The Impact Of Venture Capital On The Growth Of SMEs

In recent years, our government gradually heightened the support for SMEs(small and medium-sized enterprises), and the supporting system has beencontinuously improved. SMEs has been more and more important inpromoting national economic development, expanding employment, increasing taxrevenue, and meeting the diversified needs of people. At the same time, because theraw materials, energy and labor prices continued to rise, particularly inthe background of industrial transformation and upgrading of our country, SMEsurgently need to transform the mode of development, from labor-intensiveto technology intensive across. In this process, because SMEs are small in scale,uncertain in future, and their management was un-standardized, as well as from thecapital market and other external environment restriction, these enterprises are facingmany problems from the capital and innovation and so on. Therefore, SMEs areurgent to get financial and innovation support and wise advice to their managementfrom professional investment institutions.Venture capital is money provided by professionals who invest alongsidemanagement in young, rapidly growing companies that have the potential to developinto significant economic contributors. Scholars believe that the venture capital’sstructure determines their high risk bearing capacity; the process of decision-makingcan effectively reduce the problem of asymmetric of information in the investmentprocess; the joint investment model can helps to share the investment risks; the highlymarket-oriented investment and financing relationship mechanism andsuperior socialization cyber source makes the venture investment organization canparticipate in the daily management of these enterprises and enhance their innovationability. All these characteristics of venture capital make it possible to be combinedwith SMEs, to provide financial support and improve the management efficiency andability to innovate. Thus the venture capital plays a positive role in the growth ofSMEs. Therefore, to analyze the relationship between the venture capital andthe growth of SMEs, can not only deepen the understanding of venturecapital investment, but also can put forward specific proposals to solve the constraintswhich SMEs are facing in their process of development. At the same time, we can provide a theoretical basis for SMEs to get venture capital investment, and speedingup their transformation and upgrading of industry, improving theirinnovation ability, and ultimately help them to achieve healthy growth.This paper first introduced the definition of venture capital and related economictheory. Then we systematically analyzed the mechanism of how venture capitalfinance SMEs and promote the innovation ability of SMEs and promote the growth ofSMEs. After that, in order to verify the theoretical analysis results, we processed anempirical study on the effect of venture capital based on the public financial data.Empirical results show that: venture capital-backed SMEs’ has more long-term capital,higher R&D expenses percentage of revenue and growth capability indices; theparticipation of venture capital has different impact on the invested SMEs’ long-termcapital, R&D expenses and growth capability indices, but only the appropriate stakecan enhance the effect of venture capital on SMEs; venture capital’s stake in ourcountry is generally low, and this discouraged the promote effect of venture capital onSMEs. This shows that the venture capital in our country plays a positive role topromote the growth of SMEs, but there are still some deficiencies.