The Research On Stage Investment Game Model For Venture Capital Under Asymmetric Information

As a unique investment behavior, which has a special relevance with thedevelopment of high-tech industry, venture capital has developed rapidly, forming anew form of venture capital market. In recent years, the stage investment of venturecapital has gradually been recognized by the venture capitalists with a large number ofapplying. However, due to the complexity of the venture capital, there are fewdeeply-study literatures in theory and even less discussion of quantitative models,which has constrained the venture capital industry in China. In light of this, this articlewas written applying a variety of theoretical knowledge including mathematicalmodeling, information economics, game theory and stage investment mechanism, withthe aim of reducing adverse selection and moral hazard using stage investment as a waywhile signaling and information screening as methods, improving the operationalefficiency of venture capital, finally providing methods to solve related problemscaused by asymmetric information. This article analysed and researched the aboveproblems by two stage investment models.（1）Corrected the signal with the dynamic transfer model which used predictedoutput as signal and with the Bayesian posterior probability rule, for the other stageinvestment processes after the signing of the contract. Finished the new signaltransferring, forecast evaluation and contract adjustments before the stage ofinvestment, solved the problem of adverse selection in the investment process using theway of dynamic signal transferring. The second phase of the model was analysed,leading to the conclusion of the optimal action and the largest expect stage of effective,the relevant mathematical expressions were given, too. In my opinion, the discussion ofthe method can be applied to all stages of the investment process.（2）As to moral hazard,“Employer First” screening mode was used in this article, thecontract was established by the venture capitalists to risk entrepreneurs. From the perspectiveof venture capitalists, analyses how to set up the contract to maximize personal gain. Venturecapitalists would give the excitation conditions of remuneration in the contract, that couldconstrain venture entrepreneurs’ behaviors in the process of the operation of the risky projects.As a result, this could effectively reduce the incidence of the problems of moral hazard, and provide the basis for decision making for building quality contract during stage investment forventure capitalists.The two models researched and discussed the strategy of venture capitalists andentrepreneurs under asymmetric information through two angles which were optimalinvestment programs and a single contract incentive and restraint under output forecast,which are both conducive to the stable operation of venture capital.