Analysis Of Strategies In Venture Capital Syndication By Using Evolutionary-Game Theory

After the Party’s Seventeenth Congress, our country accelerate the upgrading of theindustrial structure, put the independent innovation on the core position of the nationaldevelopment strategy and as the accelerator of innovation ability, venture investment hasplayed a crucial role in the process of industrial upgrade. Recently, the venture capitalindustry has grown dramatically in China, high risk and uncertainty of return are the maincharacteristics of Venture Capitals. In order to decrease the risk and increase the profit,various strategies have been developed by venture capital companies and syndication hasbeen a common strategy.The development of China’s venture capital is late and faces a series of barriers, e.g.Non-normative of capital market, immaturity of market mechanism, legal faultiness etc.Therefore, there must be many issues when syndication is used by venture capitalcompany, and must be deal with urgently. Herein, this paper mainly answers threequestions.Why and why not syndication; When the syndication formed, which problemsthere will be inside the management and how to take measures to solve these problemsand to improve the efficiency of syndication investment; Which capital exit manner theywill take when the venture capital institutions consider to exit the syndication.This paper constructs the model of evolutionary game, analysis the course ofdynamic evolution between the two kinds of venture capital institutions and find out theevolutionary stable strategies under different conditions, it is found that whether ventureinstitutions can form syndication, largely depends on the possible cost of seeking partnerand the size of syndication effect, the smaller of the cost and greater the joint effect, themore easy to form a syndication mode; the “free rider” behavior is incurred by thecomparable relationship between profits and costs in current game, management costs andthe proportion of investment so called equity share will directly affect the appearance ofmoral hazard; Whether or not under the IPO conditions, the size of the default cost willdirectly infuence the venture institutions’ mode choice of capital exit, if default cost ishigh, the venture institutions will tend to choose share repurchase strategy, but if defaultcost is low or no default cost, venture institutions will be more willing to take IPOstrategy and acquisition strategy.This paper constructs the model of evolutionary game, analysis the problems insidethe syndication, and by controlling the parameters and optimizing the conditions to propose some suggestions to solve the problems and mange the development ofsyndication towards a virtuous circle.