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Self-Selection and Advice in Venture Capital Finance
Series
Volkswirtschaftliche Abteilung, Universität St. Gallen and CESifo WP 1909
Type
discussion paper
Date Issued
2006-03-12
Author(s)
Nielsen, Soren Bo
Abstract
In financing start-up firms, venture capitalists carefully select among alternative projects, design incentive compatible financial contracts and support portfolio companies with value enhancing managerial advice. This paper considers how venture capitalists can induce self-selection among entrepreneurial firms with different qualities by designing appropriate contracts and offering commercial support. We study the efficiency of the competitive market equilibrium with respect to the level and quality of entrepreneurship and the level of effort by entrepreneurs and venture capitalists. We also provide comparative statics results with respect to basic preference and technology parameters.
Language
English
Keywords
Venture capital
entrepreneurship
self-selection
moral hazard.
HSG Classification
not classified
Refereed
No
Start page
1
End page
42
Pages
42
Subject(s)
Eprints ID
33629
File(s)