| In the last decade of the twentieth century, the U.S., which is the most developed capitalistic country in the western world, has experienced a long-run economic growth, as well as the P.R. of China, which is the most promising entity of the new market economy countries. The productivity of the U.S. has continued to increase for more than 120 months. Meanwhile, China's growth rate of GDP has kept over 7 per cent since 1989. But intensive analysis will reveal the essential difference of the way of growth between these two countries.The continuing prosperity of the U.S. comes from the reformation and the innovation of the technical economy. In fact, the U.S. has turned to be the source of the new industries since the third industrial revolution, and it has been locked in the status of being the center of the world economy. We should acknowledge that the success of the New Economy in the U.S. stem from effective system arrangement, especially the maturity of the system for venture capital (VC), though it appear to be technical leading. In fact, the boom of the high-tech enterprises backed by VC is the important micro foundation of the prosperity of the U. S..On the contrary, the propeller of the economic growth in China is the tremendous productivity released by the transformation of the traditional system after the Reform and Opening-up. Nevertheless, the impetus created by the transformation of the traditional system has turned to dry up twenty years later. The government and the private capitals have realized that innovation and progress of technology is the fundamental way for the promotion of economy. The government spares no efforts to propel the development of the high-tech industries in the current times. At the same time, the enormous profits of the high technology attracts the capitals which aim at interests.The first chapter of this paper defines the conception and characters of VC. Briefly, VC is a kind of equity capital collected by VC capitalist from fund providers and invested in young high-tech enterprises. It involves fund providers, VC capitalists and enterprises, and it is the combination of financing and investment. That is why it is called buy-side financing. The character of the property market for young high-tech enterprises determines the characters of VC and its extraordinary system arrangements.One of the characters of the property market for the young high-tech enterprises is the uncertainty of future returns. Either VC or other traditional capitals can disperse this kind of risk by portfolio. But another character of this property market, which is the serious information asymmetry excludes the traditional capitals out of this market. In the second chapter of this paper, the normal hazard problems and the reverse selection problems which are resulted from the information asymmetry are combined in one elaborate model. The model explains how the serious information asymmetry pushes the traditional financing out of the property market for young high-tech enterprises, and how the VC exhibits its competitive advantages in handling with normal hazard and reverse selection.Afterwards, the author analyses concretely the contract handling with information asymmetry, especially the exertion of convertible securities (CS) and stage financing. In fact, these articles are very rigorous for enterprises financed by VC, because the entrepreneurs undertake the risks higher than their equity proportions, and the VC capitalists enjoy the control rights higher than their equity proportions. The essence of the arrangement is to transfer more risk to the entrepreneurs, so as to encourage them to work hard. In fact, the way these contracts are designed and fulfilled, and the way the qualified high-tech enterprises are selected incarnate the core capability of the VC.What responds to these special system arrangements is the special allocation of the control rights in the VC financed enterprises. We have proved that the allocation of the control rights in these enterprises have transcended th... |
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