The Principal-agent Problem In Venture Capital

Venture capital is a commercial behavior which include financing and investment. It can keep one country’s economy and technology developing continuously in a long-term. We all can see venture capital in Europe and Japan has been great developed. But in China, it has just started. This thesis is mainly to use the agency theory into venture capital. Standing respectively in the venture investors’, venture capitalists’and venture entrepreneurs’way to look at the problem.This thesis first through the domestic and international studies, then let me know that venture capital has great potential in China for growth, and the necessity of the development. Next I give the definition, characteristics, elements of the venture capital, and doing a comprehensive classified. Then use the principal-agency theory. Such as information structure, incentive mechanism, adverse select, moral hazard, to the analysis of the relationship in the venture capital. Then talk about investors and capitalists, capitalists and entrepreneurs respectively in two chapters, discussing the relationship between them with principal-agent theory.For discussing the principal-agent problem between venture investors and venture capitalists, I am establishing incentive model, signal theory model, and game theory. In the discussion of the venture investors’incentive mechanism for venture capitalists, I point out explicit incentive and implicit incentives two patterns. This thesis emphasize the reputation utility as one forms of implicit incentives. And we should combine the two incentive mechanism to use, just can achieve the effect by supplement each other. Whether we can achieves Pareto optimality between venture investors and venture capitalists? I analyse it through a mathematical model, and I get the answer that only though the explicit incentive mechanism, Pareto optimality can not be reached. Then I give the corresponding countermeasures, in order to achieve the Pareto suboptimality. For discussing the principal-agent problem between venture capitalists and venture entrepreneurs, I am establishing moral risk game model, to solve and analysis it, then give the corresponding countermeasures. In the end of this thesis, I use baidu and MengNiu, the two specific venture enterprise, to illustrate in different case venture capitalist will use of different incentive mechanism. And I hope in China we can also to develop venture capital market, and have our own venture capitalist, and local investment fund industry.