goal is to stimulate technological advancements and propel the development of new production capacities.

Start-ups in the tech sector often face formidable challenges when it comes to financing, not least due to elements like the inherent uncertainty associated with technology research and development, the necessity for market validation of products, and a scarcity of tangible assetsThese companies frequently find themselves grappling with financial constraints that can stunt their progress and potentialParticularly during critical periods of technological breakthroughs and industrialization, the need for capital injection can be vital for successful commercialization and market deploymentThe capacity to secure timely funds is often a determining factor in a company’s survival, allowing them to traverse the perilous "valley of death" that many tech start-ups faceThus, permitting eligible unprofitable tech firms to list and raise capital significantly aids these businesses in navigating their crucial early development phases, fostering the growth of future tech giants from initially modest beginnings.

Despite their current lack of robust financial metrics, many of these companies possess core technologies and have promising market outlooks, suggesting significant growth potential

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Granting these high-quality tech firms an opportunity to go public not only accelerates their growth but also contributes to the transformation and upgrade of the industrial sectorAs China's economy shifts towards high-quality development, a plethora of strategic emerging industries, encompassing fields such as new-generation information technology, new materials, new energy, and biopharmaceuticals, continue to burgeonCompared to traditional enterprises, these emerging tech-oriented companies generally exhibit rapid technology iterations, higher risks, and lighter assets, thus necessitating the role of the capital markets in aggregating innovation capital, sharing risks, and distributing benefitsBy providing broader financing pathways, the capital market can better serve the goals of technological independence and resilience, bolstering China’s competitive stance and influence within the global industrial and supply chains.

With the backing of the capital market, numerous hard tech companies have managed to overcome technological hurdles, emerging successfully into the marketplace and advancing their business models

In mature markets like the United States, there are many success stories of innovative firms that achieved significant profits after going publicTake the Nasdaq, for instance, where many companies, such as Tesla, began their public journey without substantial profits but eventually transformed into global institutions post their entry into capital marketsRecent practices within the Science and Technology Innovation Board in China echo this sentiment, showcasing nearly 20 companies that, although unprofitable at their listings, have successfully turned their fortunes around, achieving profitability over time.

However, it is crucial to understand that allowing unprofitable businesses to list on the stock market doesn't imply a no-strings-attached approach; not just any company can simply float onto the exchangeThe fifth set of listing criteria demand that the estimated market cap be no less than 4 billion yuan, along with requirements such as governmental approval for principal operations or products and evidence of significant market potential

The “Eight Scientific Policies” further elucidate that unprofitable companies seeking to list must show critical core technologies, substantial market potential, and outstanding innovation attributesFor firms struggling with weak profitability yet eager to enter the capital market, meticulous preparations matched against these benchmarks are imperative.

In reality, among the numerous unprofitable companies that apply for listings, only a handful succeed in their endeavorsOn the very same day that Xi'an Yicai’s IPO application was accepted, another company withdrew its application after a three-year waitIt is emblematic of the stringent scrutiny that regulatory bodies are applying to keep out those firms which may masquerade as technological enterprises but lack true substanceEarlier this year, the China Securities Regulatory Commission reiterated its commitment to rigorous evaluations of unprofitable companies, mandating that they demonstrate sustainable operation capabilities and disclose forecasts regarding potential profitability.

Moreover, achieving an IPO as an unprofitable company doesn’t guarantee an uptick in performance or an increase in market capitalization