Replacing Management or Not: Contract Renegotiation to Prevent Double Moral Hazards of Venture Capital Investments

During the venture capital development, replacing the management work team or keeping up the status quo is a key strategy choice for venture capitalist and venture entrepreneur about the long-term development of enterprise and the control right transferring. In fact, the contract designing focuses on the distribution of cash flow to encourage both efforts in order to avoid double moral hazard, and the strategy behavior has similar effects according to the developing condition of venture enterprise. In this paper, we consider both contract design and strategic behavior, regarding this strategic behavior choice as a motivator and combining strategic behavior with financial instrument options. The main innovation is to redesign and optimize the contract based on dynamic perspective, which will analyze initial contract designed to motivate both sides’ effort if a venture enterprise is in good state, and then renegotiate whether to replace the management work team or keep up the status quo according to the venture enterprise’s development state in the process of venture investment cooperation. The paper also puts forward some conclusions: joint effort of both sides can be motivated through strategic behavior choice and then lead to increasing the overall value of the venture enterprise; after the venture enterprise has gained private benefits in the early stage, the venture capitalist needs to make appropriate assignments and demisability in benefits to remotivate the venture enterprise’s efforts, aiming to further balance venture enterprise’s private benefits and the earnings redistributed by venture capitalist.

CURRENT TRENDS IN THE DEVELOPMENT OF VENTURE ENTERPRISE IN UKRAINE

The article is devoted to the analysis of quantitative and structural parameters of venture business development in Ukraine, so it seems appropriate to focus on its most generalizing features and characteristics, which have been clearly outlined in recent decades. First of all, it should be noted the extremely low level of capitalization of the domestic venture capital market. Also important for a comprehensive analysis of the current state and trends in domestic venture entrepreneurship is the number of venture capital investment institutions and a significant increase in the level of concentration of the domestic asset management market. Another conclusion that follows from the data concerns the dominance of venture mutual investment funds, ie closed-end funds, in the subjective structure of domestic venture entrepreneurship. Domestic venture funds are also characterized by an extremely insignificant share of the value of their assets in the gross domestic product of our state. Another well-established trend in the structural dynamics of domestic venture funds in the last decade is the growing share of foreign capital in the structure of their investment flows. In addition, in recent years there has been a clear eloquent trend, namely: the growing share of domestic individuals in the subjective structure of investors in venture mutual investment institutions. International corporate structures, business incubators and accelerators are actively opening their innovative divisions and representative offices in our country. It is worth noting that the number and volume of funding for Ukrainian startups is increasing from year to year. In recent years, the processes of attracting funding through crowdfunding platforms and grant sources have been developing dynamically. Evidence of the growing interest of foreign venture capitalists in Ukrainian startups is the intensification of mergers and acquisitions in this area. Unfortunately, maintaining the extremely low economic motivation of venture capitalists to invest money in the early stages of research and self-search by inventors in most cases leads to dependence on investors and unequal exchange of property rights for scientific ideas for financial resources.

Analisis Pengaturan Penanaman Modal Asing dalam Bentuk Perusahaan Joint Venture di Indonesia

