Abstract: On the basis of the theory of social capital, this paper constructs a model to analyze the influence of the social capital of entrepreneurs on the choice of the financing instrument between debt financing and venture capital equity financing under the condition of double moral risks. The study finds that when entrepreneurs have the ability to choose from the two kinds of financing instruments while at the same time the entrepreneurs have higher or lower level of social capital, the entrepreneurs tend to choose debt financing; while the social capital of entrepreneurs is in medium level, they tend to choose venture capital equity financing. The main contribution of the study is that the social capital of entrepreneurs is brought into the research framework of the choice of financing instruments by new ventures, which has extended the research results of new venture financing.

Key words: social capital of entrepreneurs; venture capital; moral hazard; financing instruments