Does venture capital promote innovation?

• 1、Institute of Industrial Economics ,Jinan University,Guangzhou 510632

Abstract：It is widely believed that venture capital can promote innovation. However, empirical research shows that venture capital can hinder innovation. Obviously, continuous innovation can increase the long-termvalue. However, wealth-bound entrepreneurs must introduce more venture capital while commercializing, thus diluting entrepreneurs\' equity and distorting commercial incentives. It will reduce the commercialization benefits of the current period, thereby reducing the availability of venture capital. Therefore, whether innovation is carried out simultaneously with commercialization depends on the trade-off between the current decline in earnings and the increase in long-term value. This paper compares the income of entrepreneurs under different strategies: when the discount value is large, the long-term value makes up for the decline of the commercial value of the current period, the entrepreneur chooses the parallel strategy of commercialization and innovation; when the discounted value is small, The current commercialization value under the innovation strategy is too low, making venture capital unavailable. At the same time, long-term value can not make up for the loss of commercial income in the current period, and entrepreneurs choosecommercialization strategies.

Keywords： moral hazard venture capital innovation commercialization