Taxation of a Venture Capitalist with a Portfolio of Firms

Christian Keuschnigg

No 813, CESifo Working Paper Series from CESifo

Abstract: Venture capitalists not only finance but also advise and thereby add value to young innovative firms. The prospects of venture capital backed firms thus depend on joint efforts of entrepreneurs and informed venture capitalists, and are subject to double moral hazard. In financing a portfolio of firms, venture capitalists additionally face a trade-off between the number of companies and the amount of managerial advice allocated to each individual venture. The paper argues that managerial support and the number of portfolio firms are inefficiently low in private equilibrium. An optimal tax policy is derived that succeeds to move the private equilibrium towards a first best allocation.

Keywords: venture capital; double moral hazard; optimal taxation (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Taxation of a venture capitalist with a portfolio of firms (2004)
Working Paper: Taxation of a Venture Capitalist With a Portfolio of Firms (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_813

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