Select Portfolio Of Venture Capital Institutions

Venture capital was born in UK in the 1940s. It is a industry which invested in projects with high risk relating to high return. Venture capital developed and prospered in American, it worked as an engine of economics throughout the world and promoted the high-tech industry development. The nature of venture capital decided that the venture capitalist must to obtain high return through high level risk management skills and methods. We know that venture capitalist can lower the risk level and keep the return level through the portfolio selection skills. So, how to maximize the expected return and minimize the risk through portfolio selection become a worthwhile topic to research.The modern portfolio theory was born in 1952. American economist Markowitz published a landmark paper named "The portfolio selection". He assumed that the return of a security is a random variable. The investor could estimate the expected return and uncertainty(risk). Markowitz developed the famous E-V model of portfolio selection problem. The portfolio selection theory had developed rapidly in the forthcoming decades. After the E-V model, Sharpe considered the risk-free assets in the portfolio and developed the single-index model. Mao built a linear programming model which can be solved easier. In addition, there are limited-diversification Model built by Jacob and the MAD model built by Konno. Lee developed an objective programming model in 1982. Tamiz improved it in 1996. But all of these theories are based on the security market and could not adapt the venture capital industry.Venture capitalist always face with the invest-or-not problem. It is a 0-1 programming problem. We can look the funds as a knapsack, and look the projects to be selected as items. The decision maker should consider how to maximize the value in the knapsack. So, the author developed a model which can solve the venture capital portfolio selection problem based on knapsack problem of the dynamic programming. The author combine the two goal-maximize the expected return and minimize the risk into a utility function. The utility function is the value function of the knapsack problem. The model can give the optimum portfolio based on the investor's risk-averse level.The author also considered the optimum portfolio selection problem with risk-free assets and gave a instance to show how to solve the problem. The author studied the risk-free assets and risk assets portfolio problem and drawn a conclusion that the venture capital organization can lower the risk level and increase the expected return if it have the risk-free lending and borrowing chance.There are four parts in the thesis. Firstly, the author discussed the background of the venture capital industry, presented the purpose and contents of the paper. Secondly, the author represented the concept and related theories of venture capital and portfolio selection. At last, the author built a dynamic programming model to solve the venture capital selection portfolio problem.