A Probabilistic Theory Of Entrepreneurial Financing
AbstractThis paper develops a theory of the entrepreneurial financing by venture capitalists. It focuses on the activities of the entrepreneur at the incipiency of the investment process: namely the solicitation event. The temporal series of financial commitments elicited from venture capitalists are assumed to have the characteristics of random variables. It is shown that the aggregate capital commitment secured by an entrepreneur in a finite time has stochastic properties corresponding to those of a statistical renewal process. The paper derives limiting conditions on the probability that entrepreneur¡¯s project will be aborted because of his failure to secure adequate funding commitments in a finite time. The entrepreneur¡¯s attitude towards risk determines the tradeoff between the expected aggregate capital commitment and the risk of abortion of the project.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 9 (2008)
Issue (Month): 1 (May)
Entrepreneurial solicitations; Venture capital financing; Stochastic processes; Probability of entrepreneurial insolvency;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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