Title: The venture capital financing under a real options framework: case of a high-tech corporation in China

Authors: Jingyun Ma, Fengming Song

Addresses: School of Economics and Management (SEM), Tsinghua University, Zijing 16# 730A, Beijing 100084, PR China. ' School of Economics and Management (SEM), Tsinghua University, 386D Weilun Building, Beijing 100084, PR China

Abstract: From a financial systems engineering perspective, this paper theoretically analyses the dynamic allocation of rights between the investing and financing sides of the Venture Capital (VC) contract under a real options framework. Based on this systems framework, we further investigate and examine the VC investment of a high-tech corporation in China. In this case, the clauses of the VC financial contracts are interpreted from a principal-agent perspective. The stage financing clauses provide us with nodes for carrying out the real options evaluation by the risk-neutral valuation method and explaining the decision path by dynamic rights allocation analysis.

Keywords: financial systems engineering; venture capital; real options; high-tech financing; China; high teccnology firms; principal agent; dynamic rights allocation.

DOI: 10.1504/IJBSR.2008.020062

International Journal of Business and Systems Research, 2008 Vol.2 No.2, pp.144 - 165

Published online: 23 Aug 2008 *

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