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Bargaining with Venture Capitalists: When Should Entrepreneurs Show their Financial Muscle?

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  • Antoine Renucci

Abstract

In this article, I model bargaining between an entrepreneur and a venture capitalist over the profits from an investment project. I show that, conditional on venture capital being available, more personal wealth, even if it is not invested in the project, helps the entrepreneur capture a larger fraction of the profits. I also show that access to bank financing can preclude access to venture capital. This occurs when bank financing works as a lever that raises the fraction of the profits the entrepreneur demands up to a level that is not incentive compatible with initiative from the venture capitalist.

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  • Antoine Renucci, 2014. "Bargaining with Venture Capitalists: When Should Entrepreneurs Show their Financial Muscle?," Review of Finance, European Finance Association, vol. 18(6), pages 2197-2214.
    • Handle: RePEc:oup:revfin:v:18:y:2014:i:6:p:2197-2214.
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    File URL: http://hdl.handle.net/10.1093/rof/rft051
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    References listed on IDEAS

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    Cited by:

    1. Tereza Tykvová, 2018. "Venture capital and private equity financing: an overview of recent literature and an agenda for future research," Journal of Business Economics, Springer, vol. 88(3), pages 325-362, May.
    2. Volodymyr Babich & Simone Marinesi & Gerry Tsoukalas, 2021. "Does Crowdfunding Benefit Entrepreneurs and Venture Capital Investors?," Manufacturing & Service Operations Management, INFORMS, vol. 23(2), pages 508-524, March.
    3. Dennis Patrick Leyden, 2016. "Public-sector entrepreneurship and the creation of a sustainable innovative economy," Small Business Economics, Springer, vol. 46(4), pages 553-564, April.
    4. Andrieu, Guillaume & Groh, Alexander Peter, 2018. "Specialist versus generalist investors: Trading off support quality, investment horizon and control rights," European Economic Review, Elsevier, vol. 101(C), pages 459-478.
    5. Andrieu, Guillaume & Peter Groh, Alexander, 2021. "Strategic exits in secondary venture capital markets," Journal of Business Venturing, Elsevier, vol. 36(2).
    6. Jean-Etienne de Bettignies & Anne Duchêne, 2015. "Product Market Competition and the Financing of New Ventures," Management Science, INFORMS, vol. 61(8), pages 1849-1867, August.

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