Study On Governance Structure In Venture Capital

In the era of knowledge-driven economy, high-tech industry has become the most significicant to economy, and the development of high-tech industry is determining the development of economy. Venture capital which is the propeller to the new high-tech enterprise is favored by people. A critical factor of successful venture capital is fully utilizing the ability and intelligence of venture capitalist and that of entrepreneur, Then a rational contract is essential.Based on analysing the element and the operation mechanism of venture capital, the paper deeply analyses the principal-agent problem in financing stage and investment stage of venture capital in game theory. At financing stage of venture capital, the source of venture capital determines the organization of the venture capital institution, then influences the operation of the venture capital fund. The paper compares the company and the limited partnership which is the main forms of the venture capital institution, and analyses the limited partnership deeply on main arrangement. It points out that mechanisms in limited partnership screens risk investor effectively and reduces the agent's cost, such as the pay for venture capitalist, limited life cycle of fund, venture capitalist bearing unlimited liability, etc.At investment Stage of venture capital, through analysing the arrangement such as the choice of investment tool, staging of investment and estimating Enterprises' value again based on Enterprise's achievement, control distribution etc. First, choice of investment tool is the core of agreement, and determines the principal-agent relationship between venture capitalist and entrepreneur to a great extent. Convertible preference stocks combines common stock's merit with that of credit and matches the income and the risk well.Second, staging of investment and estimating Enterprises' value again based on Enterprise's achievement is a bilateral choice under certain conditions. It not only punishes entrepreneur as the failure of venture ,encourages entrepreneur with the good achievement, also gets rid of the venture with low quality.Third, entrepreneur derives benefits from control over the firm. Because of uncertainty of enterprise, venture capitalist demands disproportionately higher controlrights than the size of his equity investment. And the greater uncertainty, the higher the information asymmetry degree, venture capitalist demands higher control .The entrepreneur is compensated for a greater loss of control through better terms of financing, ability to extract higher rents from asymmetric information, and improved risk sharing.The thesis has also analyses the real example to the administration structure of venture capital, and analyses Kingdee and Haiku, two typical venture capital backed with different background, about the process they gained venture capital and according institutional arrangements. The finding strongly supports the main conclusion of this thesis.