Entrepreneurial Financing Choice Based On Oligopoly Competition

As we all know, venture capital has become a promoter for global industry innovation and high-tech development driving force. Many famous high-tech companies such as Microsoft in their start- up period had won the support of venture capital.Since the early 90 s of last century, venture capital gradually become a hot topic of study at home and abroad, research about the enterprise financing literature has continued to increase, but most s tudies have focused on the optimal capital structure as well as the optimal financial contracts of listed companies under the constrained condition where the market is imperfect( usually asymmetric information type).there are only a few studies focus on whether the entrepreneur will seek capital from venture capitalist or bank among existing literatures. And what should be considered when make the choice of finance sources. After above reviews, this paper has established a double moral hazard model based on the perspective of oligopolistic competition to study the optimal financing choice of enterprise between venture capital and bank loans. The entrepreneur can own full ownership for bank loans, instead, he lose the value-added service. While the entrepreneur can receive valued support from venture capitalist costly effort by abandoning part of stakes of the enterprise. The results show that venture capital dominated in bank loans when the productivity of venture capitalist is higher than entrepreneur’s. The efforts of entrepreneurs and investors will increase with the increase of the low cost profit. At the same time, the shares of venture capital with the increase of VC productivity level and with the decrease of the level of enterprise productivity. Further analysis suggest that the stakes of venture capitalists will increase with the degree of the project innovation.Finally, this model discuss the possibility of VC expropriation.it shows that stronger protection of intellectual property legal environment would promote venture capital when entrepreneur seek finance. And VC tend to expropriate the project when the competitor of enterprise is strong with innovation.