A Supervision and Incentive Contract Model of Venture Capital Financing

Abstract

This paper builds an incentive and supervision model for the venture capital financing in view of principle-agent relationship. We analyze and contrast the optimal contract scheme through the optimization principle under supervision mechanism or not. The conclusions show the supervision mechanism and incentive contract may be replaced each other from the point view of venture capitalist, but may be complementary from the perspective of venture enterpriser. And the supervision mechanism can effectively improve the venture enterpriser's effort level, diminish the hidden behavior of enterpriser and stimulate the enterpriser to choose contract with higher intensity. Furthermore the venture capitalist should be reasonably assign value-added service effort and supervision effort according to the optimal proportion, which will help to improve the yields of venture enterprise and ameliorate the investment effect.