Research On Value-Evaluation Of Venture Capital

Value-evaluation is the core focus of venture capital; in addition, the core of venture capital value is the expected fair value. This essay define the expected fair value as: the easily cashable price of growth enterprise's financing tools held by venture capital in future venture capital market that is forecasted by analyzing and estimating the static value and cooperating value of enterprises based on the expectation of future venture capital market. Basing on this value basic, the core viewpoint of this thesis is that the hypostasis of value-evaluation of venture capital is a process to continuously discover values based on a relatively certain price."A relatively certain price"means that venture capital has a very rigid restriction on its investment return at the stage of capital-withdraw; it requires a contract arrangement signed with top management of the growth enterprise that guarantees the promise of investment return; this is the precondition and basic contained of value-evaluation."To continuously discover values"means that the future developments of venture capital's objects are mostly uncertain; their future developing potential and space are determined by the cooperating efforts of both investor party and financing party, and the values needed to be continuously discovered in future changing environment. Consequently, value-evaluation of venture capital is a dynamic process and a process to continuously discover value; its core is to continuously evaluate the degree that the value of the growth enterprise supports its"relatively certain price". If the value is obviously unable to sustain future expected price, investment dealing may be terminated.Value-evaluation of venture capital has strong subjectivity, warps commonly exist, thus, investors may add investments on the growth enterprises that are on the frustrated developing directions. Value-evaluation of venture capital is not only based on the pre-investment decisions, but also based on contractual arrangement in the investment process, evaluation about contractual implementation, level of promise of management group and venture capital, abilities of cooperation on resources and capital operation, and forecasting for future venture capital market, those factors all have significant impacts on the evaluation of fair value. Venture capital is less likely to hope the enterprises completely disclose their internal finance information; it applies duteous-investigation-report to offset the lack of finance information; that is, venture capital uses its professional advantages to gain excess profits while market fails. Venture capital all long tries to identify and understand the risk-factors that may threaten the investment; from the time first viewing business plan to withdraw capital after investment, its major challenge is to identify and separate any important risks of the growth enterprises invested; especially those enterprises at early-developing-stage, mostly rely on experiences and courage to understand risks rather than rational theories and methods. Holger Erchinger & Thomas A Rowles(2006)3 indicate that value-evaluation of venture capital is more likely to be a type of arts rather than a exact science; it relies more on estimations rather than facts; it relies more on market analysis and opportunities rather than simple technique; its art characteristics is the estimation and forecasting for future.China's government encourages venture capital for supporting tech-innovation and relevant industrial policies & Growth enterprise market will be established soon; China's venture capital market potential is significantly wide. At the time facing huge industrial opportunity, we must clearly understand that venture-capital-research lays particular stress on"theories & logos"all long but ignores the art-characteristics of"courage and experiences"that has significant effects for value-evaluation of venture capital; this is due to warping understanding and the lack of comprehension about the hypostasis, rules, and relevant concepts of value-evaluation of venture capital. This problem restricts the integration between theory and practice and also rigidly restricts the improvement of China's venture capital. Consequently, press on with the researches on theory and mode of value-evaluation of venture capital, establish a clear and effective value- scale-system based on"courage and experiences"that fits for the market characteristics of China's venture capital, conform with investment value-evaluation-system of"value discovery", have theoretical and practical meanings.This thesis contains eight chapters. Content of each chapter is organized as below:Chapter 1 is guide & introduction of this thesis. It is a summary of background, thesis statement, and structure of this thesis. Firstly, it points out the background and purposes of this research through situation analysis of domestic & foreign venture capital development. Secondly, following the research process of this thesis, it uses tables & charts to express the structure and thoughts of this research. Thirdly, it indicates research object, main contents, viewpoint of this thesis, and the key problems needed to be solved. Fourthly, it indicates major research methods, theoretical foundation, innovation, disadvantages, and so on.Chapter 2 defines value-evaluation of venture capital and the demarcation of this thesis. It bases on the analysis about value-components and their changing process of growth enterprises, and it indicates that growth enterprise's initial value contains both dominant and recessive values; at the beginning stage of growth enterprise, recessive value stands for the leading status, however it continuously turns to be dominant as enterprises develop. Simultaneity, through