A Study On Venture Capital Governance Based On Value-added Management Function

The governance of venture capital (VC) has kept being the concerning focus of the governmental, financial and academic circles ever since it initiated early last century. However, the nature of venture capital institutions has not been analyzed very deeply and clearly, which was unfortunately falling into chaos of separate explanations, partly owing to its involvement of complicated factors. The phrase "venture capital" first appeared in Chinese government's policy documents in the middle of 1980s. When with the booming of IT industry in Silicon Valley in the US, many countries were keen to imitate the Silicon Valley mode, especially its innovative experiences of developing VC. By the time of middle and late 1990s, a large amount of materials on VC theory and practice were introduced into China, which greatly pushed the development of this industry. With the support of Chinese central and provincial governments, a elementary VC industry structure had been built up which included the fiscal funds, overseas funds, SOE-backed (state-owed-enterprises-backed) funds, private-owned funds, etc. Nevertheless, when focusing on research documents, we found that there's still some deadly defects, among which, "what is VC's essential function" was an unavoidable question. Many talented researchers in the fields of finance, management and technology innovation have analyzed VC's function mechanism from all angles by many complicated theories and methods. Unfortunately, they have not given a widely accepted explanation concerning "what matters most". In other words, a great deal of works have been done on VC's basic mechanism, emphasizing the concrete governance and management practice as if a set of mechanism can automatically induce results expected by governments, enterprises and individuals. As a matter of fact, it is not that case; otherwise, it did not necessarily occur in the very historic period of the economy booming after the Second World War and could not incur broad discussing among different countries and districts trying to promote VC industry.This thesis hold the opinion that comparing with the average investment practice, VC characterizes itself by its value-added management function, which help start-ups accelerating their growing and maturing process. VC governance is based on thisvalue-added management. VC organizations and venture capitalists play the key role during the every phase of growing enterprises, forcefully backing their corporate governance and the resource reconstruction resulting in fruitful and fast capital increment. This study intends to build a rather innovative analysis framework based on the value-added management function. The article extensively discusses what are concrete contents of this function, why it is necessary during VC institutions developing process, furthermore how the governance was composed according to its core function, how it is practiced, and at last, what kind of experimental study can support it.The thesis can be divided into two parts. The first part is theoretical research on the value-added management, which covers chapter one to three. The second part is a study on VC's governance based on value-added management function, covering chapter four to eight. Chapter four and five mainly focus on how the existing VC governance is organized according to the core function of value-added management. Chapter six and seven deal with the further discussion of how this value-added management is complimented and what are its experimental achievements. Chapter eight is the VC ecological environment analysis, which makes the thesis a complete system of VC governance.After theoretical discussions and empirical analysis, the thesis achieves some basic conclusions:Firstly, it establishes a preliminary analysis framework for VC governance based on value-added management function. The author specifies the contents of the value-added management function and then brings forward a rather innovative angle to explain the VC governance system. This VC governance system offers a basic analysis structure for the complete thesis, which is composed of the main parts from the value-added management, the micro governance based on the mentioned function to the outer supporting institutions.Secondly, the author puts up a set of new explanations of the existing VC governance based on value-added management function. Chapter four focuses on the critical roles venture capitalists play in the VC circle. The precious human resource venture capitalists cherish enable them to put their value-added management ability to the use of after-invest management, which greatly help start-ups decrease the moral hazard and adverse selection caused by information asymmetry in VC market. Therefore, the incentive compatible principle constitutes the core of VC governance system. In the real world, the Limited Partner (LP) reveals decisive advantage compared to the corporate system and the others forms of VC organization. Chapter five analyzes the other side of VC governance that how to solve the contradiction between the large scale of VC fund and high uncertainty of almost each invested start-ups. The portfolio theory is applied in the VC field, while in...