Simulation Study on the Influential Effect of Venture Capital Decision-making Behavior s Influencing Factors Wan-li MA and Hao WU

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1 2018 Iteratoal Coferece o Modelg, Smulato ad Optmzato (MSO 2018) ISBN: Smulato Study o the Ifluetal Effect of Veture Captal Decso-mag Behavor s Ifluecg Factors Wa-l MA ad Hao WU College of Ecoomcs ad Maagemet, Cha Jlag Uversty, Hagzhou , Cha Keywords: Veture captal, Decso-mag behavors, Ifluece factor, Ifluece effect, MOTAD model; Smulato. Abstract. Based o MOTAD model ad research data of 605 vestmet projects of 156 veture captal vestmet sttutes Zhejag Provce, Cha, durg 2009~2011, ths paper smulates vestmet decso-mag behavors ad chages dfferet scearos, reveals the fluece effect of fluece factor such as sze of fud ad tax chages o ther vestmet decso-mag behavors, ad further ucovers teral mechasm reflected by vestmet decso-mag behavors of veture captal vestmet sttutes. At last, the paper combes wth smulato cocluso ad brgs forward relevat polcy suggestos. Itroducto Veture captal s a vestmet behavor that provdes equty captal for a mmature veture compay, provdes maagemet ad operato servce, ad expects to get huge medum ad log-term eargs through equty trasfer after the compay becomes relatvely mature; therefore, ths s a mportat captal stregth to propel etrepreeurshp ad ovato[1]. However recet years, veture captal vestmet Cha has cocetrated o eterprses at growth stage ad mature stage; proporto of projects ad amouts of vestmet start-up eterprses s stll ot hgh, whch hders the developmet of potetal start-up eterprses, but also weaes the support ad cubato fucto of veture captal vestmet start-up eterprses[2]. Therefore, t s extremely mportat to further study fluece effect of fluece factors o vestmet decso-mag behavor of veture captal vestmet sttutes start-up eterprses, ad thus provde theoretcal bass for the govermet to formulate polces to propel veture captal vestmet sttutes vestmet start-up eterprses. I exstg domestc ad foreg lterature, scholars at home ad abroad have studed vestmet decso-mag behavor of VC vestmet sttutes from dfferet agles ad wth dfferet methods. Most domestc studes pay atteto to fluece factor of decso-mag behavor of VC vestmet sttutes, but eglects the fluece effect of ther chages o vestmet decso-mag behavor of VC vestmet sttutes[3,4]. Regardg research method, exstg studes mostly adopt qualtatve or dex system evaluato method; mult-objectve programmg optmzato model used by some scholars depcts vestmet decso-mag behavor a relatvely scetfc way, but eglects the effect of vestmet rs o vestmet decso-mag behavor, or cosderg the effect of polcy factor[5]. I my opo, t s ecessary to brea through exstg research thought ad method, refer to teratoal avat-guard MOTAD (Mmzato of the Total Absolute Devatos Model) model method, ad thus mprove scetfcty ad practcal applcato value of research results. Ifluece Effect Smulato of Ifluece Factor of VC Decso-Mag Behavor Buld MOTAD Model Accordg to expected utlty theory, a decso-maer selects accordg to maxmum expected utlty[6]. Ths paper adopts rs decso model Mmzato of Total Absolute Devatos 153

2 Model (MOTAD) to smulate vestmet decso-mag behavor of VC vestmet sttutes dfferet scearos, ad dscuss the effect of dfferet captal scale ad tax preferece o VC vestmet decso-mag behavor. Model Buldg ad Mathematcal Expresso. VC vestmet project performace vares wth polcy evromet, operato maagemet, techologcal developmet ad maret prospect, whch s expressed by earg fluctuatos. Uder the same expected eargs, f VC vestors eargs fluctuate greatly, t meas that VC sttutos face greater rss. Smlarly, wth certa fluctuato rage of eargs, the hgher expected eargs the VC vestors have, the less rss the VC sttutos udertae. I MOTAD model, vestmet rs level of the VC sttutos s quatzed wth two dexes. Oe s TAD (Total Absolute Devato), ad the other oe s MAD (Mea Absolute Devato). As lear replacemet form of quadratc programmg model, MOTAD model