Banks versus Venture Capital
AbstractWhy do some start-up firms raise funds from banks and others from venture capitalists? To answer this question, I study a model in which the venture capitalist can evaluate the entrepreneur’s project more accurately than the bank but can also threaten to steal it from the entrepreneur. The implications of the model are consistent with empirical regularities of start-up financing. The model implies that the characteristics of a firm financing from venture capitalists are low collateral, high growth, high risk, and high profitability. The model also suggests that tighter protection of intellectual property rights has contributed to the recent dramatic growth of the US venture capital industry.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3411.
Date of creation: Jun 2002
Date of revision:
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Other versions of this item:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-18 (All new papers)
- NEP-CFN-2003-02-18 (Corporate Finance)
- NEP-ENT-2003-02-18 (Entrepreneurship)
- NEP-MFD-2003-02-18 (Microfinance)
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