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A Study On Investment Decision And Contractual Relationship Of Venture Capital

Posted on:2004-05-27Degree:DoctorType:Dissertation
Country:ChinaCandidate:C JiFull Text:PDF
GTID:1116360092480615Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
There are a lot of special conflicts of interest between venture capitalists and entrepreneurs because of that the uncertainties in venture capital investing are so many and the asymmetries of information are so great between them. Venture capital contracts are important means to resolve these problems.In this paper, the main activities in venture capital investing are introduced and an AHP model to evaluate venture enterprises is built. A numeration example is given to analyze the detail process to evaluate venture enterprises by an AHP model.Convertible securities, including convertible debts and convertible preferred stocks, are the most familiar investing instruments in developed venture capital markets. A signaling game model of convertible debts contracts is built in this paper. The study on this model proves that an entrepreneur with high quality will select a higher conversion price than an entrepreneur with low quality. Therefore venture capitalists can filter out high quality entrepreneurs from low quality ones by conversion price. The screening function of convertible debt could mitigate the adverse selection problems in venture capital markets. In order to promote the development of venture capital, governments of many countries carried out subsidy (finance) plans to venture capital funds (companies). In this paper, the contractual relationship between venture capitalists and entrepreneurs is modeled to investigate the influence mechanism of government subsidies on venture Capital. The study proves that government subsidies increase entrepreneur's expected pay-offs while increasing venture capitalist's expected pay-offs and more start-up enterprises are worth investing under subsidies. Therefore we come to the conclusion that government subsidies could increase the demand for venture capital and promote the development of venture capital.The venture capitalists should give necessary payment incentives to high-class managers and key technicians of venture enterprises to maximize their wealth. A theoretical model is built to study the issue that how venture capitalists determine an optimum pay—performance sensitivity when there is replace cost for venture enterprises and opportunity cost for managers.Both entrepreneurs and venture capitalists should establish their reputation in stage finance contracts. The reputation of entrepreneurs canmake it easier to contract with venture capitalists and the reputation of venture capitalists can make it easier to find new investors.
Keywords/Search Tags:venture capital, contract technology, convertible securities, government subsidy, stage financing
PDF Full Text Request
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