A Probabilistic Theory Of Entrepreneurial Financing
This paper develops a theory of the entrepreneurial financing by venture capitalists. It focuses on the activities of the entrepreneur at the incipiency of the investment process: namely the solicitation event. The temporal series of financial commitments elicited from venture capitalists are assumed to have the characteristics of random variables. It is shown that the aggregate capital commitment secured by an entrepreneur in a finite time has stochastic properties corresponding to those of a statistical renewal process. The paper derives limiting conditions on the probability that entrepreneur¡¯s project will be aborted because of his failure to secure adequate funding commitments in a finite time. The entrepreneur¡¯s attitude towards risk determines the tradeoff between the expected aggregate capital commitment and the risk of abortion of the project.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, vol. 49(2), pages 371-402, June.
- Chan, Yuk-Shee, 1983.
" On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information,"
Journal of Finance,
American Finance Association, vol. 38(5), pages 1543-1568, December.
- Yuk-Shee Chan., 1982. "On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Research Program in Finance Working Papers 127, University of California at Berkeley.
- Maier, John II & Walker, David A., 1987. "The role of venture capital in financing small business," Journal of Business Venturing, Elsevier, vol. 2(3), pages 207-214.
- Oliver Hart, 2001. "Financial Contracting," Harvard Institute of Economic Research Working Papers 1924, Harvard - Institute of Economic Research.
- Oliver Hart, 2001. "Financial Contracting," NBER Working Papers 8285, National Bureau of Economic Research, Inc.
- Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
- Gavin C. Reid, 1999. "The application of principal-agent methods to investor-investee relations in the UK venture capital industry," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 285-302, October.
- Gavin C Reid, 1998. "The Application of Principal-Agent Methods to Investor-Investee Relations in the UK Venture Capital Industry," CRIEFF Discussion Papers 9810, Centre for Research into Industry, Enterprise, Finance and the Firm.
- Mason, Colin M & Harrison, Richard T, 1995. "Closing the Regional Equity Capital Gap: The Role of Informal Venture Capital," Small Business Economics, Springer, vol. 7(2), pages 153-172, April.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Barry, Christopher B. & Muscarella, Chris J. & Peavy, John III & Vetsuypens, Michael R., 1990. "The role of venture capital in the creation of public companies*1: Evidence from the going-public process," Journal of Financial Economics, Elsevier, vol. 27(2), pages 447-471, October.
- Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
- Ehrlich, Sanford B. & De Noble, Alex F. & Moore, Tracy & Weaver, Richard R., 1994. "After the cash arrives: A comparative study of venture capital and private investor involvement in entrepreneurial firms," Journal of Business Venturing, Elsevier, vol. 9(1), pages 67-82, January. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:cuf:journl:y:2008:v:9:i:1:p:177-197. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.