Research On Staged Financing In Venture Capital Based On The Hold-Up Problem

China’s venture capital originated in the eighties of the last century which has gone through nearly three decades, since the reform and opening-up policy, the government has introduced a series of policies and regulations to promote the development of venture business, promoted highly into the technology industry and took the establishment of innovation-oriented country as a core strategy of national development. It can be said that developing the venture capital industry is the only way to build an innovative country. In recent years, China’s rapid economic growth has attracted a large number of foreign venture capital institutions to invest in domestic projects, at the same time, there also emerged a number of professional venture capital firms, venture capital industry in China has a certain size, however, there are still many problems such as insufficient scale of investment, limited financial resources, lack of effective exit mechanism and so on.The important difference between venture capital and general investment is that, venture capital invests in high-tech start-ups so it is an specific investment, however, due to the bounded rationality, asymmetry information, people can’t sign a complete contract, therefore, the venture entrepreneurs have the motivation of taking opportunistic behavior to grab the quasi-rent generated by the specific asset investment, which lead the venture capitalists to be hold-up. When venture capitalists predict that, he will not invest in the venture firm, leading to lack of prior investment. This paper analyzed the reasons for lacking of venture capital from the perspective of hold-up theory, and proposed a staged investment decision-making model as a governance program to alleviate the hold-up effect.The main content of this paper as follows:Firstly, it took an overview of the theory of the venture capital and hold-up, put forward the root causes of the hold-up risk in venture capital,took an actual venture capital project as a case.and analyzed the reason why venture capitalists be held-up; Secondly, in the case of incomplete contract and unavoidable renegotiation, analyzed by modeling the risk of investment lack of relationship-specific investments which resulted in the low efficiency of ex ante investment. From the perspective of game theory analysis of both partner, the only Nash equilibrium solution is:venture capitalists will not invest and venture entrepreneurs will take opportunistic behavior, which is the worst result; Thirdly, proposed that staged investment may effectively reduce the hold-up effect, established the optimal investment decision model in phases by venture capitalists, and obtained the optimal amount of investment of each stage; Finally, put forward some reference proposal to prevent or reduce the hold-up risk.