cossts of two parts: objectve fucto ad costrat codto. Objectve fucto s to mmze vestmet project rs, order to realze certa eargs. Costrat codto maly cludes captal scale, veture vestmet earg devato ad project vestmet quota of VC sttutos. Mathematcal expresso of MOTAD model s as follows: m s t1 Y t m s ( t1 1 ( Q t Q ) x ), Q Q t (1) s.t. ( Qt Q ) x Yt 0,( 1,2,..., ),( t 1,2,..., s) (2) 1 1 Q x (3) 1 x B,( 1, 2,...,m; 1, 2,..., ) (4) x A B (5) t x, Y t 0 (6) Formula (1) s a objectve fucto to pursue TAD mmzato or MAD mmzato of total eargs of all actually vested VC projects. That s, realze rs mmzato. I Formula (1) objectve fucto, Q represets ut expected gross proft of o. VC vestmet project; Qt represets vestmet eargs at t year of o. VC vestmet project; x represets vestmet amout of VC sttute o. VC vestmet project. Formula (2) to (6) represet dfferet costrat codtos: Formula (2) represets earg devato costrat; a atural state, earg devato of all vestmet projects of VC sttute s o less tha Yt - ; Yt - represets the sum of absolute value of absolute devato that actual earg level of vestmet projects t year s less tha average level of the sample. Formula (3) represets expected earg costrat, total expected eargs of all vestmet projects of VC sttutes, whch belogs to earg parameter. After determg orgal value of parameter φ, carry out sestvty aalyss o φ, ad thus determe a seres of correspodg expected earg costrat. B Formula (4) represets restrat of total vestmet amout of VC sttutes, whereas meas lmtg value of resource costrat, represetg total captal of o. VC sttute that ca be used project vestmet. Formula (5) represets costrat of vestmet amout avalable to every vestmet project. To dfferet total vestmet B, correspodg A value chages. Formula (6) represets costrat of oegatve sum of absolute value of project vestmet amout ad absolute devato. Mathematcal expresso of MOTAD model has bee explaed above. The followg part wll 154

3 aalyze ad determe some parameters MOTAD model. 1. Q Formula (1) objectve fucto represets ut expected earg of VC projects, whch s usually calculated accordg to average eargs of the project the past years. Sce t s dffcult to gather relevat data, average expected earg of the dustry Zhejag Provce s adopted stead. 2. ( Q t - Q ) Formula (1) objectve fucto represets aual earg devato coeffcet of VC project, whch s the dfferece betwee actual ut earg ad ut expected earg of VC project. Earg devato coeffcet s calculated through rs level quatfcato of detaled data of 605 vestmet projects of 156 VC sttutes Zhejag Provce durg 2009~2011, cludg vestmet amout, aual proft rate ad ut vestmet eargs. 3. Formula (5) MOTAD model s called dversfed costrat. Wth expert vestgato method, A value s determed by solctg experts opos ad commucatg for may tmes. Soluto Procedure. It s ferred from the structure of MOTAD model that ts soluto shall be vector quatty, represeted wth the set of (x1, x2,, x; Y1 -, Y2 -,, YS - ). Specfc soluto procedure of MOTAD model s as follows: Step 1: frstly, solve maxmum expected eargs uder o-rs codto. That s to say, the frst φ value the secod Formula (3) MOTAD model ca be determed by solvg a determato model, whose objectve fucto s earg maxmzato. Tae smplfed MOTAD model as a example, determato model, whose objectve fucto s earg maxmzato purely, cossts of Formula (3) to Formula (6) MOTAD model, trasforms Formula (3) to objectve fucto ad adjusts Formula (6) properly. Specfc model form s as follows: E 1 max Q x (7) s.t. x B,( 1,2,..., m) 1 (8) x A B (9) x 0 (10) Accordg to determato model whose objectve fucto s earg maxmzato, solve maxmum expected earg E0 uder exstg resource costrat, ad solve vestmet scale of every project correspodg to maxmum expected eargs, whch s the value of x (=1, 2,, ). Step 2: maxmum expected earg E0 Step 1 s regarded to be the frst earg value uder rs codto (dcated as E1), whch s the frst value of earg parameter. It s substtuted to Formula (3) MOTAD model; by model operato, obta x (=1, 2,, ), Yt - (t=1, 