Research On The Optimal Exit Mechanism Of Venture Capital

The effective exit of venture capital has always been a most concerned issue forventure capitalists.It is the premise for the realization of risk capital,and it is a crucial linkof risk investment activities of venture capital,and also it is the guarantee for venturecapital to recycle in both time and space.The characteristic of risk investment vehavior isthat it requires venture capitalists actively participate in the management of the riskproject till the capital appreciation and the recovery of funds through publicly traded ormerger and acquisition.Therefore,only the exit problem solved effectively can the systemgo on and play a greater role.In this paper we research on the interaction between thedesign of exit decision and contracts，and we find the potential conflicts of interestbetween venture capitalists and venture entrepreneurs, then we try to explore the solutionand find the requirements need to be met for the fisrt-best exit in equilibrium condition atlast. After that, we tries to explan whether traditional financing tools can meet therequirements. Finally, we prove that with the use of convertible bonds the optimal exitconditions can be met through the choice of conversion time and rational allocation ofcontrol rights. So the effective exit is achieved.