Improved Research On The Use Of Real Option In The Investment And Appraisal Of Venture Capital

In comparison with developed countries, venture capital of China is still in the primary stage. Many scholars have studied the theories on its macro-operating mechanism, while few have done research on its appraisal method. The lagging of appraisal method has delayed the development of China's venture capital. Therefore it is of great significance to find an appropriate investment appraisal method under China's current economic situation.Option pricing theory is one of the greatest discoveries in finance in the last century. Its principle, method and conclusion can be applied in many economic and management field. When option-pricing theory is applied in financial budgeting, it is called real options theory, which opens an entirely new way to investment appraisal for people aswell as enterprise.The paper attempted to introduce real options theory & method to the investmentappraisal of venture capital. On the basis of properties of venture capital such as high profits with high risks as well as many stages of capital investment, the empirical study on a real venture capital project was conducted to test the application of the theory & method. Then the improved real options model concluding the condition of value leakage was built to appraise the investment decision of venture capital in China. Finally, the paper analyses the misapprehension and further makes sure of the application of real option theory & method. In addition to, the paper also explained the value, conditions as well ad problems of real option theory & method in the venture capital was constructed to constitute the investment appraisal system of venture capital project. The work of the paper will help to improve the investment and tools of China's venture capital and build a more scientific system to complement venture capital appraisal. Thus venture capital company and venture enterprise will evaluate the value and risk of their projects in a more precise way so that their investment efficiency of venture capital will be improved and the venture capital industry will come to prosperity.