Risk Analysis And Risk Control Of Dual Venture Capital Principal-Agent Relationship

Venture capital means the initial investor provides funds to venture capitalists or venture capital institution, let them operating and managing who will select the right program carefully and inject the funds into enterprise selected. The venture funds whose value increased managed by entrepreneurs and managers will be back to investor. The process which forms a chain of agency which is different from others will produce series of risk. In this paper,1 will analyze the dual agency relationship where is initial investor, venture capitalist and entrepreneur as main characters, research the risk inside and seek for the control method on the basis of venture capital and agency theory.In this article, the process of venture capital operation is main line. The roles in the process and the agency relationship are analyzed at first. The risk of adverse selection and moral hazard in the first agency relationship between initial investor and venture capitalist is analyzed in advance, then same with the second one between venture capitalist and entrepreneur. At last, how to control the risk,how to reduce the agency cost are studied.The content about the method to control the risk is following:(1) The motivation and restriction mechanism always be used as the method to control the risk of the first angency relationship. About the motivation mechanism, in the kind of enterprise organization, limited partnership is better than incorporated enterprise. Reward incentive mechanism is often used as a effective one. Restriction mechanism includes contract constraint, reputation constraint and financial power constraint.(2) The monitoring and motivation mechanism are always used in the second agency relationship. The monitoring mechanism includes involving daily enterprise management, phased investment and joint investment.