2,, s) ad egatve total absolute devato (TAD/2). Accordg to formula MAD=TAD/S= 2 / S Y t1, solve t the frst correspodg MAD, whch s rs level correspodg to expected earg level E1. I ths way, solve the combato of earg (E1) ad rs (MAD1) of the frst group, as well as optmal scale of every vestmet project uder ths rs earg level. Step 3: whle solvg above MOTAD model, carry out sestvty aalyss ad obta the maxmum allowable reducto whle eepg optmal bass uchaged. I accordace wth sestvty aalyss result, determe the secod value of earg parameter MOTAD model, whch s the secod earg level uder rs codto (E2). Step 4: the secod value of earg parameter obtaed through sestvty aalyss s substtuted to MOTAD model. Repeat Step 2 to obta combato of MAD2 ad E2 (rs earg), ad correspodg optmal vestmet scale. Step 5: Repeat Step 3 ad Step 4, utl sestvty aalyss result shows that earg parameter φ 155 s

4 s 0, or earg level caot be reduced further, or o soluto s obtaed after φ s substtuted to MOTAD model. Through above steps, obta a seres of relevat combato of MAD (rs level) ad E (rs earg), ad correspodg optmal scale of every vestmet project x. It s oted that MOTAD model s calculated wth LINGO software. Feld vestgato documet shows that most VC sttutes o loger cosder vestg start-up eterprses, f total expected earg s lower tha 8% of aualzed earg. Therefore, durg soluto, calculato s stopped whe sestvty aalyss result shows that φ value s less tha 8% of aualzed earg. Smulato Study Based o MOTAD Model Desg of Smulato Scearo. Through lterature revew ad vestgato of VC sttute, t s foud that captal scale of VC sttute ad tax polcy of the govermet affect VC sttute s decso to vest start-up eterprses, but lterature does t expoud how much fluece effect t wll be. Therefore, ths paper selects dfferet captal scales ad exempto from 6% value-added tax to be ew smulato scearos of MOTAD model. Scearo of Dfferet Captal Scales. Three captal scales are used to smulate the fluece effect of vestmet captal chage o the decso-mag behavor of VC sttute. Three captal scales are selected accordg to feld vestgato: captal scale A (RMB 380 mllo Yua) s a large-scale captal, captal scale B (RMB 200 mllo Yua) s a medum-scale captal, ad captal scale C (RMB 80 mllo Yua) s a small-scale captal. Scearo of Exempto from 6% Value-added Tax. VC vestmet developmet caot do wthout tax polcy support, so expected vestmet earg of VC sttute s closely related wth govermetal tax. At preset, ma form of VC sttute s equty vestmet partershp. I practce, sce Cha mplemets the polcy of replacg busess tax wth value-added tax, besdes 6% value-added tax, partershp VC sttute also has to pay 35% dvdual come tax. Compared wth 20% tax of persoal vestmet, ths tax s obvously heaver ad seems ufar. Ths tax polcy ecourages VC vestors to tur to persoal vestmet, whch cotradcts share partershp ecouraged by the coutry. Therefore, combg mprovemet drecto of Cha s tax ad tax polces foreg coutres wth developed VC vestmet, ths paper desgs the followg scearo of tax preferece polcy: Tax polcy pertet to equty vestmet partershp s exempto of 6% value-added tax, ad dvdual come tax s set to be 25%. As a result, calculato of aual rate of retur o vestmet has chaged VC sttute. Sce VAT chages from 6% to 0% ad dvdual come tax rate chages from 35% to 25%, ut expected earg ad devato coeffcet of VC sttute the past years have chaged correspodgly. Aalyss o Smulato Result of MOTAD Model. Aalyss o the Effect of Dfferet Captal Scales o VC Ivestmet Decso-mag Behavor. Based o MOTAD model, smulato result of VC sttutes decso to vest start-up eterprses uder three captal scales s show Fgure 1: see from decso-mag behavor of MOTAD model uder three captal scales, VC sttutes face dfferet rs earg levels uder dfferet captal scales. Geerally speag, the larger captal scale the VC sttutes hold, the hgher earg level they wll obta, but the hgher rs level they wll udertae. I cotrary, the smaller captal scale the VC sttutes hold, the lower earg level they wll obta, ad the lower rs level they wll udertae. Uder the same rs level, the larger captal scale the VC sttutes hold, the hgher earg level they wll obta. Therefore, by creasg vestmet captal uder the same rs level, ther earg level wll be ehaced, whch promotes VC sttutes vestmet start-up eterprses. 156

