Research On Exit Decision Of Venture Capital In Restaurant Chain

Venture capital, originated from1940’s in American Silicon Valley, is such aninvestment behavior: with the purpose to get large amount of investing reimbursement,investors put venture capital on small-and-medium-sized enterprises withcharacteristics of high risk and high technology, as well as huge developmentpotential and increasing value. It is a sally port of new tech transformation and a mainapproach to new economic growth. With the unique advantages and operation mode,venture capital plays an important role both in innovated enterprises’ cultivation andhigh-tech industries’ development, and which cannot be replaced by traditionalfinancial organizations such as commercial banks. Venture capital of our countrystarted from1980’s and got fast development in the late90’s until now. with thecontinually entry of venture capital, the exit decision becomes more and moreimportant, because it directly decides the profits of venture investors. Therefore, thestudy about exit decision for venture capital needs more and more practicalsignificance.The paper firstly introduced the operation mechanism of venture capital so as to showthe importance of exit decision in this operation mechanism. Then, the paper showsthat different exit ways bring different performance through comparing performanceof different exit ways. Therefore, when considering the way to exit, investors mustconsidering the conditions inside and outside the venture company, so that they canchoose the most favorable way.The venture capital has the character of real option, so this paper build a general exitmodel based on real option. Due to the difference of exit cost, the general model canbe expressed to four specific models of the four exit ways. Every specific model canis made up of two parts, one is exit time model, and the other is exit way model.There is a threshold for each model. When the cash flow is lower than the threshold,the optimal decision is not exit. But if the cash flow is high then the threshold, theinvestors must exit the venture company at once. Besides, the paper analyze the invest and exit condition of venture capital in cateringindustry, and found the reason that why there is a venture capital hot in cateringindustry these years. But because of the distinctiveness of catering industry, the exitcondition is unsatisfactory. The reason is that the restaurant chain market is still notmature and needs a lot of time and cost to solve problems exist in the market.In Chapter5，an empirical case based on a real venture capital exit decision was usedto help General Atlantic make exit decision. And we combine the matter of fact tochoose the best way to exit and the best opportunity.