Discussion Of Methods To Optimize The Compensation Of Venture Capital Fund Guided By The Government

Government set up venture capital guided by the government expecting to guide private capital into the venture capital market and to support entrepreneurial behavior in some industries.Social capital can apply for the venture capital fund guided by the government to be a sub-fund and obtain government participate in shares.Sometimes it alternatively can get financing assurance or follow-up investment by the government,etc.When the startup become mature,government capital only charge interest calculated at the interest rate of government bonds and exist then.When the sub-fund shows a profit,the government only charges a little interest and transfers most of the profits to the private investors.When the sub-fund is lost,the government protected by the preservation clause compels the private capital to take the lost.From this point,the government's behavior is actually a form of compensation.This paper discussed whether the venture capital fund guided by the government compensation methods really play a role in guiding private capital and whether it plays an independent role.Based on this,the study focus on whether the compensation methods reached the Pareto Optimality state.Finally this paper gives the suggestions of optimizing the methods.By comparing the four foreign such as Israeli YOZMA program,the US SBIC program,the Australian IIF program,and the UK's limited shareholding program with five Chinese models as Suzhou model,Tianjin model,Shanghai model,Shenzhen model and Hangzhou model,this paper sorts out the differences and common grounds of all the compensation methods.The results showed the venture capital fund guided by the government compensation methods are mainly based on the transfer profits and a few regions have adopted the strategy of compensating the losses.At the same time,all countries have adopted a series of policies to optimize the whole venture capital market.By establishing the overconfident private investor satisfaction model,this paper analyzing the changes of this investors when the venture capital fund guided by the government come into the venture capital market.The conclusion shows that the fund can play a positive role in guiding venture capital but can't play an independent role,and the compensation methods is not on the Pareto optimal state.The model analysis shows that the fund actually increases the risk faced by private investors,using a higher average return to cover its risk premium.The fund actually acts as a diversion,rather than takes a subsidy effect.Combined with the analysis results,this paper presents two optimizing methods,the method “proportion of transfer income and the proportion of compensation for losses”,and the method “proportion of transfer income and appropriate compensation for loss”.The former focus on the confirmed proportion of transfer and compensation,the latter on the appropriate compensation from the cash pooling.These two methods will be Pareto improvement,each of which has its pros and cons,This paper analysis shows that in a short period the method “proportion of transfer income and the proportion of compensation for losses” should be more workable and in a long time period the method “proportion of transfer income and appropriate compensation for loss” will be the better one.Meanwhile the paper analysis shows the venture capital fund guided by the government should cooperate with the policies of optimizing the whole venture capital market.