Venture Capitalists And Entrepreneurs In The Adverse Selection Problem

The development of high-tech industries generally dependent on rapid supporting in theventure capital market, he is a new model of economic development. It will encounter somenew high-tech industry in the development of a series of questions, the venture capital marketwill take the appropriate way for the problems arising to coordinate, making steady and rapideconomic development. China has just the12th Five-Year Plan, the economic structure willvigorously readjust. In the adjustment process it will gradually increase the development ofinnovative technology companies and it will play a decisive role in the near future. Therefore,the study of the various elements of the venture capital market will increase, the behavior ofventure capitalists and entrepreneurs adverse selection arising from asymmetric information isparticularly important. That the future development of China’s venture capital can carried outsmoothly and be a good improvement for the problems.The success of venture capital depends largely on the principal-agent relationshipbetween the venture capitalists venture capitalists venture entrepreneur. These participants inthe venture capital information unfairness, so that, every enterprise can not achieve theinformation fair, and investment funds in each of the main flow of venture capitalists to thePrincipal in the form of existence, while the risk entrepreneurs the form of an agent. Betweenthem whether the selected projects, where asymmetric information plays a very important rolein enterprises and investment projects where the impact is huge. Which there are many factors.For example, entrepreneurs have projects a number of innovative projects, potential andquality of a thorough understanding of each project. But also has the ability to self-assessment,and experienced. Therefore, he has information superiority, and venture capitalists to thecontrary. This information asymmetry will lead to the venture capitalists to adverse selection,in order to make part of the risk of entrepreneurs with good projects can not get the neededfunds from the market, so the community can not get a good play. If the community there area lot of this phenomenon, a vicious cycle, which will not be conducive to the efficientallocation of resources is not conducive to the country’s economic development. For thisreason, combined with the relevant theories and methods of game theory, the establishment ofgame information exchange model to solve the problems arising from venture capitalists andrisk between entrepreneurs, such as the typical problem of adverse selection due toasymmetric information. This paper first outlines the theory and elements of risk investment, from a differentperspective to the interpretation of the relationship between its various elements, the basicprocess of investment operations and risk investment decision-making process. Next, thereasons for adverse selection, asymmetric information, a theoretical analysis on therelationship between venture capitalists and entrepreneurs Adverse Selection. And describesthe manifestations and the specific reasons for this situation of asymmetric information, andthe use of game theory model analysis of the adverse selection and the consequences arisingtherefrom. Then, according to the different circumstances of each principal, respectively,proposed ways to solve the adverse selection problem. Finally, once again emphasizes thetheme of some of my views and suggestions for the article, makes a very good solution, andhave reference value for future research.