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Start-Up Finance, Monitoring, and Collusion

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  • Roberta Dess’

    () (University of Toulouse, (IDEI and GREMAQ))

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    Abstract

    I examine optimal financial contracts between entrepreneurs, financial intermediaries (venture capitalists), and other investors that allocate both cash flow rights and control rights to (i) motivate the venture capitalist to efficiently monitor the entrepreneur, (ii) ensure that the efficient decision is made at the interim stage concerning project continuation and refinancing, and (iii) deter collusion between the entrepreneur and the venture capitalist at the expense of the other investors. The combination of asymmetric information at the interim stage with the possibility of collusion yields optimal (collusion-proof) contracts that are consistent with several commonly observed characteristics of venture capital financing. Ordering information: This article can be ordered from https://pubs3.rand.org/cgi-bin/rje/pdf.cgi .

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 36 (2005)
    Issue (Month): 2 (Summer)
    Pages: 255-274

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    Handle: RePEc:rje:randje:v:36:y:2005:2:p:255-274

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    Web page: http://www.rje.org

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    Web: http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi

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    Cited by:
    1. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," TSE Working Papers 09-075, Toulouse School of Economics (TSE).
    2. Thierry Tressel & Thierry Verdier, 2007. "Financial Globalization and the Governance of Domestic Financial Intermediaries," IMF Working Papers 07/47, International Monetary Fund.
    3. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, screening and syndication in venture capital investments," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 368-398, July.
    4. Da Rin, M. & Hellmann, T. & Puri, M.L., 2011. "A Survey of Venture Capital Research," Discussion Paper 2011-044, Tilburg University, Tilburg Law and Economic Center.
    5. Hellmann, Thomas F., 2002. "IPOs, Acquisitions and the Use of Convertible Securities in Venture Capital," Research Papers 1702r, Stanford University, Graduate School of Business.
    6. Ouidad Yousfi, 2013. "Does PLS financing solve asymmetric information problems?," Post-Print hal-00785325, HAL.
    7. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series 508, University of Wisconsin, Agricultural and Applied Economics.
    8. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," IDEI Working Papers 465, Institut d'Économie Industrielle (IDEI), Toulouse.

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