Penanaman modal asing merupakan salah satu bentuk utama transaksi bisnis internasional. Ada beberapa bentuk kerjasama antara penanaman modal asing dengan penanam modal dalam negeri yang dapat dilakukan seperti joint venture, joint enterpirse, production sharing contract, maupun bentuk kerjasama lainnya. Di banyak negara, peraturan pemerintah tentang penanaman modal asing berbentuk persyaratan joint venture, yaitu persyaratan bahwa penanaman modal asing harus membentuk joint venture dengan perusahaan lokal untuk melaksanakan kegiatan ekonomi yang mereka inginkan. Penilitian ini menggunakan metode penelitian hukum normatif. Penelitian ini akan mengkaji asas-asas, konsep-konsep hukum serta peraturan perundang-undangan yang terkait. Hasil penelitian menunjukkan di Indonesia dewasa ini mempunyai peraturan perundang-undangan yang mengatur bentuk usaha patungan berbentuk Equity Joint Venture. ketentuan mengenai Daftar Negative Investasi (DN) diatur dalam Peraturan Presiden No.44 Tahun 2016 yang berkaitan dengan bidang usaha yang terbuka dengan persyaratan, salah satunya mensyaratkan terkait dengan batasan kepemilikan modal asing. Dengan demikian secara tidak langsung ketentuan tersebut mewajibkan penanam modal asing untuk bermitra dengan penanam modal dalam negeri dengan membentuk joint venture enterprise atau equity joint venture. Adapun kendala yang dihadapi oleh pemodal dalam negeri dengan penanam modal asing dalam bentuk joint venture dapat dilihat dari tiga aspek antara lain politik, hukum dan ekonomi.

Venture Capital Contracting with Double-Sided Moral Hazard and Fairness Concerns

The development of new venture enterprise is the result of joint efforts of entrepreneurs and venture capitalists who collaborate based on complementary resources. In this paper, we analyze a venture capital incentive contracting model in which a venture capitalist interacts with an entrepreneur who is risk neutral and fairness concerned, offering him an equity contract. We solve the venture capitalist’s maximization problem in the presence of double-sided moral hazard. Our results show that fairness concerns change the structure of the optimal contract. More importantly, we show that the solution to the contract regarding the optimal share given to the entrepreneur is nonlinear and is a fixed point between 0 and 1. Further, we simulate the model under the assumption that venture project’s revenue is a Constant Elasticity of Substitution (CES) function and obtain the following results. (1) When the two efforts are complementary, the venture capitalist’s effort does not monotonically decrease in the share allocated to the entrepreneur, while the entrepreneur’s effort does not monotonically increase in his share. (2) Relative to the benchmark case where the entrepreneur is fairness neutral, the optimal equity share allocated to the fair-minded entrepreneur is larger than 1/2, and as the degree of efforts complementarity increases, the optimal equity share tends to 60%. In this scenario, for a given efforts substitution parameter, the fair-minded entrepreneur provides a higher effort level than the venture capitalist.

Feasibility Analysis for the New Venture Nonprofit Enterprise

This article explores the value of feasibility analysis for the pre-launch nonprofit enterprise. Similarities and differences between for-profit entrepreneurial ventures and nonprofit entrepreneurial ventures are outlined, and then the traditional format of feasibility analysis used by the entrepreneurial for-profit start-up is reviewed and analyzed. This four-stage analysis is then adapted to the needs of the nonprofit new venture enterprise. The benefits of doing a feasibility analysis for the nonprofit enterprise start-up are identified, and guidelines are suggested. An underpopulated research stream is identified and explained in this article for the start-up and early developmental phases of the nonprofit enterprise.

Mechanisms for Economic Regulation of Innovative Activities

The paper considers the term «innovation» as a novelty or newly introduced development, which results in positive economic and social effects to the enterprise concerned. The government plays an important role in regulating innovative processes and acts as a guarantor for private investors. Reviewed are the direct and indirect methods of government regulation in the sphere of innovative activities. The types of tax remissions for entrepreneurs are reviewed and measures, concerning the public risk (venture) enterprise, are outlined.

A Study on Grey Correlation Degree Model of Venture Capital Intrinsic Value

In view of the disfigurement that the former research mostly focus on the evaluation of the investment value before investment, not only this paper uses for reference to the former evaluation system, but also successfully integrates it into a unity that the evaluation before investment and after investment. This paper designs a set of evaluation criterion and a set of actual state evaluation system. Comparing both of them is the essential start of evaluation. Then according to it, and based on the grey correlation degree theory, this paper constructs a set of compositive evaluation indexgrowth imitating degree, The method provides a primary analysis frame for monitoring venture enterprise fostering.