Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance / Zsuzsanna Fluck, Kedran Garrison, Stewart C. Myers.

Format:

Book

Author/Creator:

Fluck, Zsuzsanna.

Contributor:

National Bureau of Economic Research.

Garrison, Kedran.

Myers, Stewart C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11624.

NBER working paper series no. w11624

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Venture Capital Contracting and Syndication

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

This paper develops a model to study how entrepreneurs and venture-capital investors deal with moral hazard, effort provision, asymmetric information and hold-up problems. We explore several financing scenarios, including first-best, monopolistic, syndicated and fully competitive financing. We solve numerically for the entrepreneur's effort, the terms of financing, the venture capitalist's investment decision and NPV. We find significant value losses due to holdup problems and under-provision of effort that can outweigh the benefits of staged financing and investment. We show that a commitment to later-stage syndicate financing increases effort and NPV and preserves the option value of staged investment. This commitment benefits initial venture capital investors as well as the entrepreneur.

Notes:

Print version record

September 2005.