The Investment Risks & Their Management Of Venture Capital Firms

How to analyze and manage the variety of risks in venture capital is the crux of the trade of risk investment, which has been demonstrated by the expansion of venture capital abroad. First of all, risk analysis and management can ensure the scientific and efficient decision for investment items, the maximal benefit of the management objectives, and the realization of a sound cycle of risk investment. Secondly, risk analysis and management is beneficial to the best allocation of resources and the reduction of risk loss and harmful consequences, thus creating fine surroundings for the economic and social development. The thesis here centers on the core problem that faces the present development of the trade of venture capital-?the analysis and management of investment risks, including the internal management of venture capital firms and the management of venture enterprises. Employing the system thinking in study and analysis, I am trying to show the structure of the thesis with diagrams and construct a measure system of risks and a model for the risk investment decision in the step analysis. This thesis, venture capital firms as its subject, is an analysis of the risks at the investment phase and an attempt to manage those risks. The conclusions are as follows: 1) Due to the instability of risks, the internal and external risks should be analyzed respectively at the investment phase. The internal risks, adverse selection and moral hazard in the concrete, ought to be analyzed and guarded against by studying the mechanism of agency by agreement. The external risks, mainly including R&D risks, technology risks, market risks, environmental risks and financial risks, compose a measure system of investment risks. 2) Venture decisions hinge on the double factors--- expected returns and anticipatory risks. The former is influenced most by the market factor, secondly by the factors of products and technology; the latter is subject to the management capacity of the venture firms and enterprises first and their risk-bearing capacity second; and both factors are affected by the enterprises~ cashing potential in specific conditions. 3) The appraisal of venture capital items is the key to risk investment. First, effective systems of appraisal measure should be developed separately according to the trade, life cycle, investment partiality, etc of an invested item. Second, the calculation of measure weight must be adjusted in line with the research purpose and the phase in which an item is. 4) It is necessary to establish an efficacious guarding system of social risks owing to the poor controllability of external risks, social benefits from the technological innovations higher than the returns earned by the innovators themselves, and the dependence of the risk-bearing on the outside environment. The system consists chiefly of the government, risk investment organizations and insurance companies. The government should lay special stress on creating an excellent investment environment in respect of information, laws, regulations, policies and so on; the risk investment organizations must focus their support on financing, management after investment, etc; and the principal function of insurance companies is to decentralize the risks.