On the governance of start-ups

Stefan Ambec ()

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: This paper examines an entrepreneur-investor relationship in a stylized model where (i) investment needs are unknown ex ante and arise sequentially (ii) a major decision must be reached at a maturity strage, (iii) this decision depends on entrepreneur's private information, observable by the investor at some cost. The two partners agree on a corporate governance system which includes a split of futre cash-flows and an allocation of control on the above decision contingently on investment. It turns out that control is assigned to the entrepreneur for low investment levels and then switches to the investor when investment exceeds a threshold. Classification-JEL: G24; G32; L22

Keywords: CONTINGENT CONTROL; CORPORATE GOVERNANCE; VENTURE CAPITAL; BIOTECHNOLOGY (search for similar items in EconPapers)
Date: Written
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Persistent link: http://EconPapers.repec.org/RePEc:gbl:wpaper:200406

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