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Venture Capital: A Model of Search and Bargaining

Author

Listed:
  • Rafael Silveira

    (J. P. Morgan)

  • Randall Wright

    (University of Wisconsin, Madison)

Abstract

We develop a model of the venture capital market, focusing on the search process that matches capitalists with entrepreneurs, and the bargaining problem that splits the surplus. Venture capitalists go through the following cycle: (1) fund raising; (2) search for a project/partner; (3) implementation; (4) exit. We study project selection when there are match-specific costs and returns; decisions to enter the market in the first place; investments during implementation; and fund size. The model is consistent with the stylized facts, and provides a tractable framework for formalizing purely descriptive studies of this market. (Copyright: Elsevier)

Suggested Citation

  • Rafael Silveira & Randall Wright, 2016. "Venture Capital: A Model of Search and Bargaining," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 232-246, January.
    • Handle: RePEc:red:issued:14-228
    DOI: 10.1016/j.red.2015.06.002
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    References listed on IDEAS

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    Cited by:

    1. Cipollone, Angela & Giordani, Paolo E., 2019. "Market frictions in entrepreneurial innovation: Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 297-331.
    2. Angela, Cipollone & Paolo E., Giordani, 2016. "When Entrepreneurs Meet Financiers: Evidence from the Business Angel Market," MPRA Paper 69545, University Library of Munich, Germany.
    3. Jeremy Greenwood & Pengfei Han & Juan M. Sánchez, 2022. "Financing Ventures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1021-1053, August.
    4. Suting Hong & Konstantinos Serfes & Veikko Thiele, 2020. "Competition in the venture capital market and the success of startup companies: Theory and evidence," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 741-791, October.
    5. Akcigit, Ufuk & Dinlersoz, Emin & Greenwood, Jeremy & Penciakova, Veronika, 2022. "Synergizing ventures," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    6. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    7. Cipollone, Angela & Giordani, Paolo E., 2019. "Entrepreneurs meet financiers: Evidence from the business angel market," Journal of Business Venturing, Elsevier, vol. 34(5), pages 1-1.
    8. Engineer, Merwan H. & Schure, Paul & Vo, Dan H., 2019. "Hide and seek search: Why angels hide and entrepreneurs seek," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 523-540.
    9. Guido Menzio & Randall Wright, 2016. "Introduction to the Special Issue in Honor of Dale Mortensen," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 19, pages 1-3, January.
    10. Jackson, Paul & Madison, Florian, 2022. "Entrepreneurial finance and monetary policy," European Economic Review, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    Venture capital; Search; Bargaining;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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