|
Archive@NYU >
Stern School of Business >
Salomon Center >
Financial Institutions >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27162
|
| Title: | Venture Capital Contracts and Market Structure |
| Authors: | Inderst, Roman
Mueller, Holger M. |
| Issue Date: | Jan-2002 |
| Series/Report no.: | S-FI-02-01 |
| Abstract: | We examine the relation between optimal venture capital contracts and
the supply and demand for venture capital. Both the composition and type
of financial claims held by the venture capitalist and entrepreneur
depend on the market structure. Moreover, dierent market structures
involve dierent optimal forms of transferring utility: sometimes it is
optimal to transfer utility via equity stakes, sometimes it is optimal
to use debt. Transferring utility via equity stakes affects incentives.
Consequently, the net value created, the success probability, the market
(or IPO) value, and the performance of venture-capital backed
investments all depend on the supply and demand for capital. Similarly,
venture capitalists face dierent incentives to screen projects ex ante
if the capital supply is low or high. We then endogenize the capital
supply and study the relation between venture capital contracts and
entry costs, public policy, investment profitability, and market
transparency. Finally, we show that entry by inexperienced investors
creates a negative externality for the value creation in ventures
financed by (regular) venture capitalists. |
| URI: | http://hdl.handle.net/2451/27162 |
| Appears in Collections: | Financial Institutions
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