analyzing the operating characteristics of venture capital, it indicates that venture capital has the characteristics of value discovery, value creation, and value implementation; it ascertains the core viewpoint of this thesis is that the"expected fair value"is the core value of venture capital.Chapter 3 is the summary part of relevant researches about value-evaluation of venture capital. It summarizes the major theories, methods, and measurement system of domestic and foreign venture-capital-value-evaluation, integrates the author's experiences and understandings of domestic and foreign venture capital operations and methods, indicates that windage objectively exists in value-evaluation of venture capital, and contractual implementation & promissory level are the important influencing factors for the expected value. At the end of this thesis, it indicates the major problems of today's value-evaluation research of venture capital in China, the purpose is to establish an effective theoretical foundation for value-evaluation of venture capital.Chapter 4 is the confirmation part for the theories and methods about value-evaluation of venture capital. It analyzes different restrained situations and economic attributes of growth enterprises, integrates the characteristics and economic attributes of venture capital in order to deeply analyze, and indicates that value-evaluation of venture capital has the economic characteristics of subjectivity, evolution, and imperfection. According to Potter's value-chain theory, it indicates value-chain theory of venture capital that combines value discovery, value creation, and value implementation, and establishes an entire evaluation-system-mode including value discovery, value creation, value implementation, and compensation mechanism; in addition, it applies various methods based on the mode, including physical option, to research on the evaluation-methods about each element of the value-chain.Chapter 5 is the research part about value discovery within the value-evaluation process of venture capital. It discusses that the influences caused by project sources on veracity and operating cost of value-evaluation of venture capital, indicates that well project sources may improve veracity of project-evaluation and reduce evaluation cost. Moreover, consider six major influencers for project-choosing, including market, technique, capital, geographic location, management group, and profit mode; it also indicates simple rules for well project sources. On the other hand, this chapter follows two major key-lines, competitive capabilities and survival abilities of enterprises, based on the viewpoints indicated by related professionals, forms the static-value-evaluation-system-mode and this system contains creativity, valuability, durative, scarcity, non-occupancy, and flexible management. It indicates that static-value-evaluation-mode is composed of innovative unit, valuability unit, durative unit, and flexible unit; this mode use feedback principle and relevant evaluation keys to deeply analyze logic structure of each unit, signal-output, and evaluation method; finally educes the basic mode of nine types of growth enterprises observed by venture capital.Chapter 6 is the research part about value creation within the value-evaluation process of venture capital. This chapter bases on a foundation: those growth enterprises, which are evaluated by venture capital, have static values; then through supporting the cooperating effects on venture capital in order to determine future developing potential of those growth enterprises and to embody that venture capital's addition services carry out the functions for value creation. For the purpose of better explaining the growing value of enterprises, this chapter applies the concepts of physical option to research on the growing value of enterprises; furthermore, it also builds a growing-value-evaluation-method and mode for growth enterprises.Chapter 7 is the research part about value implementation within the value-evaluation process of venture capital. This chapter bases on a foundation that is to evaluate the cooperating value of growth enterprises, through analyzing the expected return of venture capital, combines with evaluation and analysis about the capital-operating ability of venture capital, considers present and future developing trends of venture capital market, estimates the methods of withdraw and market fair values of growth enterprises in the future, in order to determine the possible fair price (value) of the financing tool possessed by venture capital.Chapter 8 is the research part about compensation mechanism of the value-evaluation process of venture capital. This chapter bases on the future fair value of the growth enterprises, and value-evaluation of venture capital has characteristics of subjectivity, evolution, and imperfection; for corresponding divergence of value understanding between investment party and financing party, enhancing better efforts of the two parties, it is necessary to establish a reasonable compensation mechanism for value-evaluation. Furthermore, a reasonable compensation mechanism must have two major specialities: creditor's rights & share option. If the firm invested runs illy, management group transfer rights & interests to investors; on the other hand, if the firm operates very well, investors transfer rights & interests to management group. Finally, this chapter analyzes a simple case of"Valuation Adjustment Mechanism"used by venture capital, and educes that the transferable company debts and the preference shares which are attached with other rights & interests are relatively effective financial tools for venture capital, and it may play an important rule for dynamic and well value-compensation.Chapter9 is the research conclusion of this thesis.