A survey-based study of venture capital governance in mainland China

This paper presents a descriptive analysis of venture capital (VC) governance in Mainland China from two points of view based on our own survey. One is how to mitigate agency problem in venture capital investment, the other is how venture capitalists provide value-added services to the VC-backed companies. Through detailed survey questionnaires and follow-up interviews, we study the governance structure adopted by 22 domestic VC firms and 13 foreign VC firms, all of which were established before September 2000 and have no less than 4 portfolio companies in Mainland China. The institutional arrangements include: staging investment, cash flow rights of entrepreneurs, frequency of board director meeting, frequency of financial reports, special control rights owned by venture capitalists (such as veto rights) and stock option plans in the VC-backed companies, etc. The results indicate that venture capitalists investing in Mainland also attempt to mitigate the agency problems through different ways. Besides, they engage in support activities to increase the value of the VC-backed companies, rather than just minimizing agency cost. But the extension of adopting such strategies is still limited, especially for the domestic VC firms.