Study On The Contractual Mechanism And Risk Evaluation Of Venture Capital

Venture capital is an organic combination of science&technology innovation andfinancial innovation as a new pattern of financing. Venture capital can effectivelypromote the transformation of high-tech achievements, it plays a very important role inpromoting technological innovation and rapid economic development. Venture capitalhas the charateristics that high risk,high profits,serious asymmetry of information andhigh uncertainty, it involves in three participants that are venture investors,venturecapitalists and entrepreneurs. Venture capital can be successfully carried on isdependant on scientific,reasonable evaluation to the venture projects and efficientventure capital contracts. Hence, in this paper, we study the contractual mechanism andrisk analysis of venture capital on the basis of previous studies. There are followingseveral parts about my studies in the paper:(1) Two models are set up to research on operational efficiency of the institutionof company and institution of limited partnership of venture capital found based on theperspective of compensation incentive mechanism. The theoretical researches showthat the degree of endeavor of venture capitalists in the institution of limitedpartnership is higher than that in the institution of company; the expected income ofventure investors in the institution of limited partnership is higher than that in theinstitution of company.(2) A contractual mechanism between venture investors and venture capitalistsunder asymmetric information is studied. This model differs from traditional incentivecontracts models in considering venture capitalist's own investment in venture fundsand an observable variable for venture investors. The theoretical researches show thatthe contracts model can keep away the adverse selection behavior by signalingmechanism and signal screening mechanism; the contracts model can raise theincentive intensity and inspire the venture capitalists to work hard, so it is effective tosolve the moral hazard problems.(3) A contractual mechanism between venture investors and venture capitalistsunder asymmetric information is further studied. In the case of the two-period, a compensation incentive mechanism model is set up based on the venture capitalist'shistorical performance which is used to adjust the judgment on the venture capitalist'sability as prior information. The contracts model based on the venture capitalist'shistorical performance reveals the joint mechanism of supervision and incentivemechanisms of venture investors to the behavior of venture capitalists. The theoreticalresearches show that the incentive mechanism is effective to solve the moral hazardproblem and is helpful to improve the operational efficiency of venture capital fund.(4) A contractual mechanism between venture investors and venture capitalistsunder asymmetric information is studied. By combining the overconfidence ofentrepreneurs and the monitoring of venture capitalists, an incentive contract model forventure capital is set up. An optimal ratio of the monitoring of venture capitalists isproved, the influence of the confidence and the monitoring on the behavior of theventure capital participants and the agency cost is discussed. The theoretical researchesshow that the overconfidence of entrepreneurs and the monitoring of venture capitalistsare helpful to increase the level of effort of entrepreneurs and decrease the agency costof venture capitalists.(5) The allocation of cash flow rights and control rights in venture capital backedfirms is studied. A financial contracts model is set up by introducing the entrepreneur'sown capital in this paper. This paper analyzes the affecting factors and mechanism tothe allocation of cash flow rights and control rights, shows the relationship betweencash flow rights and control rights, gives the bargain intervals of entrepreneurs andventure capitalists about the allocation of cash flow rights and control rights. It isshown that, the more the entrepreneur's own capital and the higher the venturecapitalist's evaluation of the venture project and the ability of entrepreneurs, the littlecash flow rights and control rights venture capitalists will want; the relationshipbetween cash flow rights and control rights of venture capitalists is complementary butnot corresponding.(6) The risk evaluation methods about the venture projects are studied. In view ofthe uncertainty about the venture projects and the understanding of specialists, basedon the interval number description of importance degree about risk evaluation indexsand the multiple attribute decision making, a new method for evaluating the risk ofventure capital investment is presented by applying the uncertain type analysis of hierarchy process and the EWAA operator. Through this method, based on a certainconfidence coefficient, we can determine the grade of the risk of a venture project;another method based on the interval type ideal point for the uncertain multipleattribute decision making is presented to evaluate the risks of venture capital projects.The ranks of the risk of several venture capital projects are achieved by using of thenew method.