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Funding new ventures: some strategies for raising early finance

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  • Rajeev Goel
  • Iftekhar Hasan

Abstract

This research provides formal insights into how new firms facing a number of potential investors might effectively raise funds at early stages, especially when a firm is small and/or a marketable product has not yet been developed. In the principal-agent framework, the firm can be seen as the principal, maximizing its revenues, and the potential investors aim to minimize payment for a share in ownership. The firm auctions incentive contracts to investors to secure seed money, while parting with a (minority) share of ownership. The effects of increased competition among investors on project size (research spending) and contractual design (incentive, fixed-price or cost-plus contracts) are examined and policy implications discussed.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/096031004200019680
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 11 ()
Pages: 773-778

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:11:p:773-778

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Cited by:
  1. Rajeev Goel & Iftekhar Hasan, 2005. "An IT professional’s dilemma: be an entrepreneur or a consultant?," Netnomics, Springer, vol. 7(1), pages 17-25, April.
  2. Andrea Schertler, 2005. "European venture capital markets: fund providers and investment characteristics," Applied Financial Economics, Taylor and Francis Journals, vol. 15(6), pages 367-380.

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