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Why Are Suboptimal Contracts Usually Chosen In Venture Capital Backed Nascent Entrepreneurship?

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  • YINYIN CAI

    (School of Management and Economics, Southeast University, No. 2, Dongda Street, Jiulonghu Campus, Juyuan 6-205, Nanjing, China 211189, China)

Abstract

This paper attempts to interpret the reason for high failure rate in venture capital backed nascent entrepreneurship by applying contract theory and employing a theoretical model of contract choice between entrepreneurs and venture capitalists. The results of the model show that the suboptimal contract for new venture growth is not only the best choice of venture capitalists, but also the best choice of nascent entrepreneurs, which may lead to a high failure rate in venture capital backed nascent entrepreneurship. Some implications and solutions are also discussed.

Suggested Citation

  • Yinyin Cai, 2014. "Why Are Suboptimal Contracts Usually Chosen In Venture Capital Backed Nascent Entrepreneurship?," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-5.
    • Handle: RePEc:wsi:jdexxx:v:19:y:2014:i:04:n:s1084946714500216
    DOI: 10.1142/S1084946714500216
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