TY - JOUR
T1 - Venture capital
T2 - Structure and incentives
AU - Landskroner, Yoram
AU - Paroush, Jacob
PY - 1995
Y1 - 1995
N2 - Venture capital is a major source of financing for firms in their early stages of development. Such businesses, especially in the high technology industries, are characterized by a high degree of uncertainty and asymmetry of information. In this paper we analyze the relationship between a venture capital organization ("capitalist") and the initial owner of an entrepreneurial entity in which it invests ("entrepreneur"). We focus on the agency problems and derive a compensation system. In our model the capitalist provides a combination of equity and debt financing while the owner provides equity financing which serves as a signal affecting the beliefs ("optimism") of the capitalist. The interesting result is that since the capitalist is assumed to be more risk averse than the entrepreneur, he is made to be more optimistic than the entrepreneur at the optimum.
AB - Venture capital is a major source of financing for firms in their early stages of development. Such businesses, especially in the high technology industries, are characterized by a high degree of uncertainty and asymmetry of information. In this paper we analyze the relationship between a venture capital organization ("capitalist") and the initial owner of an entrepreneurial entity in which it invests ("entrepreneur"). We focus on the agency problems and derive a compensation system. In our model the capitalist provides a combination of equity and debt financing while the owner provides equity financing which serves as a signal affecting the beliefs ("optimism") of the capitalist. The interesting result is that since the capitalist is assumed to be more risk averse than the entrepreneur, he is made to be more optimistic than the entrepreneur at the optimum.
UR - http://www.scopus.com/inward/record.url?scp=43549104385&partnerID=8YFLogxK
U2 - 10.1016/1059-0560(95)90032-2
DO - 10.1016/1059-0560(95)90032-2
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AN - SCOPUS:43549104385
SN - 1059-0560
VL - 4
SP - 317
EP - 332
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
IS - 4
ER -