How Angel Know-How Shapes Ownership Sharing in Stage-Based Contracts

S. Sinan Erzurumlu, Nitin Joglekar, Moren Lévesque and Fehmi Tanrisever

Entrepreneurship Theory and Practice, 2019, vol. 43, issue 4, 773-801

Abstract: We draw upon stewardship theory to formally derive bounds on the investment amount in a business prospect, and to characterize ownership sharing when investors offer two-stage financing along with know-how to increase the prospect’s valuation. In the early-development stage, we show that the direct effect of investor know-how increases the entrepreneur’s share while the indirect effect from that know-how due to its interaction with the investment size, decreases it. In the subsequent growth stage, the direct effect decreases the entrepreneur’s share while the indirect effect increases it. These tradeoffs offer theoretical and practical implications for writing investment contracts involving investor know-how.

Keywords: stage-based contract; investor know-how; value creation; angel investors; stewardship theory; empirical analysis; mathematical analysis (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:sae:entthe:v:43:y:2019:i:4:p:773-801

DOI: 10.1177/1042258717744205

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