A Dual-principal-agent Model In Venture Capital

Venture capital is propitious to the industrialization of new technology, the innovation of enterprise and the amelioration of capital market. There are two kinds of nexus lie in it: one is between venture capitalist and venture investor; the other is between venture capitalist and venture entrepreneur. When venture investors put money into the setup that has been created and working by venture capitalist, the first kind of "principal-agent" nexus appears. During the second stage, venture capitalist should be very cautious to choose a venture enterprise and invest in it, furthermore he care about or even join in the management of enterprise, then the other kind of "principal-agent" nexus comes into being. So there we have a "dual-principal-agent" problem in venture capital. Because badly asymmetry of information, it induces some disbarment results such as adverse selection and moral hazard. Many lectures studying the contract in venture capital separately talk about this two kind of nexus: some describe different types of venture; some suggest diversified contract design; some compare the mechanisms in existence; others are experiential research about historical data. In a word, to solve the special principal-agent problem, thinking of the three participants, we try to design a kind of effective mechanism, which can inspirit and restrict the agents. In this way, we can furthest reduce the transaction cost to assume the success of venture capital projects. This paper focus on this "dual-principal-agent" problem, integrate it into just one standard principal-agent model to get some new results. The visual angle of this paper is original and can be easily used for reference on study of the contract of venture capital, in despite of its conclusion comes from severe abstract and rigorous assumptions. Venture capital activities appear comparatively late in China, the "dual-principal-agent" nexus cause more cost and bring much more complex problems in practice because of the particularity of economy system. All these basic research should service the needs of expanding economy, so it may be a challenge to our academic research in China.