Study On The Optimal Selection And Equity Allocation Of Venture Capital From The Perspective Of Portfolio

Venture capital,generally refers to the equity investment of unlisted start-ups with high growth potential,and participates in the venture process of the invested enterprises by providing management value-added services,so as to get the high capital returns by equity transfer when the invested enterprises mature.According to the traditional theory,portfolio is not the fundamental feature of venture capital,and the actual operation of venture capital is often based on the investment decision of a single project.However,this dissertation argues that as long as the venture capital accompanied by high-risk,it is necessary to use scientific methods to make portfolio investment to maximize the expected return(utility)of investment institutions.This dissertation studies venture capital from the perspective of portfolio.The main contents include three parts: the application of modern portfolio theory;the portfolio size choicing of venture capital based on human capital limition;the portfolio of institutions themselves: decision-making of syndication and profit sharing between the members.The development and application of modern portfolio theory have been very mature,but due to the characteristics of venture capital,the application of modern portfolio theory to venture capital has some limitations.This is mainly because the return rate of venture capital fluctuates greatly and does not fully conform to the normal distribution.Nevertheless,in a specific environment,such research is still of practical significance,and scholars at home and abroad have done a lot of related research.How to use portfolio theory to make scientific decision on venture capital under the premise of breaking these limitations is also the ultimate goal of this dissertation.We attempt to apply two classical models of modern portfolio theory on venture capital: portfolio selection based on APT and contract design for equity allocation of venture capital based on CAPM.In order to diversify investment risk,venture capital institutions(VC)tend to hold a certain number of venture enterprises.When venture capitalists invest time and energy to manage and help the venture enterprises they invested in,they will increase the number of portfolio enterprises that generate profit and at the same time "dilute" the quality of the value-added services they provided in each enterprise,thus reducing the probability of success of the investment,which will force VC to give more equity to the venture entrepreneurs for stimulating.So there must be a trade-off between the strength of value-added services and the number of portfolio enterprises.In this process,venture capitalists are faced with various internal and external factors that may affect their choice,such as profit sharing structure,effort cost,professional ability,etc.Therefore,the portfolio size of venture capital is an important part of the research of venture capital portfolio.As syndication has the effects of risk sharing,resource sharing and improving investment performance,it is widely used by venture capital institutions.Syndication is often regarded as a special kind of portfolio of venture capital-the portfolio of institutions themselves,because it is essentially a trade-off between risk and profit.When introducing the followers,the leaders should consider not only the number of alliance members,but also how to determine the profit sharing rules.This dissertation studies the operation of venture capital investment from the perspective of portfolio,mainly including the portfolio selecting and equity sharing.The theories and methods used include APT and CAPM,optimization theory under information asymmetry,and Nash bargaining model under cooperative game.The main results are as follows:By using the multi-factor model,we can estimate the relevant factors and parameters through the previous investment performance of venture capital institutions,and then calculate the expected utility of venture capital institutions and select the optimal portfolio.From the perspective of portfolio,considering the risk aversion degree of entrepreneurs,the venture capital financing contract is adapted to CAPM framework by defining the equivalent interest rate,and the Nash bargaining solution is used to depict the equilibrium solution under information asymmetry.Based on the risk-return perspective,we establish an optimal financing contract design model,which provides a basis for contract design of venture capital.The study also shows that getting venture capital is better than pure debt financing for entrepreneurs,and the allocation of equity depends on the bargaining power of venture capitalist and entrepreneur.From the model we can see that entrepreneurs with lower risk aversion degree tend to choose independent venture capital;entrepreneurs with higher risk aversion degree tend to choose venture capital with corporate background;entrepreneurs whose degree of risk aversion is not high,and who consider late-stage loans tend to choose venture capital with bank background.In the case of entrepreneurs' limited energy,a portfolio size decision-making model of venture capital is established based on double-sized moral hazard.We get the optimal portfolio size expressions of venture capital under single-stage and two-stage investment,and discussed the influence mechanism of relevant factors on the portfolio size of venture capital.The study also finds that the way to reduce the risk caused by technological innovation should not only consider a large portfolio size,but also choose the appropriate concentration of investment to enhance the quality of value-added services.One way to make venture capital and innovation more socially efficient is to enhance the level of technological innovation of enterprises and cultivate more excellent venture capital institutions.On the other hand,we also analyze the differences from previous research conclusions,which are ultimately due to the different assumptions of the model.Therefore,according to the specific investment environment and different analysis emphasis,the corresponding model should be used.In reality,the equity sharing rule between venture capital and entrepreneurs is the result of bargaining in negotiation,and the portfolio size of start-ups is closely related to the human capital and expertise of the venture capitalist,so we introduce bargaining power and expertise into the selection of venture capital portfolio size.It is found that bargaining power and expertise play complementary roles in the decision-making of venture capital portfolio size.We found that the stronger the bargaining power of VCs,the lower of expertise ability for VCs is required for hold a large portfolio size.When the bargaining power of VC reaches a certain level,VCs with weaker expertise will invest a larger number of enterprises and get more profit share.On the other hand,the conclusion of the model can explain the previous empirical conclusion that the number and average profit share of venture capital firms in China are significantly higher than those in western countries.One possible reason is the strong bargaining power of Chinese domestic VC.Based on the motivation of the VCs to syndicating,considering whether the share of income allocated to the followers can achieve the goals,and at the same time not to excessively lose their own equity to reduce the future income in the project,we established the profit sharing model for members of syndication,and summarize the decision-making process of syndicating.The research also shows that the greater the potential market competition may cause loss to the leader,the more the leader is willing to give the follower more profit share;when the uncertainty degree of project quality information is higher,which means that individual investment has greater risks,the leader is also willing to give followers more profit share in order to obtain the supplement of project quality information.