Screening and advising by a venture capitalist with a time constraint
AbstractThis paper proposes an intertemporal model of venture capital investment with screening and advising where the venture capitalists time endowment is the scarce input factor. Screening improves the selection of firms receiving finance, advising allows firms to develop a marketable product, both have a variable intensity. In our setup, optimal linear contracts solves the moral hazard problem. Screening however asks for an entrepreneur wage and does not allow for upfront payments which would cause severe adverse selection. Project characteristics have implications for screening and advising intensity and the distribution of profits. Finally, we develop a formal version of the venture capital cycle by extending the basic setup to a simple model of venture capital supply and demand. --
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Bibliographic InfoPaper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2003/48.
Date of creation: 2003
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Venture capital; market structure; product development;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
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