Research On China's Venture Capital Mechanism

Venture capital, the integral part of the development of hi-tech industry, has been enjoying the exponential development in the developed countries like US, Japan and West Europe. Coming with the passion of investors in the industry, the academic area of different countries also have devoted much efforts and conducted extensive research on this emerging field. In China, venture capital has been growing over 20 years though, it still stay at its infancy course due to its root cause of lacking in-depth understanding of venture capital mechanism. Over the past several years, many Chinese scholars have devoted much effort in research, but most are limited the empirical introduction of foreign experience instead of looking into the current development of Chinese venture capital. In addition, many scholars look into the venture capital in isolated manner instead of through holistic view.This paper is purposed to conduct the research in a holistic manner with the starting point at the review of the venture capital from mesoscopic view instead of from the traditional definition of venture capital. This mesoscopic examination is featured by the understanding that venture capital is a kind of financial institution arrangement purposed to sort out the adverse selection and moral hazard caused by asymmetric information in the process of hi-tech industrialization. This arrangement, in essence, is a sort of outcome by financial innovation and institutional change. From operational perspective, venture capital is a repeated process consisting of financing, operation and retreat. With the aim to ensure the smooth running of the whole process, it is accordingly to establish the sound and complete financing mechanism, governance mechanism and retreat mechanism. This paper, based on the research of China current status of venture capital, will look into those three mechanisms in individual manner at first, and further come into the investigation of the correlations of those mechanisms in order to make the venture capital mechanism be more realistic and systemic.This paper consists of six chapters.Chapter One. It begins at the brief introduction of local and foreign related research of venture capital and gives the limitations of the research, and further propose the research framework of this paper. The methodology and structure of this paper will be also given in this chapter.Chapter Two. It begins at raising the definition of venture capital, and then come into the interpretation of the growth of venture capital by means of four theoretical thinking.Chapter Three. Based on the international comparison of the different source of venture capital and potential demand analysis, it will propose the detailed scheme of China multi-source venture capital supply system characterized by the private capital as the core source.Chapter Four. This chapter is purposed to conduct an analysis on the operation efficiency and governance effect of three different venture capital organizational structures, and gives suggestion that China is supposed to establish the venture capital institute with the trust venture capital fund at core.Chapter Five. It begins at the comparison and analysis on the way of venture capital retreat in US and West Europe as well as that of Chinese state as quo, then come to conclusion that China should set up the venture capital retreat system with the small-and medium-sized enterprises as the foundation. Further in this chapter, China can design a escalation and descending mechanism for the function of those three segments of capital market.Chapter Six. This chapter gives the main innovative points and conclusions as well as the lessens of the research and the outstanding points to be further investigated in the future research.