A Study On The Contract Mechanism Of Venture Capital In China

This paper discusses current achievements in contract theory of venture capital in the framework of contract economics. It then examines respective designs in different aspects of venture capital contracts, including: the organization of the venture capital partnership, investment at different stages, financial instruments and their automatic conversion mechanism, monitoring, anti-dilution protection and equality in selling shares. The paper also researches into the efficiency of the contractual arrangements on diversifying risks, collocating resources and settling the agent problems. Then after analyzing restricting factors in the performance of venture capital contract mechanism in China, the author hereon puts forwards some policy suggestions in corresponding aspects, namely, legislation, capital markets, subjects in contractual relationship, and service intermediaries. Further, the author stresses that contract mechanism of venture capital should be directed by market and institutional innovation should be integrated into technical innovation.