Entrepreneurs' financing choice between independent and bank-affiliated venture capital firms

Guillaume Andrieu and Alexander Peter Groh

Journal of Corporate Finance, 2012, vol. 18, issue 5, 1143-1167

Abstract: This paper analyzes how the affiliation of a venture capital firm affects the deal terms for innovative entrepreneurial ventures. We develop a theory to explain the advantages of independent and bank-affiliated venture capital funds for entrepreneurs. We assume that independent venture capital firms provide better support quality while bank-affiliated firms are less financially constrained. The entrepreneur selects the optimal contract by trading-off these characteristics. The model allows several empirically testable predictions concerning the nature of projects financed by either type of venture capital firm. Entrepreneurs should seek capital from independent or affiliated venture capitalists contingent on the degree of sophistication of their project, their liquidation value, the importance of expected management support, and the remaining time to fundraising.

Keywords: Venture capital; Independent funds; Affiliated funds; Captive funds; Entrepreneurial finance (search for similar items in EconPapers)
JEL-codes: D81 G21 G24 G32 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:18:y:2012:i:5:p:1143-1167

DOI: 10.1016/j.jcorpfin.2012.07.001

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