Venture capital prediction-decision model and risk pricing mechanism

Characteristics of venture capital financial behavior was studied to clarify that under high rationality of venture capital, uncertainty of external market and uncertainty of information between financing entities are not absolutely exogenous．Mathematical modeling demonstrated that prediction of venture capital is essentially a mechanism of risk internalization．The subject of venture capital makes full use of their investment advantages, to conduct prior “qualitative” investigations, analyses and judgments on feasibility, uncertainty, and profitability of investment objectives, so risks in investment and financing process can be internalized. Forecasting, empirical data, future information and investment advantages, dynamic and continuous judgment strategies are used by venture capitalists to obtain “quantitative” optimized risk-return portfolio, instead of the traditional mere risk reduction．Income difference between optimal risk-income portfolio decision and non-forecast decision or valuation of risk and innovation spillover reflects economic value of venture investment as an internally-driven one．