Risk Management Of Venture Capital Firm

This paper discuss how venture capital firms carry out risk management in their business practice.The paper is organized as follows. In part one, we give a general description of the risk management in the business process of venture capital, including the risks, the cost caused by the risks and the universal management strategy.In part two, we discuss in detail the risks in main business processes of venture capital and the corresponding management strategy. In this part:1. the paper analyzes the effect of due diligence on reducing transactional risk and the moral hazard of agent by decreasing the asymmetry of information and the effect of the investment contract on reducing those risks by redistributing the business value.2. the paper set up a stochastic model on the basis of analysis of industry feature and try to find out the degree of fluctuation of the cash position of the portfolio company under the influence of stochastic factors. The paper suggests that the industry analysis and due diligence make investor work out better investment plan to decrease the insolvency risk.3. the paper analyzes the effect of investment contract on shifting the liquidity risk of the stock.