This study discusses the optimization of financing information and telecommunications venture entreprenuers through venture capital and the way of smoothing their initial fund-raising process. At the beginning, therefore, is introduced the concept, characteristics and functions of venture capital along with the overview of venture capital in the U.S, Japan, Israel and Korea. The venture industry in this study analyzes itself to be classified as an information and telecommunications industry, and information and telecommunications venture entreprenuers. The pattern of optimal financial support for information and telecommunications venture entreprenuers by venture capital is analyzed in common with empirical evidences in the U.S. The implications of this study are as follows.
It is turned out that venture entreprenuers and venture capital in the United States are under open environment, where they can dynamically engage in the market activities without interference or support from its government, and highly-advanced industries in particular such as information and telecommunications or bio-tech are advocated by most venture capitalists. In the first place, the role of venture capital is not limited to financial support but extended to counseling services regarding management and public offering. Venture entreprenuers are financially supported in the form of equity investment.
On the other hand, the results from Japanese and Israeli governments' support for venture entreprenuers and venture capital are different from each other while governments of both countries actively subsidize them. This study found out that the Israeli government was successful, but the Japanese was not due to its unique economic system. This implies such implications that the role of venture capital, if possible, be played strictly under market mechanism.
The age bracket of most venture entreprenuers in an information and telecommunications industry ranges from thirty to forty, which is younger than those in other industries, and their business items are closely related to their own college majors such as information and telecommunications or engineering fields. Ninety-three percents of those ventrue entreprenuers finished their educations with at least bachelor's degree, which is on the whole higher than those in other industries. And the diversity in their fund-raising channels is not so different from that in others as to run into financial difficulties. This indicates that information and telecommunications venture entreprenuers also are faced with fund-raising problems. Government's support turned out be crucial especially at the Seed stage of venture entreprenuers because sixty-eight percent of those venture entreprenuers received external support from the government, which they responded in the survey to be very helpful. The sales growth rate and sales profit rate of information and telecommunications venture entreprenuers was higher than those of others. Such unique features of information and telecommunications industry should be taken into account when the government establishes policies to support them.
One of the optimal ways of financially supporting information and telecommunications venture entreprenuers is through preferred stocks usually obtained by venture capital. Venture capital in most cases is faced with asymmetric information regarding entreprenuers under which they have incentives to act opportunistically. The higher the likelihood of asymmetric information, the more proprietary the form of preferred stock for finacial support becomes while the more disadvantaged that of debt or common stock does. Most information and telecommunications venture entreprenuers are in desperate need of financial support at the initial stage of their business while it is very important for them to keep up their laboratory research for the relatively long period of time without sales. Fund-raising in the form of debt, however, drives them to be confronted with amortization pressure. Preferred stock, on the other hand, does not impose amortization responsibility or external voting rights on them so that they can use reliable funds and dodge the danger of losing management rights.
According to Trester study, the more frequent use of preferred stock contract has been made in cases of information and telecommunications venture entreprenuers at the earlier stages while the more use of debt contract does at the later stages of their business. This implies that the venture's less likelihood of asymmetric information at the later stage accords with the status of the moderately viable company with higher frequency of debt contract.
Financial support by preferred stock contract, therefore, should be encouraged in cases of information and telecommunications venture entreprenuers by appropriate policy-making in order for them to receive proper financial support.
