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How Angel Know-How Shapes Ownership Sharing in Stage-Based Contracts

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  • S. Sinan Erzurumlu
  • Nitin Joglekar
  • Moren Lévesque
  • Fehmi Tanrisever

Abstract

We draw upon stewardship theory to formally derive bounds on the investment amount in a business prospect, and to characterize ownership sharing when investors offer two-stage financing along with know-how to increase the prospect’s valuation. In the early-development stage, we show that the direct effect of investor know-how increases the entrepreneur’s share while the indirect effect from that know-how due to its interaction with the investment size, decreases it. In the subsequent growth stage, the direct effect decreases the entrepreneur’s share while the indirect effect increases it. These tradeoffs offer theoretical and practical implications for writing investment contracts involving investor know-how.

Suggested Citation

  • S. Sinan Erzurumlu & Nitin Joglekar & Moren Lévesque & Fehmi Tanrisever, 2019. "How Angel Know-How Shapes Ownership Sharing in Stage-Based Contracts," Entrepreneurship Theory and Practice, , vol. 43(4), pages 773-801, July.
    • Handle: RePEc:sae:entthe:v:43:y:2019:i:4:p:773-801
    DOI: 10.1177/1042258717744205
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