| This paper presents a system and practical measures to control risks in Venture Capital Institutions (VCIs). Although there are lots of studies on risk control problems from the point of investing, people seldom make research on how to control risks faced by VCIs in the courses of fund-raising and exiting of investments. In this paper, the writer comprehensively discusses the topic from the viewpoint of a whole venture capital cycle.The structure of this paper is as following:In the first chapter, the writer discusses the concept and characteristics of venture capital, and compares venture capital market with other financial markets. Besides, the writer also discusses the reason why venture capital should be developed in china.In the second chapter, the writer mainly discusses the types of risks and how to control these risks in the period of fund-raising. Two kinds of risks are under consideration, one is the fund-raising risk and the other is the risk results from the asymmetry information between the investor and fund manager. In the third part, the writer proposes several practical measures to control risks in investing period, such as prudent investigation before investing, the decision-making factors and value-added services after investing. In the last part of this paper, the writer discusses the channels through which the venture capital exits and the factors which make influence on the exiting of venture capital. Then the risks in the process of exiting and the measures to control the risks from the points of outside and inside VCIs are discussed.There are four key viewpoints in the paper:It is vital for the control of fundraising risk to make the markets and the relevant policies more adaptable and take measures to increase the payoff of the VCIs.The asymmetry information problems between investors and capital managers are different under the different organization structures of VCIs. VCIs with the corporation form control investment managers mainly in four methods. The first method is to make religious design on the procedure of decision of investment. The second is the distribution of decision rights on investment and fund-raising in the VCIs. The third is to establish efficient motivation system. The last is to establish perfect information disclosing system.If it is limited partner form, the measures to control and motivate general partners are involved in the contracts, such as the limitation on investing on single firm, the limitation on liabilities, the limitation on collective investing with two funds managed in different terms and the limitation on investing with the mangers own fund. By comparing these two forms under the situation of China, it is concluded that the corporate fund form is the appropriate form to organize VCIs in China.Before investment decisions are made, VCIs need to make prudent investigation on the target projects to find out opportunities and risks.The measures to control the risks in investing period involve in the investing contracts. For example, the purpose of investing by stages is to make the entrepreneur get more capital only when the entrepreneur increases the firm's value. In consideration of the choice of equity instruments, Liquidity, the protection of investment and the degree of controlling the target firm should be considered. The motivation system is designed to make the entrepreneur get the shares only if he creates value. At last, collective investment with other VCIs is an effective measure.Because of the small scale and other characteristics of VCIs in China, It is appropriate to centralize the investment and hold more shares in the corporations invested in order to withdraw more money when the exit is needed. Exit of investments by stages is also an effective strategy. The model is created to test the projects which are not so good. The conclusion is that exit of investments by stages indeed can be more useful to withdraw more money compared with exit of investment in one time. At last, it is also believed that the enlarging...
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