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Start-Up Finance, Monitoring, and Collusion

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  • Roberta Dessï¾’

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    (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.

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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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    Cited by:
    1. Thierry Tressel & Thierry Verdier, 2007. "Financial Globalization and the Governance of Domestic Financial Intermediaries," IMF Working Papers, International Monetary Fund 07/47, International Monetary Fund.
    2. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 443, Institut d'Économie Industrielle (IDEI), Toulouse.
    3. Hellmann, Thomas F., 2002. "IPOs, Acquisitions and the Use of Convertible Securities in Venture Capital," Research Papers, Stanford University, Graduate School of Business 1702r, Stanford University, Graduate School of Business.
    4. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 465, Institut d'Économie Industrielle (IDEI), Toulouse.
    5. Catherine CASAMATTA & Carole HARITCHABALET, 2013. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," Working Papers, CATT - UPPA - Université de Pau et des Pays de l'Adour 2013-2014_4, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Sep 2013.
    6. Caselli, Stefano & Garcia-Appendini, Emilia & Ippolito, Filippo, 2013. "Contracts and returns in private equity investments," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 22(2), pages 201-217.
    7. Oliver Fabel & Dominique Demougin, 2004. "The Division of Ownership in New Ventures," Working Papers of the Research Group Heterogenous Labor, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim 04-03, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
    8. Andrieu, Guillaume & Groh, Alexander Peter, 2012. "Entrepreneurs' financing choice between independent and bank-affiliated venture capital firms," Journal of Corporate Finance, Elsevier, Elsevier, vol. 18(5), pages 1143-1167.
    9. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," TSE Working Papers, Toulouse School of Economics (TSE) 09-075, Toulouse School of Economics (TSE).
    10. Carsten Bienz & Uwe Walz, 2006. "Evolution of decision and control rights in venture capital contracts: an empirical analysis," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 24637, London School of Economics and Political Science, LSE Library.
    11. Ouidad Yousfi, 2013. "Does PLS financing solve asymmetric information problems?," Post-Print, HAL hal-00785325, HAL.
    12. Hueth, Brent & Marcoul, Philippe, 2007. "The Cooperative Firm as Monitored Credit," Staff Paper Series, University of Wisconsin, Agricultural and Applied Economics 508, University of Wisconsin, Agricultural and Applied Economics.

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