Venture Capital: Theory And Practice

Venture capital is a long-term risk-taking equity capital, which is regarded as the engine of promoting high-technology industry in U.S.A. Because of the support of venture financing, lots of small enterprises successfully overcome "capital gap" during the process of development from seed stage to the following development stage and expansion stage, then become very famous with initial public offering at the security market. It is these venture enterprises that play an important role in enhancing exportation in high value-added products and accelerating the change in industrial structure.What is venture capital? Where is venture capital from? How does venture capital market operate? How to develop a normal mechanism to make venture capital active? This thesis is aimed to explain the above-stated questions and other related series of questions from theoretical viewpoints, and to put forward a practical model of making venture capital rooted in China. It is organized as follows:At the beginning, the first chapter gives a detailed description of the definition and characteristics of venture capital, and the difference between venture capital and risk capital, then reviews the achievements made by economists in the field of venture financing. Their achievements are summed up in seven respects: Security Design Theory, Principal Agent Theory, Control Theory, Stealing Theory, Inalienability of Human Capital, Asymmetric Information Theory and Venture Capital-Specific Theory.According to the research approaches of new institutional economics, Chapter 2 takes venture capital as a new institutional arrangement and explains the governance of the whole venture capital market from four respects. First, compared with corporation and trust funds, limited partnership becomes the mainstream of organizing venture capital companies (or funds). The reason lies in that limited partnership effectively solves moral risk and adverse selection caused by asymmetric information between limited partner and general partner. Second, this chapter focuses on operating covenants, shareholders agreement, registration rights agreement, and the employment agreement, all of which respectively stipulates responsibilities and obligations of venture capitalist and entrepreneur before or after venture financing. Third, as market intermediaries are information producers, (such as investment bank, accountants and lawyers, and so forth), the chapter deals with the gravity of theirreputation in the market. Fourth, by analyzing the mechanism of initial public offering, the chapter attempts to throw light on why venture capitalist chooses IPO as the best exit path.From the perspectives of demand and supply of venture capital, Chapter 3 and 4 discuss the factors influencing their fluctuations. In particular, chapter 4 takes the modification of (Employer Retirement Income Security Act)) as an example, analyzing its role in breaking the equilibrium and attaining the new equilibrium.External environment is the topic of the fifth chapter. Besides the direct category of venture capital, Venture capital system also includes external environment. The chapter emphasizes the second-tier security market as an indispensable condition during the process of developing venture capital industry. In addition, Government may provide ventures with capital, government guarantee, and tax incentive, and the government may also regulate investors and public buying. Such measures may help to intervene with the construction of venture capital institution in imperfect market-oriented economy.Chapter 6 chooses three representative samples, including Japan, England and Taiwan province, so as to render a comparison between different areas in the world, and then some experiences and lessons are drawn from their respective histories.Chapter 7 combines venture capital theory with Chinese practice, and strives to explore an path suitable for our national conditions, based on an comprehensive understanding of current obstacles to developing venture capital industry in...