Studies On Venture Capital Contracts

There are information asymmetries in venture capital cycle. For instance,there are information asymmetries between investors and venture capitalists inventure capital firms, between venture capitalists and entrepreneurs in venturefirms, and among the relationship of investors, venture capitalists,entrepreneurs. All these information asymmetries will cause serious moralhazard problems.The main essence of this thesis is how to relieve the moral hazardproblems origin of information asymmetry. Firstly, we consider therelationship between investors and venture capitalists. We prove that theactive stakeholders will be better to relieve the moral hazard problems ofventure capitalists than passive stakeholders. Secondly, we consider thecontract relationship between venture capitalists and venture entrepreneurs. Inventure capital investment, there are double-sided moral hazard, which meansthat there are moral hazard for both venture capitalists and ventureentrepreneurs. We compare convertible securities with equity and debt, andfound that only the convertible securities will not relieve the double-sidedmoral hazard problem, on the contrary, it may increase venture entrepreneurs'opportunism. But, if there is contingent control right assignment with theconvertible securities, double-sided moral hazard problem will be relieved alot. After that, we consider the relationship among investors, venturecapitalists and venture entrepreneurs. We prove that the amount of materialcapital and human capital which entrepreneurs own determines whether theycan be financed and how they can raise money. The monitoring skills ofventure capitalists facilitate the finance of venture firms. And the probabilityof collusion between venture entrepreneurs and venture capitalists will makeventure firms hard to be financed. The exit provisions in venture capitalcontracts are good for venture capital to retreat the firms they invest. Finally,because there are no good ways for venture capital to exit firms they invest inChina, we propose that the assets securitization of venture capital firmsassisted by trust is a seemly good way for venture capital to exit in China.