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Screening and advising by a venture capitalist with a time constraint

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  • Dietz, Martin D.

Abstract

This paper proposes an intertemporal model of venture capital investment with screening and advising where the venture capitalist's 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.

Suggested Citation

  • Dietz, Martin D., 2003. "Screening and advising by a venture capitalist with a time constraint," CFS Working Paper Series 2003/48, Center for Financial Studies (CFS).
    • Handle: RePEc:zbw:cfswop:200348
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Venture capital; market structure; product development;
    All these keywords.

    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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