The Design of the Incentive Contract of Venture Capital under Asymmetric Information

The relationship between venture capitalists and venture entrepreneurs is a principal-agent relationship. Both capitalists and entrepreneurs target at maximizing their own revenue. Under asymmetric information, the short-term and long-term contract design for venture capital revenue allocation directly influences the initiative of venture entrepreneurs, and consequently affects the final investment income. With the improved principal-agent model, this research investigates, from perspectives of venture capitalists and venture entrepreneurs, the optimal contract designs for short- and long-term venture capitals. Furthermore, the choices of optimal contract arrangement for each case are derived. This optimal contract arrangement can overcome the revenue conflict between venture capitalists and venture entrepreneurs and arrive at the condition of mutual incentive.