The Incensive Game Model Between Venture Capitalist And Entrepreneur

Successful experience of developed countries shows that venture capital plays a decisive role in the process of promoting scientific and technological achievements into production capability. Venture capitalists and entrepreneurs are the main gamer in the venture capital. The principal - agent beziehung formed between them exists a serious problem of information asymmetry, which leads to the complex conflicts of interest and ultimately the best balance of the game difficult to achieve. Therefore, effective control of principal - agent risks, establishing a rational incentive game model, and making the two sides of the game to reach Pareto optimal equilibrium become the issue to be solved urgently in the venture capital, which is also the purpose of this research.This article is divided into two parts:(1) By applying to game theory, an incentive game model based on a single contract is set up between a venture capitalist and an entrepreneur under the moral hazard. The model optimizes the incentive reward of single contract, and gives the optimal contract arrangement and exit time to make the venture capitalist and the entrepreneur find the balance.(2) To study the stimulation of early venture entrepreneurial investment on venture capitalists. The incentive game model of venture capital is established under the conditions of equity - venture capital debt. With the relationship between modeling risk entrepreneurs and venture capitalists in the game, the basic game model has been extended to discuss the equity and debt investments as two parts, and two venture capitalists investing respectively.This paper includes such conclusions:(1) To study the sub-optimal investment incentive game model based on a single contract. Pointing out that the remuneration when venture buiness fails and the efforts'level of risk entrepreneurs are negatively correlated, while it also has negative impact on remuneration of venture capitalists. Therefore, the venture capitalist in the failure of risk buiness will pay rewards as little as possible. Precisely speaking, the penalty on the venture capitalist who fails the venture buiness is zero reward. From one side stating that only when the investment is a success, the entrepreneurs can get a certain incentive reward. Otherwise, the entrepreneurial moral hazard would be condoned. In addition, the optimal exit timing of venture capital is given.(2)The paper studies the incentive function of venture entrepreneurs'investment on the venture capitalists. According to some hypothesis that a capitalist provides a combination of equity and debt while a entrepreneur provides equity financing, a basic game model is established and extended. Some results are found that investment of the entrepreneur not only has financing function,but also may improve the faith of the venture capitalist to make them more optimistic. The investment behavior of the entrepreneur is more improved under the circumstances of the extending model than that under the basic model.The entrepreneur would also like to devote more capital and pay more payoffs to the venture capitalists. Furthermore,the extending model avoids the substitution between the proportions of equity-debt investment.