Exit Decision and Control in Venture Capitals

Two important issues, viz., the timing and ways of exit of venture capitals are studied. Based on the real options approach and the contingent claims pricing method in financial engineering, the observable profit flow is defined as the endogenous variable. Exit timing models in the case of trade-sales and initial public offers(IPOs) are built up, respectively. Threshold values of profit flows as well as option values corresponding to the ways of exit are derived. Finally, criteria to make the right exit decision is obtained and a numerical example is presented to illustrate the results obtained.