Research On Venture Capital Investment And Exit Based On The Valuation Adjustment Mechanism

The valuation adjustment mechanism is widely used in the investment and financing market to protect the interests of venture capital and encourage entrepreneurs to exert a higher level of effort.However,more and more cases of VAM failures show that unreasonable VAM design will damage the rights and interests of both investors and financing parties.Therefore,the thesis introduces the VAM into the optimal financing contract model.Firstly,starting from the single-period model,the thesis solves the optimal contract including the VAM.Then through numerical simulation,this study compares and analyzes the influence of the optimal contract,entrepreneurs optimal effort and venture capital optimal expected utility under the VAM and the entrepreneur’s overconfidence about the performance target of the VAM.Secondly,the thesis extends the model to continuous time,combines the VAM target with the VAM period,further describes the behavioral changes of business operations,verifies the relevant conclusions of the single-period model again,and draws more general characteristics of contract conclusions.Finally,on the basis of continuous-time financing contracts,the thesis further analyzes the impact of the VAM on the optimal exit method.The thesis takes the investment and exit of venture capital as an overall decision,establishes a principal-agent model.Under the single-period and continuous-time frameworks,this study calculates the optimal contracts and venture capital optimal expected utility,and carries out numerical simulation and comparative analysis,for the three cases of without considering the VAM,considering the VAM,and the VAM based on the entrepreneur’s overconfidence.The research shows that:(1)With the increase of the VAM target or the VAM period,entrepreneurs optimal effort and venture capital optimal expected utility both show a trend of increasing and then decreasing.And entrepreneurs will exert more efforts to "whitewash the performance".Therefore,the rationality,feasibility and challenge of the VAM target and the VAM period should be taken into consideration when designing the VAM.(2)When entrepreneurs have overconfidence in the project’s future performance expectations,it will increase the optimal expected utility of venture capital,prompt venture capital to set excessively high VAM target,and increase the probability of failure of entrepreneurs in VAM.(3)Under low VAM targets or short-term VAM period,venture capital may tend to choose to exit through mergers and acquisitions.While under the incentives of VAM,enterprises with higher production efficiency or stronger risk management capabilities or a higher level of overconfidence will prompt venture capital to choose to exit with IPO.