5 Expected Eargs (RMB 10,000 Yua) Fgure 1. Rs-Earg Curve of VC Isttute wth Dfferet Ivestmet Scales. Aalyss o the Effect of Govermetal Tax Polcy o VC Ivestmet Decso-mag Behavor. Smulato result of MOTAD model s show Fgure 2. I case of exempto of 6% value-added tax, VC sttutes vestmet eargs are hgher tha that case of collecto of 6% value-added tax. It clearly dsplays that uder the same rs level, exempto of 6% value-added tax creases VC sttutes expected eargs, ad they are more wllg to vest start-up eterprses. Expected Eargs (RMB 10,000 Yua) Fgure 2. Rs-Earg Curve of VC Isttute wth Dfferet Ivestmet Scales I the Scearo of Exempto of 6% Value-added Tax. Polcy Suggestos Smulato of MOTAD model has dsplayed that exempto of 6% value-added tax exerts great postve effects o decso-mag behavor of VC sttutes; tax reducto ad exempto moblzes VC sttutes ethusasm of vestmet start-up eterprses. Ths cocluso cocdes wth practcal experece of polcy foreg developed regos. To promote VC sttutes to crease vestmet start-up eterprses, t s suggested that: 1. 6% value-added tax should be exempted. 2. Proft obtaed by VC sttutes from vestmet start-up eterprses ca deduct tax amout proporto to vestmet amout. 3. Support developmet of oe dustry, promse that all profts obtaed by VC sttutes from vestmet start-up eterprses the dustry ca be exempted from value-added tax or ca deduct tax amout proporto to vestmet amout. 4. I order to expad captal scale of VC sttutes, tax curred from proft obtaed by VC sttutes from vestmet start-up eterprses ca be deferred or exempted. Accordg to smulato result of MOTAD model, the larger captal scale the VC sttutes hold, the hgher earg level they wll obta, so creasg captal scale maaged by VC sttutes helps to promote ther vestmet start-up eterprses. Therefore, t s recommeded that the govermet should crease captal scale maaged by VC sttutes a drect or drect way, propel VC sttutes vestmet start-up eterprses ad regulate ther vestmet dustry properly. Detaled suggestos are as follows: 1. Whe VC sttutes vest start-up eterprses recogzed by the govermet, the govermet follows the vestmet. 2. Whe VC sttutes vest start-up eterprses, the govermet subsdzes to a certa extet. 3. Whe VC sttutes vest start-up eterprses supported by the polcy, wthdraw rs provso proporto to vestmet amout of VC sttutes, order to compesate losses of VC sttutes case of vestmet falure. 4. The govermet jects captal to VC sttutes way of low-terest-rate 157

6 loa, so as to help them to face. Meawhle, ecourage more prvate captal to go to VC sttutes. Acowledgemet Ths research was facally supported by the Natural Scece Foudato of Zhejag Provce project, "Research o the Motve System of Veture Captal Isttutos Ivestg Early Stage Projects Emergg dustres" (Project No. LY15G030028). Refereces [1] Drover W., Busetz L., Matus S., et al. A Revew ad Road Map of Etrepreeural Equty Facg Research: Veture Captal, Corporate Veture Captal, Agel Ivestmet, Crowdfudg, ad Accelerators [J]. Joural of Maagemet, 2017, 43(3): [2] Research Group, Isttute of Ecoomc System ad Maagemet, Natoal Developmet ad Reform Commsso. Sog L, Lu Guoya, Wag Yua, Lu Xueya. Appedx 1, Basc Stuato of Iovatve Eterprses durg Early Stage of Veture Captal Ivestmet Cha [J]. Revew of Ecoomc Research, 2013, (63): [3] Lu Jaju. How to Gude VC Isttutes to Ivest Medum ad Early Stage Projects [J]. Cha Veture Captal, 2010(1): [4] Prosch D. Rs types ad rs assessmet veture captal vestmets: A cotet aalyss of vestors [J]. Iteratoal Joural of Etrepreeural Veturg, 2016, 1(1): 1. [5] Wlud J., Patzelt H., Shepherd D.A. Buldg a tegratve model of small busess growth [J]. Small Busess Ecoomcs, 2009, 32(4): [6] Wells W.A. Veture captal decso-mag [M]. Uversty Mcroflms,