Does Venture Capital Promote Innovation?

Technology-based start-ups have contributed a large amount of technological innovation,and their growth and development are often inseparable from the support of venture capital.Therefore,it is generally believed that venture capital can effectively promote innovation in enterprises.However,this article believes that this view is not necessarily true.In general,the development of a start-up can be simply divided into: the growth phase within the venture capital period and the sustainable development phase after the venture capital exit.Venture capitalists pay attention to the value of the enterprise within the investment period,and the entrepreneurial entrepreneur not only cares about the enterprise value within the investment period,but also pays attention to the enterprise value after the venture capital exits.The two sides inevitably face conflicts of interest: entrepreneurs hope to develop new products and technologies within the period of venture investment,ensure that enterprises continue to grow at a high rate after the exit of venture capital,and maximize the value of the company's life cycle;on the contrary,venture capitalists only We want to commercialize the existing basic innovations of the company and maximize the value within the investment period,without letting the company carry out research and development innovation within the investment period.In fact,the root of conflict of interest lies in the moral hazard problem of entrepreneurs,that is,innovation within the period of venture capital will weaken the efforts of entrepreneurs to commercialize.The reason is that compared with the venture capital that focuses on commercialization,the venture capitalists who are simultaneously developing and commercializing not only needs to provide commercial capital,but also needs to invest in research and development innovation,so entrepreneurs are required to transfer more.Equity.This further dilution of equity will weaken the entrepreneur's commercialization efforts and reduce the value of the enterprise within the risk investment period.In the end,do the two parties choose “commercialization” or “commercialization and innovation” during the venture investment period? Or does venture capital promote innovation? This paper finds that(1)if the entrepreneur's moral hazard is so serious that the latter venture capital is not available,the entrepreneur has to give up research and development and focus on commercialization;(2)if both types of venture investment are available The choice of commercialization(or“commercialization and innovation”)depends on the trade-off between the decline in corporate value during the venture capital period and the increase in corporate value after the venture capital exit.This paper constructs a venture capital model to study the relationship between venture capital and enterprise R&D innovation from the perspective of entrepreneurs' moral hazard.The model derivation shows that:(1)in the absence of entrepreneurial moral hazard,“commercialization and innovation”is optimal;(2)in the case of entrepreneurial moral hazard,the choice of entrepreneur depends on future corporate value Discounted value.When the discounted value is large,“commercialization and innovation” is the best choice;when the discounted value is small,the “ commercialization and innovation ” venture capital is not feasible,and the entrepreneur can only choose commercialization;(3)Innovative subsidies help to relax the participation of venture capitalists under “commercialization and innovation” and weaken the dilution effect of entrepreneurs' equity,and encourage enterprises to continuously develop and innovate and improve social efficiency.It should be noted that whether the venture capital discussed in this paper promotes innovation is limited to innovation within the period of venture capital investment,and the change of innovation after venture capital exit cannot be attributed to venture capital.